B24257 PNG ANNUAL REVIEW 2003 - PNGSDP · Ok Tedi Mining Ltd Operations ... and Ok Tedi Mining...

P N G S U S TA I N A B L E D E V E L O P M E N T P R O G R A M L I M I T E D 1

C o n t e n t s

Letter from the Chairman ........................................................................................................2

Our Mission and Values ...........................................................................................................3

Highlights of 2003..................................................................................................................4

Chairman's Report ..................................................................................................................6

The Board of Directors ............................................................................................................8

Members of the Company ......................................................................................................12

Chief Executive Officer's Report ...............................................................................................13

The Management Team .........................................................................................................14

Administration and Corporate Services ....................................................................................16

The Advisory Council .............................................................................................................18

The Annual Report Meeting....................................................................................................22

Income, Funds Allocations and Expenditure ...............................................................................23

Investment Activities..............................................................................................................24

Sustainable Development Program Activities .............................................................................25

Ok Tedi Mining Ltd Operations.................................................................................................34

Directors’ Report on the Company Accounts.............................................................................38

Summarised Income Statement .........................................................................................38

Summarised Balance Sheet...............................................................................................39

2003 Financial Statements ....................................................................................................41

Annexes ..............................................................................................................................63

Agreements entered into by the Company in relation to BHP Billiton’s

exit from OTML and Transfer of Shares to the Company .......................................................63

Maps

Papua New Guinea .......................................................................................................64

Western Province ........................................................................................................66

Basic Statistics................................................................................................................67

L e t t e r f r o m t h eC h a i r m a n

2 P N G S U S TA I N A B L E D E V E L O P M E N T P R O G R A M L I M I T E D

PNG Sustainable Development Program Limited

Port Moresby, April 21, 2004

The Independent State of Papua New Guinea

BHP Billiton Limited

Ok Tedi Mining Limited

In accordance with Clause 20 of the Company’s Program Rules under the Articles of Association of the PNG Sustainable

Development Program Limited, I submit to the Independent State of Papua New Guinea, BHP Billiton Limited, and Ok Tedi Mining

Limited the Annual Report 2003, covering the financial year ending 31 December 2003. 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 Annual Report will be presented for discussion at the Annual Report Meeting of the Company,

to commence at 8.30am on Thursday 27 May 2004 at the Conference Hall, Holiday Inn Hotel, Port Moresby.

Sincerely,

ROSS GARNAUT AO

Chairman

Board of Directors

O u r M i s s i o n a n d V a l u e s

‘Promoting development that meets the needs

of the present generation and establishes

the foundation for continuing progress for

future generations of Papua New Guineans’

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

placed upon the Company.

We will be honest, fair and accountable in all our dealings, while promoting equality and

efficiency in our conduct and activities.

We commit ourselves, through the activities of the Company, to promote and improve the

quality of life of current and future generations of the people of Papua New Guinea,

especially of Western Province.

We will achieve this by:

• Investing and managing wisely the income and resources of the Company.

• Undertaking investments and supporting development programs and projects that are

sustainable - providing significant benefits in the short and long term to the people, local

communities, provinces and the nation.

• Meeting the best international standards - financial, physical, cultural, social and

environmental - in our activities.

• Working together with the people of Papua New Guinea in partnership with the

government, churches and other non-government development and business partners.


H i g h l i g h t s o f 2 0 0 3

2003 2002

US$ K US$ K

Revenue 67.9m 242.1m 7.2m 28.1m

OTML Dividend 65.5m 233.4m 7.2m 28.1m

Income from Investments 2.4m 8.7m - -

Total Expenditure 9.5m 33.4m 1.2m 4.8m

Taxes (Payments to PNG Govt) 6.5m 23.3m 0.7m 2.8m

Contractual Obligations 0.8m 2.8m - -

Admin and Other

Overhead Expenses* 1.8m 6.3m 0.5m 1.9m

Dev & Invest Program 0.3m 1.0m - -

Status of Funds

Long Term Fund 42.1m 138.3m 3.6m 14.4m

Development Fund 20.9m 68.8m 1.8m 7.2m

General Fund 1.4m 4.7m 0.6m 2.7m

* Includes establishment costs for Papua New Guinea office.

Income and Expenditure

Investment Operations

The Company appointed Newton Investment Management

Ltd of London as its Investment Adviser/Funds Manager

following a review of proposals from seven international

investment houses.

Newton assumed responsibility for the Company’s funds from

11 September 2003, which totalled more than US$64

million at the end of the year. The Company is considering

appointing a second funds manager during 2004.

The Company also identified potential investment

opportunities in Papua New Guinea in agriculture and

undertook evaluation work and several rounds of discussion

with the potential parties.



Sustainable Development Program Initiatives

Significant work has been devoted to several strategic

initiatives that could be supported by the Company under its

Development Fund, and where they fulfill the “Low-Risk”

Investment Criteria by its Long Term Fund.

To promote community-level sustainable development, the

Company has approved a Community Sustainable

Development Program Fund under which it would provide a

minimum of K50,000 and maximum of K250,000 per

project in partnership with community organisations and

development partners to support community-level

development initiatives. It has committed K15 million over

five years, consisting of K1 million a year for the Western

Province and K2 million a year for the rest of Papua New

Guinea. The Company also undertook feasibility studies of the

expansion of the Western Province Micro-Finance Scheme

into other parts of the province and nationally.

For Western Province Programs, PNG Sustainable

Development Program Limited has committed K11 million,

consisting of K7 million in development grants and K4.8

million in concessional loans for village growers, towards a

village rubber project in the Lake Murray area of the

Province. This project is to be managed and implemented by

North Fly Rubber Ltd. As a complementary activity, the

Company has provided independent technical advice to North

Fly Rubber Ltd to help improve its operations. A feasibility

study of a possible estate and village rubber project was

planned and agreement has been reached with a potential

partner to undertake the study, which will cover the Lower-

Middle and South Fly areas of the province. A field

survey was conducted of the communications infrastructure

in Western Province to form the basis of a proposed rural

communications system for the province, preferably under a

partnership arrangement.

For National Programs, PNG Sustainable Development

Program Limited has investigated possible support for village

and smallholder oil palm expansions under partnership

arrangements. A study of the Highlands Highway

Rehabilitation Project was completed, which identified a

section for possible co-financing with other development

partners. Further discussions with the Government will take

place before progress can be made.

Ok Tedi Mining Limited

The Company has responsibility for and supports the good

governance of Ok Tedi Mining Limited through its nominee

Director on the Board of OTML, Dr Ross Garnaut. OTML

operations continued to improve, with significant dividend

income being declared to shareholders and royalty and

taxation benefits accruing to Papua New Guinea during the

year. PNG Sustainable Development Program Limited

participated as a member of the Government-appointed Ok

Tedi Mine Closure Planning Committee.

Governance

Directors were appointed to the Board during the year. They

were Mr Lim How Teck of Singapore and Sir Ebia Olewale of

Papua New Guinea. The Board held eight meetings during

the year, seven at its Company’s offices in Singapore and one

in Port Moresby. Prior to Board meetings in Singapore, the

Board conducted informal discussions in Port Moresby

including with Ministers and Government officials.

The Board also visited Western, Milne Bay, West and East

New Britain, and Eastern Highlands provinces, meeting

provincial leaders, NGOs, church and business communities

and various projects and activities.

The Company convened its first Annual Report Meeting with

stakeholders in Port Moresby on June 12, 2003.

Representatives of the Government of Papua New Guinea,

the Western Provincial Government, Ok Tedi Mining Limited,

international development partners and communities

attended. A seminar on oil palm industry opportunities was

held in conjunction with the Meeting. The Company’s

Advisory Council was appointed, consisting of seven Papua

New Guineans with extensive experience in government,

church and community organisations. It held its first meeting

on 28 October 2003.

Administration

The Company’s permanent office in Port Moresby was

established and a full staff complement of Papua New

Guineans appointed, supplemented by short-term

international and Papua New Guinea technical and advisory

personnel. Deloitte Touche Tohmatsu, Port Moresby, was

appointed as the Company’s accountants for a twelve-month

period.

Looking Ahead

Investment Operations of the Company, most importantly the

Long Term Fund, will be strengthened with significant income

from Ok Tedi Mining Ltd expected during 2004, the

appointment of a second Investment Adviser/Funds

Manager, and the identification of possible low-risk

investments in Papua New Guinea. The Company’s first

sustainable development projects are expected to begin

during 2004, and substantial progress made in finalising the

scope of development projects in rubber, palm oil, power,

microfinance, road infrastructure rehabilitation, and

communications within Western Province and other parts of

Papua New Guinea. Improved understanding and

relationships were established with stakeholders in Papua

New Guinea and partnerships established with key

international development and business partners.

PNGSDP Ltd made solid

progress through 2003 in

each of its three areas of

responsibility. Progress was

supported by a strong team of

experienced and effective

Papua New Guinean managers,

which was brought together

during the year by Chief

Executive Officer Robert Igara.

The central function of PNGSDP Ltd is to promote

sustainable development in Western Province and Papua

New Guinea more generally. The company has formed the

view that it can make its most valuable contribution through

support for sustainable income-generating activities in

Western Province and in rural Papua New Guinea.

Sustainability is understood to have governance,

management, financial, environmental and social

dimensions. Projects in agriculture, agro-forestry, economic

infrastructure (including sustainable power generation) and

micro-finance are at an advanced stage of preparation.

Decisions on the allocation of development funds amongst

income-generating activities will be guided by the number of

sustainable minimum family income units that are generated

for each thousand kina spent. A common model for income-

generating projects will be the “nucleus estate – outgrower

model”, where an established business with appropriate

experience manages a commercial enterprise and receives

payments from PNGSDP Ltd development funds for

delivering services for associated rural communities.

A Sustainable Community Development Fund has been

established to support the delivery of a wider range of

services, not necessarily related to income growth, through

community organisations.

PNGSDP Ltd will work through specialised service delivery

entities, rather than develop its own delivery capacity. To this

end, the company is establishing cooperative relations with a

range of commercial and development organisations with

service delivery capacity or with experience that can assist in

identification of suitable partners. I note in particular the

positive interest of the World Bank and its associate, the

International Finance Corporation, in working with PNGSDP

Ltd on several substantial projects.

Another main function of PNGSDP Ltd is to manage the

Long-Term Fund, so that it can support a high level of

development expenditure in Western Province in particular

and Papua New Guinea in general for at least 40 years after

the closure of the mine. Through 2003, the Long Term Fund

generated an average return of 8.06% and increased from

US$3.6 million to US$42.1 million. During the year, the UK

funds management firm Newton Investment Management

Ltd was contracted to manage the company’s offshore

investments. A second manager is to be appointed. PNGSDP

Ltd will invest part of the Long Term Fund in Papua New

Guinea where it identifies low-risk investments with

satisfactory expected returns. Evaluation of low-risk

investments in companies that are operating commercial

“nucleus estates” and also supplying development services

will be given priority.

The company’s other substantive responsibility is as majority

owner that shares control of the Ok Tedi mine with the State

of Papua New Guinea and Inmet Mining. Through its

representative on the Board, PNGSDP Ltd supported mine

management in a thorough review of OTML community

relations and development functions. The review revealed

significant weaknesses, against which firm remedial action

has been taken. The weaknesses and the response are

reported by the Managing Director in OTML’s Annual Report.

PNGSDP Ltd has also supported mine management in

measures to improve the commercial performance of the

mine, which are yielding positive results.

Since the last Annual Report Meeting, the Independent State

of Papua New Guinea, BHP Billiton and PNGSDP Ltd have

agreed on two changes in the company rules with

substantive implications for operations. The definition of low-

risk investments of the Long Term Fund is now

unconstrained. And the requirement to deliver projects

through a Program Manager has been revised to allow more

flexible approaches.

The Board membership reached its full complement in

2003, with the appointment of Sir Ebia Olewale by the Papua

New Guinea Treasurer and of Lim How Teck by the company.

Board committees have been established, with

responsibilities for the Western Province development

program, the National development program, Investment

and Audit. The appointment of an excellent Advisory Council,

with Ms Felecia Dobunaba in the chair, strengthens company

governance.

The company has been assisted in progress so far by strong

support from all relevant Ministers of the Papua New Guinea

State, and in particular from the Ministers with portfolio

responsibilities for the company, Treasurer Bart Philemon

and Minister for Mining Sam Akoitai. The company also

attributes high importance to cooperation with Governor Bob

Danaya and other Western Province members of the

National Parliament.

The company is now ready to take its place as a substantial

participant in Papua New Guinea and especially Western

Province development.

ROSS GARNAUT AO

Chairman, Board of Directors


C h a i r m a n ’ s R e p o r t


G o v e r n a n c e S t r u c t u r e P N G S D P Ltd

BHP BILLITON PNG Government

PNG Stakeholders

Members of

PNGSDP Ltd

Jim Carlton

Don Manoa

Lim How Teck

Annual Report Meeting

Port Moresby

Board of

Ok Tedi Mining Ltd

Auditor

PricewaterhouseCoopers

Board of Directors of PNGSDP Limited

Ross Garnaut (Chairman)

Jim Carlton Don Manoa

Patricia J Caswell Sir Ebia Olewale

Lim How Teck Jakob Weiss

Audit

Committee

Investment

Committee

Company Secretary

Madelyn Kwang

WesternProvinceProgram

Committee

National

Program

Committee

Advisory Council

Felecia Dobunaba

(Chairperson)

Betty Lovai

Rev Samson Lowa

Brown Bai

Steven Nion

Blasius Iwik

Navu Kwapena

Chief Executive Officer (Robert Igara)

and staff of PNGSDP Limited

Port Moresby, Papua New Guinea


T h e B o a r d o f D i r e c t o r s

The Board of Directors is responsible for strategic direction

and for managing the business of PNG Sustainable

Development Program Limited, including monitoring its

performance to ensure consistency with the Company’s

Program Rules. The Board also reports to the Members, to

the Government of Papua New Guinea, to BHP Billiton, to Ok

Tedi Mining Limited, and to other Papua New Guinea

stakeholders. The Board is not subject to the direction or

control of BHP Billiton or the Independent State of Papua

New Guinea.

The Board of Directors consists of Dr Ross Garnaut

(Chairman), Mr Donald Manoa, Sir Ebia Olewale,

Dr Jakob Weiss, Mr Jim Carlton, Ms Patricia Caswell, and

Mr Lim How Teck.

Board Meetings

The Board has adopted a policy of visiting Papua New Guinea

to discuss development priorities and programs every three

months prior to its scheduled meetings in Singapore. The

Board held eight meetings during 2003 as follows: 31st

January (Singapore two meetings), 1st August (Singapore),

9th April (Singapore), 24th September (Singapore), 3rd May

(Singapore), 11th June (Port Moresby), 7th November

(Singapore), 10th December (Singapore).

Number of Meetings Director Attended 2003* Date of Appointment

Ross Garnaut 8 20 May 2002

Jakob Weiss 8 13 November 2001

Jim Carlton 8 20 May 2002

Ebia Olewale 6 9 April 2003

Patricia Caswell 7 20 May 2002

Donald Manoa 8 10 October 2002

Lim How Teck 7 31 January 2003

* This included one meeting conducted on 3 May 2003, which was attended through teleconference.

Board Committees

The Board has established four Committees to assist with its work. They are:

Details of Directors’ Appointments and Attendance

Audit Committee

Lim How Teck (Chairman)

Ross Garnaut

Jakob Weiss

Investment Committee

Jakob Weiss (Chairman)

Ross Garnaut

Lim How Teck

Western Province Program Committee

Sir Ebia Olewale (Chairman)

Ross Garnaut

Don Manoa

National Program Committee

Don Manoa (Chairman)

Ross Garnaut

Jim Carlton

Patricia Caswell


T h e D i r e c t o r s

Dr Ross Garnaut AO, BA, PhD - Chairman

Appointed by BHP Billiton on 20 May 2002. Dr Garnaut is Professor of Economics in the Research

School of Pacific and Asian Studies at the Australian National University. He has written extensively

on East Asia and the Southwest Pacific economies, and serves on university and research

institution boards in Australia, the US, China, and Indonesia. He has been Head of the Department

of Economics and Director of the Asia Pacific School for Economics and Management. He was

Senior Economic Adviser to Australian Prime Minister Robert Hawke, and subsequently served as

Australia’s Ambassador to China. He is currently Chairman of Lihir Gold Ltd; Chairman of Lonely

Planet Publications Pty Ltd; and former Chairman of the Bank of Western Australia Ltd and of the

Primary Industry Bank of Australia Ltd. Dr Garnaut is also a director of Ok Tedi Mining Ltd as the

nominee of PNG Sustainable Development Program Limited. He served as First Assistant

Secretary responsible for financial and economic policy in the Department of Finance in Port

Moresby in 1975 and 1976.

Honorable Sir Ebia Olewale Kt

Appointed to the Board on 9 April 2003 on the nomination of the Minister for Treasury. Sir Ebia,

from the Western Province, was a member of the House of Assembly from 1968 to 1982. He

was a member of the Select Committee that played a major role in the nation’s preparation for

Independence, and held the Ministries for Education and Commerce in the self-government

period, 1972-75. During the year of Independence in 1975, Sir Ebia was Minister for Justice and

therefore politically responsible for the adoption of Papua New Guinea’s Independence

Constitution. After the 1977 election he served as Deputy Prime Minister, Minister for Justice

and Minister for Foreign Affairs and Trade. He also served as a member of the Commonwealth

Observer Mission to the first multi-racial elections in post-apartheid South Africa in 1994. He is

currently Chancellor of the University of Goroka. Prior to his appointment he was a consultant to

Ok Tedi Mining Ltd.

Honorable Jim Carlton AO, BSc

Appointed to the Board on 20 May 2002 on the nomination of BHP Billiton. Mr Carlton was, for

seven years, the Secretary-General of the Australian Red Cross. Prior to that he was a Federal

Member of Parliament in Australia from 1977 to 1994, serving as Minister for Health, and

Minister Assisting the Minister for National Development and Energy. He also held a number of

Shadow Ministry positions in Opposition, including Sustainable Development and Environment,

Health, Treasury, Education and Defence. Mr Carlton led two Australian Parliamentary delegations

overseas and served as a Commonwealth Observer at the return of Zambia to democracy in free

elections. He also served on the Australian National Commission for

UNESCO, the Australian Foreign Minister’s Aid Advisory Council, and the Australian National

Advisory Council on Peace and Disarmament. He is a former Chairman of the Advisory Council of

the National Archives of Australia. He is currently Chairman of the Australian Innovation

Association, Council Member of the Australian Strategic Policy Institute, Board Member of the

Australian New Zealand School of Government, Senior Advisor to the Boston Consulting Group,

and a Professorial Fellow in the Centre for Public Policy at Melbourne University.


Mr Donald Manoa

Appointed to the Board on 10 October 2002 on the nomination of the Papua New Guinea

Chamber of Commerce and Industry. Mr Manoa was most recently a Commissioner with the

Commission of Inquiry into the National Provident Fund. He served as General Manager of the

Papua New Guinea Electricity Commission in 1987, and subsequently joined Shell and was

General Manager of Shell Papua New Guinea Limited from 1991 to 2000. He is at present

Chairman of New Guinea Islands Produce, a director of Barclay Bros (PNG) Ltd, Agmark Pty Ltd

and First Investment Finance Ltd. Mr Manoa has served as Chairman of Shell (PNG) Ltd, and as

a director of ANZ Banking Group (PNG) Ltd, Air Niugini and Shorncliffe PNG Ltd. He has also

served in community services roles, including in the National Volunteer Service.

Ms Patricia Caswell, BA (Hon), BEd

Appointed to the Board on 20 May 2002 on the nomination of BHP Billiton. Ms Caswell is

Executive Director of the Global Sustainability Institute at the Royal Melbourne Institute of

Technology University in Melbourne. She has served as the Executive Director of the Australia

Conservation Foundation, Executive Director of PLAN International Australia, as a secondary

school and TAFE teacher, a trade union leader, and on various public and private bodies in

Australia.

Dr Jakob Weiss, BA Econ, MA Econ, MBA, PhD

Appointed to the Board on 13 November 2001 on the nomination of the Bank of Papua New

Guinea. Dr Weiss, from Tel Aviv, Israel, is currently Dean of the Department of Economics at the

College of Management in Israel. He was a long-serving official with the Bank of Israel and the US

Federal Reserve Bank. He was seconded from the IMF to the Bank of Papua New Guinea from

1988 to 1994 and was an advisor to the Bank of Papua New Guinea until August 2002. He was

an advisor to several former Soviet Republics, served as a member of the Board of the Mercantile

Discount Bank of Israel, and on the Board and as Chairman of the Investment Committee of a

large pension-superannuation fund with operations in the United States, Europe and Israel. Dr

Weiss is also Adjunct Professor of Economics at Ben Gurion University in Israel and Georgetown

University and the State University of New York.

Mr Lim How Teck, BAcc, CPA, FCMA, AIBA, PBM

Following an extensive independent search by the international executive search firm Egon

Zehnder International, Mr Lim was appointed to the Board on 31 January 2003 as a Singapore

resident director by the Board of PNG Sustainable Development Program Limited. Mr Lim, a

certified public accountant, is at present a Board member, Executive Director and Group Chief

Financial Officer of Neptune Orient Lines Ltd of Singapore. He continues to serve on several

statutory boards in Singapore and corporations around the world. He has been honored by the

Singapore Government for his contribution to Singapore with a PBM. Mr Lim replaced Mr John

Moline, who had been appointed on an interim basis. Mr Moline resigned on 31 January 2003.

‘Promoting development that meets the needs

of the present generation and establishes

the foundation for continuing progress for

future generations of Papua New Guineans’


M e m b e r s o f t h e C o m p a n y

As a Company limited by guarantee, PNG Sustainable

Development Program Limited does not have shareholders.

In addition to the Board of Directors, the Constitution of the

Company provides for the appointment of a minimum of two

people as Members of the Company.

The Members of the Company are responsible for adopting

the Annual Accounts and Audit Report, appointing the

Auditors and approving other business that the Board of

Directors may refer to Members from time to time. This

includes amendments to the Memorandum and Articles of

Association and Program Rules. Changes to the Program

Rules can only be made with the consent of BHP Billiton and

the Independent State of Papua New Guinea.

The Members meet during the Annual General Meeting and

during Extraordinary General Meetings. The Chairman of the

Board of the Directors also serves as Chairman of the

Annual General Meeting and Extraordinary General Meetings

but has no voting power.

The Members of the Company have convened several

Extraordinary Meetings to approve amendments to the

Memorandum and Articles of Association and Program

Rules of the Company. During 2003, an Annual General

Meeting of Members was held in Singapore on 9 April

to adopt the 2002 Accounts. It appointed

PricewaterhouseCoopers of Singapore as the Company’s

auditors for 2003.

Company Secretary

The Company Secretary is Ms

Madelyn Kwang, who was

appointed on 6 December

2002, and works from the

Company’s registered office at

20 Raffles Place #09-01,

Ocean Towers, Singapore

The Members of the Company as at

31 December 2003 were:

• Jim Carlton.................Appointed 19 June 2002

• Donald Manoa.............Appointed 8 November 2002

• Lim How Teck ............Appointed 11 March 2003



The end of 2003 completed

the first full year of operations

for the PNG Sustainable

Development Program

Limited. Priority activities

included assisting the Board

in the development of

Company policy and strategy,

getting the Advisory Council

appointed, establishing a

permanent office and appointing core staff, appointing our

accountants and a funds manager, assessing the best way

for the Company to deliver its development program, and

identifying sustainable development and investment

opportunities.

The appointment of Newton Investment Management Ltd as

funds manager to manage the Long Term and Short Term

Funds from September 2003 has enabled management and

staff to focus on development programs within the country.

The portfolio of specific investment and development projects

investigated ranges from community-level and people-centred

development work such as the Community Sustainable

Development Program (CSDP) and the National Micro

Finance Project, to larger commercial development

investments in oil palm and rubber and conventional public

and donor-funded development projects such as the

Highlands Highway Rehabilitation Project.

These provide a challenge to management and staff as they

require different skill sets. These projects also provide

insights into the policy and operational issues and challenges

confronting the delivery of programs and projects within the

country and Western Province in particular. The need for

clear supporting public policy, improved project preparation,

and sustainability of project benefits are prominent. In all the

projects investigated by the Company, these three factors,

plus weaknesses in critical infrastructure, add cost to the

project preparatory costs as well as lengthen the time taken

to bring projects to investment decision stages.

The recently appointed Advisory Council brings a wealth

of expertise and experience to the Company and I

will seek their independent advice in developing

appropriate strategies and practices for improving our

development programs.

To ensure best international practice and full accountability,

the company appointed Deloitte Touche Tohmatsu to

establish and provide accounting services.

The experience and skills of the staff of the Company

and access to proven advisory and support expertise,

including international funds management and accounting

services, strengthen the Company’s capacity to meet the

challenges ahead.

Management and staff recognise the special responsibility of

the Company to Western Province and to its role in

supporting programs that can provide alternative income

and employment opportunities to the communities affected

by the closure of the Ok Tedi Mine. The advice and support

of the Managing Director of Ok Tedi Mining Limited, Mr Keith

Faulkner, and his team in Tabubil and Port Moresby, have

been invaluable. Strong relationships are being established

with the Western Province Administration. The

Administration assisted the Company during familiarisation

visits to the Province and Provincial staff participated actively

in project investigations.

The Company also received valuable assistance from the

Milne Bay, Eastern Highlands, West and East New Britain

Provincial Governments, Members of Parliament, Provincial

Administrations, and businesses, church and community

organisations during visits to the provinces and project sites

during the year.

The Prime Minister and Ministers responsible for Treasury,

Planning, Mining, and Public Enterprises, as well as the

Central Agencies Coordination Committee (CACC), the Chief

Secretary to Government and the Secretaries of Treasury,

National Planning, and Mining provided valuable support and

advice during the year. This included briefings for the

National Executive Council and to Government Caucus

Meetings during the year.

The past 12 months have been a period of development and

consolidation. The investigations of and negotiations relating

to investment and development projects will be progressed

in the coming months and this should further improve the

capacity of the Company’s management and staff for project

preparation, as well as understanding and support amongst

Papua New Guinea stakeholders and partners, and amongst

potential international development partners and businesses.

Finally, I would like to thank the Chairman and the Board of

Directors for providing guidance and inspiration during the

formative and consolidation phases of the Company in 2003.

I look forward to working with them, the Advisory Council

and Company Staff and supporting advisors and professional

firms to meet the challenges of 2004, as PNG

Sustainable Development Program Limited proceeds

to the implementation phase of its sustainable

development projects.

ROBERT IGARA, CMG

Chief Executive Officer

PNG Sustainable Development Program Limited

C h i e f E x e c u t i v e O f f i c e r ’ s R e p o r t


T h e M a n a g e m e n t T e a m

Robert Igara, CMG, BEcon, Grad Dipl in Intl Law, MBA


Mr Igara served as the Chief Secretary to Government between 1997 and 2002, and

concurrently as Acting Secretary for Treasury from July 2001 to August 2002. He has also

served as Secretary for Trade and Industry, as Director of the Office of International Development

Assistance, and has held several senior positions in the Departments of Foreign Affairs and

Trade, including diplomatic postings in Fiji and Australia. He was also Chairman of the Boards of

Directors of several statutory agencies - the Papua New Guinea Investment Promotion Authority,

the Papua New Guinea Forestry Authority, and the Small Business Development Corporation. He

served as a Director of Orogen Minerals Ltd and PNG-Halla Cement Corporation, and is at

present a Director of the Bank of Papua New Guinea and Oil Search Ltd.

Gago Mamae (Brig-General Retired)

Manager - Public Affairs and Community Relations

Gago Mamae CBE is a retired Brigadier-General of the Papua New Guinea Defence Force. He is

a graduate of the Australian Army Staff and Command College and the Australian Administrative

Staff College. He has held several key positions in the PNGDF, including Director of Supplies,

1976; Chief of Logistics 1977 to 1980; and Commander PNGDF 1981 to 1983. He served as

a civil servant in the Department of Finance and Planning as Assistant Director in the Office of

International Development Assistance from 1990 to 1992 and the Department of National

Planning and Monitoring (Foreign Aid Management Division) as Assistant Director for Special

Programs from 1993 to 2000. He was Director-General of the National Security Advisory

Committee in the Department of Prime Minister and NEC from June 2000 to May 2003.

Sean Ngansia, BEcon, Dip in Eco Policy Analysis

Program Manager - National Development Programs

Prior to joining the Company, Mr Ngansia was Acting Assistant Secretary of the

General Investments Branch of the Commercial Investments Division, Department of Treasury.

Mr Ngansia joined the Papua New Guinea Public Service in 1992 as a Senior Programs Officer

in the Department of Finance and Planning from 1992 to1994, the Department of Trade

and Industry from 1995 to 1997, before joining the Department of Treasury, serving

there from 1998 to 2001.

Henry Ivarature, BA (Hons), MA, PhD

Program Manager - Western Province Program

Dr Ivarature, prior to his appointment to the Company on 27 January 2003, was Head of the

Papua New Guinea APEC Unit and Papua New Guinea’s Senior Official to Asia Pacific Economic

Cooperation (APEC) within the Department of Prime Minister and National Executive Council,

where he also served as Director of Special Projects within the Central Agencies Coordination

Committee Secretariat and the Office of Chief Secretary to Government.


Ati Wobiro, BEcon, MA Econ & Soc Studies, M Dev Admin

Development Specialist

Prior to Mr Wobiro’s appointment on 4 August 2003, he was a lecturer in management at the

University of Papua New Guinea. He has also served in the Western Province Administration as

the Provincial Planner; World Vision International as the Program Development Manager; the

Papua New Guinea Telecommunications Authority as Executive Manager for Finance and

Corporate Planning; as a lecturer in economics at the Papua New Guinea University of Technology

and as a private consultant in project management.


A d m i n i s t r a t i o n a n d C o r p o r a t e S e r v i c e s

The Staff

As at 31 December 2003, Company staff numbered 11 and consisted of :

Standing Left to Right: Ashley Emberson-Bain, Gago Mamae, Ati Wobiro, Sean Ngansia, Joe Ikau, Jonathan Micah and Wesley Mondo.

Sitting Left to Right: Dr Henry Ivarature, Dorothy Pomat, Robert Igara, Fae Maso and Gertrude Waite-Uma

Chief Executive Officer Mr Robert Igara

Personal Assistant to the Chief

Executive Officer Ms Dorothy Pomat

National Programs Manager Mr Sean Ngansia

Western Province Program Manager Dr Henry Ivarature

Manager Public Affairs and

Community Relations Mr Gago Mamae

Development Specialist Mr Ati Wobiro

Accountant Administrator Ms Janet Sios*

Secretary/Receptionist Miss Fae Maso

*Resigned December 2003

Office Assistant Mr Joe Ikau

Office Assistant Mr Wesley Mondo

Office Assistant Mr Jonathan Micah

Deloitte Touche Tohmatsu Accounting Staff

Accountant Miss Rowina Hehona

Assistant Accountant Ms Getrude Waite-Uma

Short-Term Technical Advisory Staff

Business & Investment Advisor Mr Ashley Emberson-Bain

Agriculture Adviser Mr Keith Armstrong

Power Business Adviser Mr Sev Maso

The Company established and moved into a permanent office

in Port Moresby in April 2003, enabling permanent office

systems and administrative support to be established.

A full complement of staff was appointed and all staff gained

first-hand experience of the diverse nature of the Company’s

operations, their own responsibilities, and the realities of

providing effective supporting services, and delivery of

development programs.

Secretariat support was also provided to the Board, with

operational relationships between the Company’s Port

Moresby office and the registered office in Singapore also

improved. Support was given to audits, preparation of the

2002 Annual Report, and the convening of the Company’s

first Annual Report Meeting in Port Moresby in June 2003.

Support was also provided to the Advisory Council during late

2003 and this will increase from 2004 as the Council moves

into full operations.

The Company increased its understanding of regulatory

requirements and established relationships with key

regulatory bodies and its own supporting service providers in

Papua New Guinea, Singapore, Hong Kong and London. Staff

have explained the Company’s mandate to stakeholders,

especially Government agencies and OTML.

The Company also commenced investigations of potential

development projects that may be supported by the

Company with the backing of short-term advisory teams.

The year’s operations have also enabled management and

staff to commence preparations of the Company’s code of

conduct, operational guidelines and legal documentation for

the administrative and accounting functions, funds

management and investment operations, and development

program activities. These will be finalised during 2004.

During the year, following a review of the requirements of the

Company, Deloitte Touche Tohmatsu was appointed as the

Company’s Accountants for a period of 12 months. This

ensured that the resources of Deloittes were available to

establish accounting systems, meet the Company’s diverse

operational requirements, and ensure that the Company

complies with best international practice and reporting

requirements.


Auditor

Pricewaterhouse-

Coopers Company Secretary

• Personal Assistant

Ms Dorothy Pomat

• Secretary/Receptionist

Miss Fae Maso

• Office Assistants

Mr Joe Ikau

Mr Wesley Mondo

Mr Jonathan Micah

NationalDevelopment

Program ManagerMr Sean Ngansia

Western ProvinceDevelopment

ManagerDr Henry Ivarature

DevelopmentProgram Specialist

Mr Ati Wobiro

Manager PublicAffairs &

CommunityRelations

Mr Gago Mamae

Advisory Council

Communities and People of Papua New Guinea (especially Western Province)

Project and Business PartnersResponsible for management and Implementation of Projects

Accountant

Deloitte Touche

Tohmatsu

Lawyers

Gadens Lawyers

Funds ManagerNewton InvestmentManagement Ltd

London


Robert Igara

O r g a n i s a t i o n a l a n d P r o g r a mM a n a g e m e n t S t r u c t u r e

Board of Directors

T h e A d v i s o r y C o u n c i l

The Company’s Program Rules provide for the Board to

appoint up to seven eminent and appropriately skilled Papua

New Guineans, each for a term of two years, to serve on the

Advisory Council to the Company. They are to provide

impartial advice and comment on the Program of the

Company. The Council reports to the Chief Executive Officer.

Its function is to provide the CEO with:

• Strategic advice on the development and implementation

of the Program, including advice on the integration of the

Program’s initiatives within the overall development

objectives of Papua New Guinea;

• Assistance with sharing and disseminating information

about the Program to Project Partners and Stakeholders;

• Feedback in relation to Project proposals put to the

Company for funding; and

• Assistance to monitor and review Projects funded by the

Company.

The Board, following consultations with the National

Departmental Secretaries responsible for National Planning

and Mining in the Government of Papua New Guinea,

appointed Ms Felecia Dobunaba, Dr Betty Lovai, The Rev.

Samson Lowa, Mr Brown Bai and Mr Steven Nion to the

Council on 11 June, Dr Navu Kwapena on 1 August, and Mr

Blasius Iwik on 24 October 2003. Mr Gago Mamae is the

Secretary to the Advisory Council.

The Council members are all eminent Papua New Guineans

and bring significant expertise and experience to PNG

Sustainable Development Program Limited. They represent

key sectors of the wider community and provide the

Company with access to independent monitoring and

advisory support. Two members, Dr Betty Lovai and Mr

Blasius Iwik, are from Western Province, ensuring that the

Company maintains its special focus on the province.

The Advisory Council held its first meeting in Port Moresby

on 28 October and appointed Ms Felecia Dobunaba as its

first chairperson. The Council also held its first meeting with

the Board members in Port Moresby on 5 November 2003.

During the period the Council was briefed by management on

the Company’s strategy and operations and on the role and

functions of the Council. The Council is expected to fully

commence its activities during 2004, including visits to

Western Province and other parts of the country.



T h e M e m b e r s o f t h e A d v i s o r y C o u n c i l

Dr Betty Lovai, PhD (Social Work), MA (Social Work), BA Hon BA

Appointed to the council on 11 June 2003. Dr Lovai is a Lecturer in Sociology and Anthropology

at the University of Papua New Guinea. She has carried out social work amongst the poor in

urban and in rural areas where essential services such as social and economic infrastructure are

lacking. She has research and teaching experience in situation studies of communities and

villages. Dr Lovai has undertaken consultancy work with UNICEF, the ADB, AusAID, JICA, and

World Vision.

Ms Felecia Dobunaba, OBE, BA (SW)

Chairperson of the Advisory Council. Appointed to the Council on 11 June 2003, and by the

Council members as Chairperson on 28 October 2003. Ms Dobunaba has extensive knowledge

of and experience in social and development planning and program implementation. She has

served as the Director of the Office of National Planning and as Secretary of the Department of

Home Affairs and Youth. Ms Dobunaba is at present Director-General (Central Agencies Co-

ordination Committee Secretariat) in the Department of Prime Minister and National Executive

Council.

The Reverend Samson Lowa, Bachelor of Divinity, Bachelor of Education,

Diploma in Secondary Teaching, Diploma in Theology

Appointed to the council on 11 June 2003. Rev Lowa is the Moderator of the United Church of

Papua New Guinea and the Solomon Islands, and is the President of the Papua New Guinea

Council of Churches, and Director, Evangelism Exposition Ministry International, Fort Lauderdale,

Florida, USA. He is also a Director of the Bank of Papua New Guinea and a Director of Post PNG.

Rev Lowa was, prior to joining the priesthood, a secondary school teacher.

Mr Brown Bai, CBE, BEcon

Appointed to the council on 11 June 2003. Mr Bai has served within the Public Service of Papua

New Guinea with distinction as head of the departments of Treasury and Finance, Prime Minister

and National Executive Council, and Primary Industry. He is also a former Deputy Director of the

Office of National Planning. Mr Bai has held a number of senior diplomatic posts, including as

Ambassador to the EEC, UNESCO, Italy, and Greece. He has been Managing Director of Papua

New Guinea Banking Corporation. Mr Bai is an appointee to the Centre for International

Agricultural Research (ACIAR) and is Chairman of the Rural Industries Council, Chairman of the

Public Service Reform Advisory Group, Managing Director of Alam Investments Corporation, and

a Director of Ramu Sugar Ltd, Hargy Oil Palm Ltd, and Galley Reach Rubber Company.


Mr Steve Nion, BSc (Geology), MSc (Geology)

Appointed to the council on 11 June 2003. Mr Nion is Deputy Secretary of the Department of

Mining. He has held the post of Chief Geologist, responsible for co-ordinating and managing the

Papua New Guinea Geological Survey’s mapping and data activities. Mr Nion is a member of the

Earth Science Advisory Board, the South Pacific Geosciences Commission, and Alternative Papua

New Guinea National Representative to the Coordinating Committee for coastal and offshore

geosciences programme in East and South East Asia.

Dr Navu Kwapena, PhD, MSc, BSc

Appointed on 1st August 2003. He is an Environmental Ecologist. Currently he is the secretary

of the Papua New Guinea Bio-Diversity and National Conservation Council. Dr Kwapena was Chief

of Wild Life and Chief Ecologist from 1974 to 1976. From 1980 to 1986 Dr Kwapena was First

Assistant Secretary and Head of Wildlife Research, Management, and Conservation in the

Department of Environment and Conservation. In the period 1986-1991 Dr Kwapena completed

a post-graduate degree course at the University of Sydney in the School of Biological Sciences. In

April 2003 he was Acting Deputy Secretary in the Department of Environment and Conservation.

Dr Kwapena is an ecologist and biologist who is concerned about the protection of native fauna

and flora and sustainable use of natural resources and equitable sharing of benefits.

Mr Blasius Iwik, Diploma (Religious Studies)

Appointed on 24 October 2003, representing the landowners of Western Province. Mr Iwik

serves with the Roman Catholic Church in Kiunga, Western Province. He served as pastoral

worker with St Brigid’s Parish from1986 to 1992. He was Diocesan Development Secretary from

1993 to 1997. He served as Communications and Public Relations Officer from 1997 to 2003

and he is now serving with the same division with added responsibilities of Catholic Education

Secretary in Western Province. He has extensive experience working with communities.


T h e A n n u a l R e p o r t M e e t i n g

The Company is required under its Rules to report annually

to its stakeholders in Papua New Guinea. The first Annual

Report Meeting was convened at the Crowne Plaza Hotel

Conference Room, Port Moresby, on 12 June 2003, during

which the Company presented its 2002 Annual Report. The

Meeting was officially opened by the Honorable Bart

Philemon, MP, Minister for Treasury and Finance.

Representatives of key stakeholders who attended the

Annual Report Meeting included: the Governor of Western

Province, Hon Robert Danaya, MP; the Member for South

Fly, Hon Conrad Haoda, MP; the Member for North Fly, Hon

Martin Tabi, MP; the Member for Middle Fly, Hon Roy

Biyama, MP; the Western Province Acting Administrator, Mr

Babalela Kalama, and Administration officials; Western

Province Landowner Representatives; the Governor of East

Sepik Province, Hon Arthur Somare, MP; the Secretary for

Treasury, Mr Koiari Tarata; the Secretary for National

Planning, Mr Valentine Kambori; the Secretary for Mining,

Mr Kuma Aua; the Managing Director of Ok Tedi Mining

Limited, Mr Keith Faulkner, and Senior Management; and

representatives of international development partners.

The Company was represented by the Chairman and

Directors of the Board, the Chief Executive Officer and Staff,

and PricewaterhouseCoopers, Auditors of the Company.

The Meeting was addressed by the Governor of Western

Province, the Governor of East Sepik Province, and by the

Hon Lady Carol Kidu, MP, Minister for Social Development

and Community Affairs (through her representative) and the

Secretaries for Treasury and National Planning.

The first Annual Report Meeting proved a valuable

opportunity to explain to key stakeholders the Company’s role

and potential contribution to Papua New Guinea’s

development, particularly in the Western Province.

The Meeting also provided an opportunity to expand dialogue

on the challenges the nation and the Western Province will

face when the Ok Tedi Mine closes.

The Second Annual Report Meeting on 27 May 2004 will

also provide an opportunity to improve consultation and

coordination between the National Government, Western

Provincial Government, Ok Tedi Mining Ltd and the Company

on initiatives to support development programs within the

Western Province.



I n c o m e , F u n d s , A l l o c a t i o n s a n dE x p e n d i t u r e t o 3 1 D e c e m b e r 2 0 0 3Income

The principal income of the Company during the year

continued to be from its shareholding in Ok Tedi Mining

Limited, receiving several payments of gross dividends

totalling US$65.5 million (K233.4 million) during 2003. The

Company also earned US$2.4 million (K8.7 million) from

dividends, interest and foreign exchange gains from its funds

and investment operations.

Expenditure

Total expenses during the year were US$9.5 million (K33.4

million), consisting of US$6.5 million (K23.3 million) as

Dividend Withholding Tax payments to the Internal Revenue

Commission of Papua New Guinea, US$0.8 million (K2.8

million) paid to Ok Tedi Mining Ltd under the Subsidy Deed

(which requires PNG Sustainable Development Program

Limited to subsidise OTML for increases in its borrowing

costs associated with the withdrawal of BHP Billiton),

US$1.8 million (K6.3 million) for establishment and

administration costs, and US$0.3 million (K1.0 million) for

development program activities.

Total allocations as at the end of the year for the Long Term

Fund were US$42.1 million (K138.3 million), and for the

Development Fund US$20.9 (K68.8 million). US$6.9 million

(K22.7 million) was allocated to the Western Province

Program and US$14.0 million (K46.1 million) to the National

Development Program.

As of the end of 2003 the Company had committed from the

Development Fund a total of K33.5 million for three

projects, consisting of K15.0 million over five years for the

Community Sustainable Development Program Fund (K5.0

million for Western Province and K10.0 million for the rest

of Papua New Guinea), K11.8 million for the Lake Murray

Village Rubber Project, and K7.5 million as part of the

counterpart financing for a portion of the Highlands Highway

Rehabilitation Project. Expenditure will commence during

2004 only after Project Funding Agreements have been

signed.

The Long Term Fund

The Long Term Fund represents two-thirds of the income

received from Ok Tedi Mining Limited after deducting

operating expenses and all other contractual obligations

arising out the BHP Billiton exit arrangements.

As at 31 December 2003, the Long Term Fund allocation

amounted to US$42.1 million (K138.3 million). With current

expected dividend payments from OTML, the Long Term

Fund should increase substantially by the end of 2004.

The Long Term Fund must be invested in low-risk

investments. The Fund can be used before the Ok Tedi mine

closes to meet contractual obligations (for example under

the Subsidy Deed) and to meet a call by OTML for further

capital requirements. After the mine closes (in 2010 on

current understandings), the Long Term Fund is to be used

to fund sustainable development programs in Western

Province and elsewhere in Papua New Guinea. There will be

special emphasis in the Western Province on mitigating the

social and economic impact of mine closure.

The PNG Sustainable Development Program Limited

therefore aims to increase and diversify Long Term Fund

investments in a way that supports a maximum contribution

to development in Papua New Guinea and particularly the

Western Province. The Company is mindful of the desirability

of building the Fund and its sustainable earnings to a point

that enables annual earnings from investments to meet

annual expenditure requirements after mine closure without

diluting the real capital of the fund for 40 years.

The Development Fund

The Development Fund represents one-third of the income

received from Ok Tedi Mining Limited after deducting

operating expenses and all other legal contractual

obligations. The Development Fund is to be used to support

and finance programs and projects that promote sustainable

development to benefit the people of Papua New Guinea, in

particular of the Western Province. In accordance with the

rules, one-third of the funds is to be applied to programs

benefiting the people of Western Province, and the other

two-thirds are to be applied to programs that benefit all the

people of Papua New Guinea.

By the end of December 2003, the Development Fund

balance was US$20.9 million (K68.8 million). Of this

amount, US$6.9 million (K22.7 million) is for programs and

projects within Western Province, and US$14.0 million

(K46.1 million) is for programs and projects throughout the

rest of Papua New Guinea.

The General Fund

In accordance with Clause 14 of the Rules of the Program,

a yearly budget of administration costs must be prepared

and approved by the Board. The General Fund allows for an

allocation to fund the Budget of the Company. The General

Fund allocation as at 31 December 2003 was US$1.4

million (K4.7 million).

I n v e s t m e n t A c t i v i t i e s

Investment Policy and Guidelines

In pursuing its goals and objectives, the Company is able to

invest and utilise its resources from the Long Term Fund,

the Development Fund and the General Fund in accordance

with the Program Rules of the Company. The Rules

require that investments in the Long Term Fund be placed in

low-risk investments.

The objectives of the Company’s investments are to:

• Significantly build up the Long Term Fund through interest

rate earnings, dividends, capital gains and foreign

exchange gains;

• Diversify its investment portfolio against interest rate,

foreign exchange and other financial market risks; and

• Invest portions of the Long Term Fund in Papua New

Guinea in low-risk strategic investments. These may be in

some investment projects that generate significant

sustainable economic and development benefits for Papua

New Guinea and its people.

The Board has established an Investment Committee to

oversee its Investment Policy and Guidelines, and approved

Preliminary Investment Guidelines under which the

Company’s investments are to be managed.

Funds Management Operations

Following the evaluation of proposals from seven

international investment houses, PNG Sustainable

Development Program Limited appointed Newton Investment

Management Ltd of London as its Investment Adviser &

Funds Manager. Newton commenced its mandate on 11

September 2003.

To spread risk and encourage high levels of performance, the

company is also negotiating with other investments houses.

One will be appointed to be the second Funds manager of

the Company.

In accordance with guidelines set by the Board, Newton has

invested 80% of the funds in Fixed Income Assets and 15%

in Global Equities. As at 31 December 2003, the Funds

Balance managed by Newton amounted to US$64,229,254

(K210,933,511).

Return on Funds Managed

During the 2003 year, the weighted average rate of return

on the Company’s investment portfolios was 8.06 per cent

for the Long Term Fund and 9.15 per cent for the

Development Fund.

Papua New Guinea Investment Opportunities

The Company investigated two opportunities in Papua New

Guinea agricultural companies for possible equity investment

from its Long Term Fund. In addition to potential dividend

income from these investments, the Company saw strategic

opportunities from the operations of these companies in

expanding village and smallholder income and employment

opportunities on a sustainable basis. Negotiations with

relevant parties are continuing.

The Company also explored potential opportunities for

investment in the generation and supply of power from gas

or geothermal sources to major resource projects.


S u s t a i n a b l e D e v e l o p m e n tP r o g r a m A c t i v i t i e sPNG Sustainable Development Program Limited focused its

attention and efforts during 2003 on identifying suitable

programs and projects for support, and capable

development partners to share in the ownership,

management and implementation of these programs

and projects.

Board and Management visited Western, Milne Bay, West

and East New Britain, and Eastern Highlands provinces

during 2003. Visits to Central, Morobe and Bougainville are

planned for 2004. The Company was impressed with the

successful 'living' examples of sustainable development within

the country, especially in agriculture. These examples

demonstrate that Papua New Guinea can achieve

international standards of performance and competitiveness.

They also provide models for addressing the critical

constraints of poor infrastructure, a shortage of

management, technical and business expertise, and a lack of

financial resources.

They also reaffirm the soundness of PNG Sustainable

Development Program Limited’s priorities and strategies on

economic production, especially in agriculture and in working

with church development agencies and NGOs to promote

community sustainable development. The Company’s

initiatives have the potential to provide tangible long-term

benefits to significant sections of the rural population within

Papua New Guinea, especially the Western Province.

In pursuing its activities the Company has sought to ensure

that all stakeholders, including the Government of Papua

New Guinea and the Western Provincial Government, are

consulted and kept fully informed on program progress.

Criteria for Support of Programs and Projects

The Company seeks to ensure the programs and projects it

supports meet four principles and objectives:

• Effective participation of local communities in the project,

specifically by ensuring-

- Proper awareness of and commitment to projects

through close consultation and involvement;

- Maximum engagement in all facets of projects, from

planning, development, construction and maintenance

through to production and marketing; and

- Employment and training for communities in skills

associated with the project or other alternative

employment and life skills;

• Demonstrated benefits to the local communities,

specifically by-

- Increasing the number of sustainable minimum family

income units;

- Improving access to and quality of education and health

services; and

- Strengthening local leadership and organisational

capacity;

• Demonstrated managerial, financial, technical, marketing,

and environmental capability to sustain operations or

continuation of the benefits from the project for the long

term; and

• Compliance with international best practice and human

rights, cultural, social, economic, gender and environment

standards.

PNG Sustainable Development Program Limited will

further develop and publicise its criteria, and progress

in meeting them, during 2004 as it moves towards

project development.


S u s t a i n a b l e D e v e l o p m e n t P r o g r a m I n i t i a t i v e sDuring the year the Company focused its efforts on several

strategic initiatives, which, if taken forward, would involve

total project development costs of about K153 million over

the next five years, with expenditures averaging about K6

million a year for Western Province Programs and K20

million for National Programs. They will continue to form the

main focus of attention during 2004, with additional projects

supporting agricultural production, forestry, fisheries,

tourism, education and technical training, health and applied

research.

Community-Level Sustainable Development

Program Initiatives

a) The Community Sustainable Development Program (CSDP)

b) The National Micro Finance Institution Project

Western Province Sustainable Development

Program Initiatives

• Rubber Rehabilitation and Expansion Program

- Lake Murray Village Rubber Expansion Project

- North Fly Rubber Ltd Support

- Lower-Middle & South Fly Rubber Estate & Village

Development Project

• Western Province Communications Project

• Western Province Shipping Service Project

• Provincial Financial Management Improvement Project

National Sustainable Development Program Initiatives

• National Oil Palm Industry Estate and Village/Smallholder

Expansion Program

- Milne Bay Oil Palm Expansion Project

• National Road Infrastructure Rehabilitation Program

- Highlands Highway Rehabilitation Project

• National Power Rehabilitation and Rural Electrification

Program

- New Britain Power Rehabilitation and Rural

Electrification Project

Promoting Community-Level Sustainable Developments

The Company recognises the importance of supporting

community-level sustainable development projects that will

strengthen institutional capacity, including community-level

leadership, aid the delivery of health, education and training

services, enhance basic infrastructure, promote community

self-reliance and economic and income-earning

opportunities, and support social and environmental

objectives. The Company has therefore decided to support

two key programs for these purposes - the Community

Sustainable Development Program and the National Micro-

Finance Project.

The Community Sustainable Development Program

The Company in November 2003 approved a Community

Sustainable Development Program Fund and committed a

total of K15 million over five years for the Fund to support

community-level projects throughout the country. From this

amount K1 million a year is committed for projects within

Western Province and K2 million a year is for projects in

other parts of Papua New Guinea. The cost of administering

this program will be additional. The Company will provide a

minimum of K50,000 per project in partnership with

community organisations and development partners.

Special emphasis will be given to ensuring strong

partnerships with communities, sustainability and the

promotion of self-reliance.

The Company will formally launch the Program during 2004.

Management of the Program is being undertaken by the

Company with support from Deloitte Touche Tohmatsu. A

permanent program management structure is to be

established by mid-2004.


The National Micro Finance Project

PNG Sustainable Development Program Limited has decided

to support financial services to rural areas. A 1999 Asian

Development Bank report estimated that the potential credit

market for the micro and small business sector in Papua

New Guinea, using a loan size of K2160 (US$800) for

255,000 borrowers, to be in the order of K200 million.

The Company’s initial assessment, supported by the

successful experience of the Ok Tedi Development

Foundation Microfinance Project and similar initiatives

undertaken overseas, is that the provision of micro finance

involving both credit and savings services is commercially

viable. Micro finance builds on entrepreneurship,

reduces dependency, and makes positive contributions to

people’s lives.

The Company considered in early November 2003 a

proposal to establish a national micro finance institution,

expanding on the successful Ok Tedi Development Foundation

Microfinance Project. This project is managed entirely by

Papua New Guineans under the oversight of Opportunity

International and through an agency arrangement with ANZ

Bank. It has during the past 15 months funded 780 small

business loans totalling K707,000, and has not had to write

off any loans during the period. It has also mobilised K1.3

million in depositors’ balances and now has 9160 depositors

operating accounts through its branches.

PNG Sustainable Development Program Limited engaged a

team to prepare a Business Plan for a fully licensed micro

finance company operating beyond Western Province.

Western Province Sustainable

Development Program

The Company recognises its special responsibility towards

the people of Western Province, especially to support

strategic investments that will provide the province with

alternative economic, income-earning and employment

opportunities after the Ok Tedi mine closes. In developing its

strategy PNG Sustainable Development Program Limited has

consulted the Provincial Government and OTML and visited

several parts of the Province.

PNG Sustainable Development Program Limited recognises

the significant financial resources available to the Western

Province from transfers from the National Government, from

the tax credit scheme delivered by OTML, provincial

government and landowner benefits from OTML including

from the Province’s equity in OTML, benefits to communities

and the value of OTML’s purchases of goods and services.

Between 2002 and 2010, the anticipated total value of

benefits for Western Province will be US$370 million (K1.27

billion). This resource provides significant opportunities to

establish a broader base for sustainable social and economic

development of the province.

PNG Sustainable Development Program Limited has

benefited from the operational support of the Administration

and OTML during field visits to the province for familiarisation

and project study.

During the period PNG Sustainable Development Program

Limited has been investigating several opportunities in

rubber development, oil palm and economic infrastructure,

in addition to the community-level development program and

micro finance project.



Western Province Rubber Rehabilitation and Expansion

Rubber-growing is carried out throughout Western Province

entirely by village households with the support since 1994 of

North Fly Rubber Ltd, a joint venture between a Western

Province trading company, Progress Pty Ltd, and Ok Tedi

Mining Ltd. North Fly Rubber provides training, technical

advice and transportation and buying of rubber. The total

area under rubber plantings in Western Province is 1958

hectares, with total production during 2002 of 675 tonnes

and exports of about 400 tonnes of PNG Certified Rubber

10. North Fly Rubber Ltd plans to expand total area under

rubber to 10,000 hectares.

The Company will support the industry in the Province in

cooperation with North Fly Rubber Ltd in the North and

Middle Fly areas; and with a potential new international

rubber business partner in the Lower-Middle Fly and South Fly

areas. Through this approach, extension services, marketing

and high-yielding clones would be provided.

The Lake Murray Village Rubber Growing Project

PNG Sustainable Development Program Limited assessed a

proposal to establish a village rubber project in the Lake

Murray area. The Board has approved and committed a total

of K11.8 million for the project, consisting of K7 million as a

development grant and K4.8 million in concessional loans for

village growers. The loan facility is to provide livelihood

support and sustenance during the land clearing and planting

period, estimated to be four years. Repayments will be

deducted from sales of rubber to North Fly Rubber Limited.

The project will involve 840 families (about 4000 people, or

nearly half the population of the Lake Murray area) planting

high-yielding rubber trees on 2200 hectares, with rubber

tapping expected to commence in 2012.

The Company is continuing negotiations to finalise a Project

Funding Agreement, and for a village grower loan scheme.

These are expected to be concluded during the first

quarter of 2004.

Lower-Middle and South Fly Rubber Estate and

Village Grower Project

PNG Sustainable Development Program Limited has reached

agreement with an international company to carry out a

feasibility study on a 5000-hectare rubber project at Wipim,

Oriomo, Wasua and Balimo. If the project is found to be

feasible, a joint-venture company would be created to develop

and operate the estate and village grower scheme. The

proposal is to establish an estate to provide the critical

capacity required, complemented by village out-growers

throughout the Lower-Middle and South Fly districts.


Western Province

Oil Palm Development

The Company has been impressed with the economic and

development impact of oil palm investments in several

provinces of Papua New Guinea, the significant participation

of smallholders and the income streams flowing to them, and

the international competitiveness and sustainability of the

industry. There is strong interest in oil palm development in

Western Province.

PNG Sustainable Development Program Limited explored

with potential partners the possibility of undertaking a

feasibility study of an Oil Palm nucleus estate and

village-holder production in Western Province which is

planned for 2004.

Western Province Economic Infrastructure

During 2003, the Company conducted field surveys in the

province to gather information on the state of its

communications, transport and other economic

infrastructure in relation to development requirements. The

surveys found that major work on rehabilitation and

expansion was necessary for sustainable development. PNG

Sustainable Development Program Ltd will focus strongly on

projects in these areas in the year ahead.

Western Province Financial

Management Strengthening Project

The Company was unable to implement the project during

the period given the appointment of a new Administrator for

the Province and the changes in operating arrangements

within the province. The Company retains its interest in

supporting the proposal.


National Sustainable Development Program

The policy adopted for the National Sustainable Development

Program is to invest in sustainable economic activities,

especially in agriculture, forestry, fisheries and tourism, with

the objective of generating sustainable increases in incomes

and living standards for large numbers of people in the rural

areas of Papua New Guinea. In doing so, PNG Sustainable

Development Program Limited notes that this approach is

consistent with the development priorities of the Government

of Papua New Guinea under its Medium Term Development

Strategy.

The strategy to achieve this development policy will use the

nucleus and smallholder estates model, which has been

successful in the oil palm sector. The Company will replicate

this model in the agriculture and economic infrastructure

sub-sectors, which have the necessary elements for its

application and the potential for the development of

sustainable projects.

The Company proposes to participate as a cornerstone

investor in potential development projects with strategic

partners that have the necessary skills and experience in

relevant sectors and can provide additional project

investment capital.

It is recognised that an essential prerequisite for the

expansion of the agriculture sector is rural infrastructure,

and the Company intends to support the rehabilitation and

expansion of such vital infrastructure in association with

donor partners.

Consistent with its broad strategy, the Company also

investigated during the year opportunities to support

several projects to be implemented in other parts of

Papua New Guinea in agriculture, and transport and power

infrastructure rehabilitation and expansion. These are

consistent with the pronouncements of the Government in its

Budget statements and development strategy focusing on

promoting exports, especially in agriculture.


National Oil Palm Industry Estate andVillage/Smallholder Grower Expansion

During the year the Company carried out investigations and

discussions on the opportunities within the oil palm sector

and concluded that external market and internal production

potential would support substantial oil palm expansion in

Papua New Guinea.

PNG Sustainable Development Program Limited entered into

negotiations with industry participants in relation to

partnerships in future expansion, particularly through village

and smallholder grower production. The Company’s interest

in possible partnerships in oil palm directly relate to its

strategy to promote expansion of oil palm with significant

smallholder and village grower participation in Western and

other provinces.

Rubber Industry Rehabilitation and Expansion

Rubber schemes have long been seen as a way of

encouraging employment and income-earning opportunities

in remote areas. Rubber is ideal for smallholder conditions,

growing in a range of soils and conditions and with limited

requirements for processing and storage.

The total area under rubber production in 2000 was about

18,000 hectares, consisting of about 5000 hectares under

estates and 13,000 hectares under village and smallholder

schemes. Approximately 11,795 households (or 70,000

people) are involved in rubber production. The main rubber-

growing areas are Central Province (Sogeri, Galley Reach

and Cape Rodney), Epo in Gulf Province, Gavien in East Sepik

Province, and throughout the Western Province.

PNG Sustainable Development Program Limited is interested

in supporting rehabilitation and expansion of the industry.

The Highlands Highway Rehabilitation Project

To support the Highlands Highway Rehabilitation project, the

Board approved a contribution of K7.4 million, equivalent to

50% of the Papua New Guinea Government’s counterpart

funding required for one component of the Highway Project.

This support depends on agreements between the State and

the ADB.

New Britain Power Rehabilitation and Rural Electrification Project

During the year PNG Sustainable Development Program

Limited investigations of the status of existing power

generation and transmission in the East and West New

Britain provinces revealed significant under-utilisation of

capacity, owing largely to lack of maintenance causing

frequent supply interruptions. Potential for significant

improvement was identified from rehabilitation and expansion

of the system, immediately benefiting about 25,000 rural

households, or almost 150,000 people.

The Company’s assessment is that subject to certain

efficiency improvement measures, new strategic

investments and an experienced power system

Manager/Operator being engaged, significant operating

efficiency could be restored immediately and profitability

improved over the medium term.

PNG Sustainable Development Program Limited is studying

the potential for a joint-venture company that would help

rehabilitate the power system, and manage it efficiently. PNG

Sustainable Development Program Limited may use

development funds to expand the supply of electricity to

agricultural activities, village communities, rural schools,

health centres, and government stations throughout both

provinces with contributions from communities that benefit

from the expanded services.


Promoting Dialogue and Research on Sustainable Development

The Company convened a seminar on oil palm industry

opportunities in 2003, which was addressed by senior

representatives of international companies. A Sustainable

Development Seminar will be held on 26 May 2004 prior to

the Annual Report Meeting.

It will focus on successful examples of sustainable

development within Papua New Guinea, future opportunities

in Western Province beyond the Ok Tedi Mine closure, and

the promotion of agricultural investment and development.

The Company proposes to sponsor such a seminar as an

annual event.

Working With International Business

and Development Partners

The project initiatives investigated by PNG Sustainable

Development Program Limited require credible and

competent business partners to help drive, implement and

manage each project. The Company is not seeking to control

or manage any of its initiatives. But it recognises that risk

perceptions and the realities of doing business in Papua New

Guinea require a degree of leadership and ownership from

the Company. Through arrangements such as counterpart

financing of road projects, PNG Sustainable Development

Program Limited would like to facilitate the efficient use of

the large concessional and grant financing that is available to

Papua New Guinea from international development partners.



O K T e d i M i n i n g L i m i t e d O p e r a t i o n s

The year 2003 saw Ok Tedi Mining Limited consolidate its position as an independent world-class miner under its new Board and

Management since the exit of BHP Billiton in 2002.

Ownership of OTML

The ownership of OTML as at 31 December 2003 is:

*The State’s interests consist of: Independent State of PNG (15%), Mine Lease Landowners (2.5%) and the people of Western

Province (12.5%). While the Company is the major shareholder of the Ok Tedi mine, it does not have the powers of a majority

shareholder in a private company. It shares control of Ok Tedi Mining Ltd with the other shareholders.

Ordinary Shares % Holding

PNG Sustainable Development Program Limited 122,200,000 52

Independent State of Papua New Guinea 70,500,000 30*

Inmet Mining Corporation (of Canada) 42,300,000 18

Mine Operations and Performance

The mine continued improvements in its operations and

benefited from rising international prices for copper, silver

and gold during 2003. OTML declared and paid out dividends

during the period totalling US$125.9 million (K448.9

million). PNG Sustainable Development Program Limited’s

share of this dividend amounted to US$65.5 million (K233.4

million). This level of performance is expected to continue

and, subject to international prices, should result in higher

dividend payments throughout 2004.

The Environment

A new environmental regime is provided for in the new Ok

Tedi arrangements. As part of this regime, OTML has

converted its test dredging operation at Bige into a

permanent one to mitigate the future impact of aggradation

in the Ok Tedi and Fly River systems, at an annual cost of

approximately US$30 million. Through its ongoing

investigations, Ok Tedi has identified the potential for acid

rock generation (ARD) at the dredge sand stockpiles as an

environmental issue requiring research into long-term ARD

mitigation options. Although there is no occurrence of ARD

at this time, in either the dredge stockpiles at Bige or in the

waste rock dumps at the mine, OTML has identified the need

to mine additional limestone to provide a sufficient safety

factor for the neutralising capacity of the waste rock and

tailings discharge in the Ok Mani and Ok Tedi river systems.

OTML has adjusted its mine plans to obtain the necessary

levels of limestone production.

Western Province Mine Communities’ Support

The majority of the Mine Communities continue to support

the continued operation of the mine. Class action

proceedings against Ok Tedi Mining Ltd have been dismissed

by the Victorian Supreme Court. This has allowed for

increased cooperation and benefits to the people of the

Western Province, especially those covered by the

Community Mine Continuation Agreements (CMCAs). The

large majority of villages, representing more than 50,000

people, are signatories to these agreements. These

agreements define the terms under which the communities

affected by the mine’s operations have supported the mine’s

continuation. During 2003, Ok Tedi continued to implement

various aspects of the CMCAs and committed itself to

working with the communities to ensure that the funds

generated from these agreements are put to good use. An

invitation has been extended to other communities and

individuals in the CMCA areas who did not sign the CMCAs

to sign so that they can benefit from the development

programs and other benefits from the mine.

Contribution to Papua New Guinea

With a turn-over of K1.5 billion during 2003, Ok Tedi mine is

the largest single contributor to Papua New Guinea’s national

revenue, both directly and indirectly. The mine has made the

following contributions:



Production Materials moved: 235,000 tonnes per day; ore processed: 80,000 tonnes per day; copper

produced: 200,000 tonnes per annum; gold produced: 500,000 ounce per annum.

Exports K1.5 billion, which is 18% of PNG’s total exports and 10% of GDP.

Royalties K17.39 million to Western Province Government and K7.1 million to landowners.

Mining Levy K43.8 million to the Papua New Guinea Government.

Dividends K448.9 million to shareholders, including K121.2 million to the Papua New Guinea

Government, K13.5 million to Mineral Resources Ok Tedi No.2 Limited and K233.4 million

to PNGSDP Ltd.

Dividend Withholding Tax K31.4 million (K23.3 million from PNGSDP Ltd & K8.1million from Inmet).

Tax Credit Scheme K45 million spent so far on Government-led development projects in health, education,

roads, bridges, airports, police and utilities in the Western Province.

Training Expenditure K5.4 million on staff training and community education scholarships, totalling K40.62 million

since 1981.

Employment 2000 people employed, 93 per cent of whom are PNG citizens, and 694 from the preferred

area. Total PNG wage and salary payments of K80 million.

Contractors K446.6 million on contractors, K316.1 million of which was paid to PNG companies.

OTML’S Contribution to Papua New Guinea

PNG Sustainable Development

Program Limited and OTML

Apart from having a 52% interest in Ok Tedi Mining Ltd and

the obligations that arise from that interest, the Company

has certain obligations under the BHP Billiton exit

arrangements. It also shares a common interest with OTML

in promoting sustainable programs within the Western

Province and in facilitating a mine closure that minimises

impacts on affected communities, including in finding

economic use for mine-related infrastructure.

A) Contractual Obligations to OTML

The new ownership arrangements also impose

contractual obligations on the Company in relation to

OTML in recognition of the importance of OTML as the

Company’s sole source of income and to ensure that

OTML remains a profitable and responsible mining

operation over its remaining economic life.

B) Directors’ Remuneration

PNG Sustainable Development Program Limited appoints

one director to the Board of OTML and the Board of the

Company has appointed Dr Garnaut to the Board of

OTML. It is a requirement under the OTML Constitution

for non-independent directors’ fees to be paid by their

nominating body and therefore Dr Garnaut’s fees are met

by the Company.

C) Deed of Indemnity to OTML Independent Directors

As part of the new arrangements, the Company is a party

to an Option Deed signed with OTML on 6 February 2002

under which OTML has a right to require the Company to

execute a deed of indemnity in respect of a person who

is, or is about to be, appointed or deemed to be appointed

a director under paragraph 59(2) of OTML’s Constitution

if OTML is unable to obtain, maintain or renew Directors’

& Officers’ Insurance for that person on 'Commercial

Terms'. Such directors are independent non-executive

directors with extensive professional experience relating

to the mining industry, and OTML’s Managing Director is

deemed to be a director appointed under paragraph

59(2) (the Independent Directors). OTML exercised its

right under the Option Deed and the Board approved the

Deeds of Indemnity for each independent director of

OTML which were executed with Mr Keith Faulkner, Mr

Richard Zandee and Mr Peter Roberts during 2003.

OTML (Financing) Subsidy Deed

The Company paid US$0.8 million (K2.8 million) to Ok Tedi

Mining Ltd during the year in accordance with the Subsidy

Deed between the Company and OTML of 11 December

2001. Under this deed the Company has agreed to pay as a

non-refundable subsidy an amount equal to increased

borrowing costs and charges incurred by OTML as a result

of not being a subsidiary of BHP Billiton up to an average

weighted increase of all rates, costs and charges of 2.5%

and on a maximum loan commitment of US$120 million.


Ok Tedi Mine Closure Planning

The Ok Tedi Mine closure will have a significant impact on

Western Province and the nation. PNG Sustainable

Development Program Limited is required to give first priority

under the Long Term Fund to supporting economic and

social services that mitigate the consequences of mine

closure within Western Province. As part of the new

arrangements, OTML is required to prepare and submit a

Mine Closure Plan to the State. A major component is

consultation between all interested parties to identify and

examine the feasibility of alternative uses for key

infrastructure after the mine closes. OTML is required to set

aside funds (currently estimated at US$100 million) for mine

closure and decommissioning.

In 2003 PNG Sustainable Development Program Limited

was invited by the Department of Mining and OTML to be a

member of the Mine Closure Planning Committee. This

Committee is responsible for overall planning and

coordination of all activities leading to the closure of the

mine, provisionally estimated to take place in 2010. The

Committee is chaired by the Department of Mining and

has representatives from all major stakeholders. The

Company is represented on all five sub-committees and the

main Mine Closure Planning Committee. The five sub-

committees are: training and education; health; business

development; infrastructure; provincial liaison, and

community consultation.

Post Mine Closure Sustainable Development Programs

The Company has a special responsibility to support

programs and projects that help mitigate the impact of the

Ok Tedi Mine closure. Funding for this purpose after mine

closure would be from the Long Term Fund.

There are two dimensions to this responsibility. The first

relates to supporting mine-related physical and service

infrastructure that would be required for continued social

and economic services and activities after mine closure. The

second relates to supporting economic and social

development investments that will sustain communities

affected by the mine’s closure. Given the large size of the

mine’s operations and activities throughout the Western

Province and the Telefomin District of West Sepik Province,

the Company’s strategy and programs will need to extend

beyond the immediate mine communities.

OTML has significant experience in development activities

within the Western Province, which has been valuable

to the Company.

Ok Tedi Mining Ltd also provided valuable logistical support,

advice and information to the Company for studies relating to

the Lake Murray Village Rubber Project, surveys of the

provincial power and communications systems, and

investigation of the Micro Finance and Technical Training

projects. The proposed Lake Murray Village Rubber and

National Micro Finance projects are examples of program-

level cooperation between the Company and OTML.

PNG Sustainable Development Program Limited also

conducted a pre-feasibility study during 2003 of options for

supporting the OTML Training Facilities at Tabubil after the

Ok Tedi mine closes. The study included visits to the Western

Province for discussions with relevant stakeholders and

institutions involved with providing technical skills training in

the province. The study identified four types of training

offered at Tabubil: mine-related trade training, generic trade

training, CODE studies and community training programs.

The study also identified options for several of OTML’s

training facilities.

Both OTML and PNG Sustainable Development Program

Limited continue to find ways to improve partnership

arrangements for promoting sustainable development in the

Western Province, and in particular to identify projects that

both could support.


D i r e c t o r ’ s R e p o r t o n C o m p a n y A c c o u n t sFinancial Statements

The audited financial statements for the Company for the

financial year ended 31 December 2003 were signed on

2 April 2004.

The summarised statement of financial performance and

statement of financial position set out below have been

extracted from the audited financial statements of the

Company, which are presented in United States Dollars. The

Company has adopted the United States Dollar as its

functional currency, as this is the currency of the primary

economic environment in which the Company operates and

invests. Amounts have been converted to Kina for

supplementary presentation purposes at the year end

exchange rate of 0.3045 (2002: 0.2453) for balance sheet

items and the average exchange rate for 2003 of 0.2806

(2002: 0.2552) for income statement items. Reference

should be made to the financial statements of the Company

for a true and fair view of its financial position as at 31

December 2003 and its performance for the financial year

then ended in accordance with generally accepted

accounting practices, and the auditor’s report thereon.

Summarised Income Statement

Supplementary Information

Period Period

20 Oct 2001 20 Oct 2001

Year ended Year ended Year ended Year ended

31 Dec 2003 31 Dec 2002 31 Dec 2003 31 Dec 2002

US $’000 US $’000 K’000 K’000

Dividend income from OTML 65,504 7,171 233,443 28,100

Other investment income 2,430 9 8,660 35

Total Revenue 67,934 7,180 242,103 28,135

Governance and administration 2,544 503 9,066 1,971

Development and investment programs 292 - 1,041 -

Total Expenditure 2,836 503 10,107 1,971

Operating surplus 65,098 6,677 231,996 26,164

Papua New Guinea Withholding Tax 6,550 717 23,343 2,810

Net surplus after tax 58,548 5,960 208,653 23,354


Summarised Balance Sheet

Supplementary Information

Dec 2003 Dec 2002 Dec 2003 Dec 2002

US $’000 US $’000 K’000 K’000

Current assets

Cash and cash equivalents 14,824 6,579 48,683 26,820

Available for sale investments 9,842 - 32,322 -

Debtors and prepayments 70 68 230 277

24,736 6,647 81,235 27,097

Non-current assets

Available for sale investments 40,438 - 132,801 -

Investment in OTML at cost 2,904 2,904 9,537 11,839

Property, plant and equipment 218 60 716 245

43,560 2,964 143,054 12,084

Total Assets 68,296 9,611 224,289 39,181

Current liabilities

Loan from BHP Billiton Limited 3,500 3,500 11,494 14,268

Other liabilities 288 151 946 616

Total Liabilities 3,788 3,651 12,440 14,884

Net Assets 64,508 5,960 211,849 24,297

General Fund 1,431 663 4,700 2,703

Long Term Fund 42,114 3,531 138,305 14,395

Development Fund 20,963 1,766 68,844 7,199

Total Funds 64,508 5,960 211,849 24,297


D i r e c t o r ’ s R e p o r t o n C o m p a n y A c c o u n t s C o n t i n u e d

Acquisition of Subsidiary

As part of the agreements between BHP Billiton and the

Independent State of Papua New Guinea that came into

effect on 20 December 2001, the Company acquired a 52%

interest in OTML for zero consideration. The Company’s

share of the net tangible assets of the subsidiary at

acquisition was US$108.7 million.

Directors’ Interests in Shares or Debentures

There were no registered shareholdings in the Company and

its subsidiary by any of the directors as at the date of this

report.

Directors’ Remuneration

The Members approved initial Directors’ Fee levels at

A$80,000 per annum and for the Chairman of the Board at

A$120,000 per annum. These levels were established by

the Company prior to the appointment of the current Board,

and were recommended by BHP Billiton as being appropriate

for the Company in the future. Consistent with BHP Billiton’s

recommendation, fee levels will be raised annually from 1

July 2004 in line with the increase in the Australian

Consumer Price Index, taking the index as at 30 June 2003

as the base.

Directors’ Contractual Benefits

Since the date of incorporation, the directors have not

received any contractual benefits entered into with the

Company except for Dr Ross Garnaut, who is a nominee

director of the Company’s subsidiary and will be receiving

remuneration in this capacity.

Tax Payments to Papua New Guinea

The Company paid US$6.5 million (K23.3 million) in Dividend

Withholding Tax to the Internal Revenue Commission of

Papua New Guinea during the period. No tax has been paid

to Singapore authorities.

Appointment of the Auditors

The Auditors, PricewaterhouseCoopers, have been

reappointed as Auditors of the Company for 2004.

Audit Committee

The audit committee is Lim How Teck (Chairman), Ross

Garnaut and Jakob Weiss. The committee is fully responsible

for the internal and external audits of the Company and for

ensuring full compliance with all regulatory requirements.

Accountants

The Company appointed Deloitte Touche Tohmatsu Papua

New Guinea to provide accounting services to the Company

as from 10 December 2003.

BHP Billiton Limited (BHP) Loan Facility

As at 31 December 2003, the amount of US$3.5 million

remained unpaid by the Company under the loan facility with

BHP Billiton.

Development Program Expenditures

As at 31 December 2003, US$292,038 had been spent in

the period on development programs for the Western

Province and for Papua New Guinea as a whole.


F i n a n c i a l S t a t e m e n t s

PNG Sustainable Development Program LimitedIncorporated in Singapore - company Limited by Guarantee

Financial StatementsFor the financial year ended 31 December 2003

C o n t e n t s

Directors’ Report ..................................................................................................................42

Statement by Directors..........................................................................................................43

Auditors’ Report ...................................................................................................................44

Income Statement ...............................................................................................................45

Balance Sheet ......................................................................................................................46

Statement of Changes in Equity...............................................................................................47

Cash Flow Statement.............................................................................................................48

Notes to the Financial Statements...........................................................................................49

The directors present their report to the Members together with the audited financial statements of the Company for the financial

year ended 31 December 2003.

Directors

The directors of the Company in office at the date of this report are:

• Jakob Weiss

• James Joseph Carlton

• Patricia Joy Caswell

• Ross Gregory Garnaut

• Donald Wabirao Manoa

• Lim How Teck (appointed 31 January 2003)

• Sir Ebia Olewale (appointed 9 April 2003)

Arrangements to Enable Directors to Acquire Benefits

Neither at the end of or at any time during the financial year was the Company a party to any arrangement whose object was to

enable the directors of the Company to acquire benefits by means of the acquisition of shares in, or debentures 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.

Directors’ Contractual Benefits

Since the end of the previous financial period, no director has received or become entitled to receive a benefit by reason of a

contract made by the Company or a related corporation with the director or with a firm of which he is a member or with a

company in which he has a substantial financial interest, except that Mr Ross Gregory Garnaut is a nominee director of the

Company’s jointly controlled entity and will be receiving remuneration in this capacity, remuneration payable by the Company.

Auditors

The auditors, PricewaterhouseCoopers, have expressed their willingness to accept re-appointment.

On behalf of the directors

Ross Gregory Garnaut Donald Wabirao Manoa

Director Director

2 April 2004


P N G S D P L t d F i n a n c i a l S t a t e m e n t s

D i r e c t o r s ’ R e p o r t



In the opinion of the directors,

(a) the financial statements of the Company as set out on pages 45 to 62 are drawn up so as to give a true and fair view of

the state of affairs of the Company at 31 December 2003 and of the results of the business, changes in equity and cash

flows of the Company 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 its debts as and

when they fall due.

On behalf of the directors

Ross Gregory Garnaut Donald Wabirao Manoa

Director Director

2 April 2004

S t a t e m e n t b y D i r e c t o r s



We have audited the financial statements of PNG Sustainable Development Program Limited for the financial year ended 31

December 2003 set out on pages 45 to 62. These financial statements are the responsibility of the Company’s directors. Our

responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Singapore Standards on Auditing. Those Standards require that we plan and perform

our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also

includes assessing the accounting principles used and significant estimates made by the directors, as well as evaluating the

overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion,

(a) the financial statements of the Company are properly drawn up in accordance with the provisions of the Companies Act, Cap

50 (“the Act”) and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the

Company as at 31 December 2003 and the results, changes in equity and cash flows of the Company for the financial year

ended on that date; and

(b) the accounting and other records (excluding registers) required by the Act to be kept by the Company have been properly

kept in accordance with the provisions of the Act.


Certified Public Accountants

Singapore, 2 April 2004

A u d i t o r s ’ R e p o r t t o t h e D i r e c t o r s o f P N G S D P L t d



For the Financial

period from

For the 20 Oct 2001,

Financial Year date of

ended incorporation, to

31 Dec 2003 31 Dec 2002

Notes US $ US $

Revenue 4 67,934,362 7,180,076

Expenses

Governance and Administrative 5 (2,543,763) (503,171)

Development and Investment Programs 5 (292,038) -

Operating surplus before tax 6 65,098,561 6,676,905

10% Dividend Withholding Tax paid to the Internal

Revenue Commission (Papua New Guinea) 8 (6,550,440) (717,228)

Net surplus 58,548,121 5,959,677

I n c o m e S t a t e m e n tF o r t h e F i n a n c i a l Ye a r e n d e d 3 1 D e c e m b e r 2 0 0 3



2003 2002

Notes US $ US $

ASSETS

Current assets

Cash and cash equivalents 9 14,823,622 6,578,593

Available-for-sale investments 10 9,841,791 -

Other debtors and prepayments 11 70,531 68,030

24,735,944 6,646,623

Non-current assets

Available-for-sale investments 10 40,437,944 -

Investment in a jointly controlled entity 12 2,903,581 2,903,581

Property, plant and equipment 13 217,961 60,072

43,559,486 2,963,653

Total assets 68,295,430 9,610,276

LIABILITIES

Current liabilities

Other creditors and accruals 14 3,654,524 3,633,896

Provisions for employee benefit costs 133,091 16,686

3,787,615 3,650,582

Net assets 64,507,815 5,959,694

CAPITAL EMPLOYED AND RESERVES

Members’ subscriptions 15 17 17

Funds, which are comprised of:

- General Fund 1,431,078 662,752

- Long Term Fund 16 42,113,990 3,531,283

- Development Fund 16 20,962,730 1,765,642

64,507,815 5,959,694

B a l a n c e S h e e tA s a t 3 1 D e c e m b e r 2 0 0 3



Members’ General Long Term Development

subscriptions Fund Fund Fund Total

US$ US$ US$ US$ US$

Balance at 1 January 2003 17 662,752 3,531,283 1,765,642 5,959,694

Revenue:

Dividends from OTML - 65,504,400 - - 65,504,400

Other Investment Income - - 1,550,451 879,511 2,429,962

Expenses:

Governance and Administrative - (2,543,763) - - (2,543,763)

Development and Investment Programs - - (62,325) (229,713) (292,038)

10% Dividend Withholding Tax paid to

Internal Revenue Commission (Papua New Guinea) - (6,550,440) - - (6,550,440)

Net surplus for the financial year - 56,410,197 1,488,126 649,798 58,548,121

Transfer from General Fund - (55,641,871) 37,094,581 18,547,290 -

Balance at 31 December 2003 17 1,431,078 42,113,990 20,962,730 64,507,815

Balance at 20 October 2001

date of incorporation 17 - - - 17

Revenue

Dividends from OTML - 7,171,184 - - 7,171,184

Other Investment Income - - 5,928 2,964 8,892

Expenses:

Governance and Administrative - (503,171) - - (503,171)

Development and Investment Programs - - - - -

10% Dividend Withholding Tax paid to Internal

Revenue Commission (Papua New Guinea) - (717,228) - - (717,228)

Net surplus for the financial period - 5,950,785 5,928 2,964 5,959,677

Transfer from General Fund - (5,288,033) 3,525,355 1,762,678 -

Balance at 31 December 2002 17 662,752 3,531,283 1,765,642 5,959,694

The allocation of revenues and expenses and transfers from the General Fund to the Long Term Fund and the Development Fund

are determined in accordance with the rules of the Company [refer note 2(n)].

S t a t e m e n t i n C h a n g e s i n E q u i t yA s a t 3 1 D e c e m b e r 2 0 0 3



For the Financial

period from




31 Dec 2003 31 Dec 2002

US$ US$

Cash flows from operating activities

Operating surplus before taxation 65,098,561 6,676,905

Adjustments for:

Depreciation 72,844 5,086

Interest income (1,436,497) (34,896)

Dividend income (65,507,563) (7,171,184)

Operating cash flow before working capital changes (1,772,655) (524,089)

Change in operating assets and liabilities

Other debtors and prepayments (13,842) (53,473)

Other creditors and accruals 137,033 3,650,582

Cash (used in)/generated from operations (1,649,464) 3,073,020

Dividends received (net of withholding tax) 58,957,123 6,453,956

Interest received 1,447,838 20,339

Net cash inflow from operating activities 58,755,497 9,547,315

Cash flows from investing activities

Payments for investment securities (62,974,379) -

Proceeds from sales of investment securities 12,694,644 -

Payments for investment in a jointly controlled entity - (2,903,581)

Payments for property, plant and equipment (230,733) (65,158)

Net cash outflow from investing activities (50,510,468) (2,968,739)

Cash flows from financing activity

Net proceeds from membership subscriptions - 17

Net cash inflow from financing activity - 17

Net increase in cash and cash equivalents 8,245,029 6,578,593

Cash and cash equivalents at the beginning of the

financial year/period 6,578,593 -

Cash and cash equivalents at the end of the

financial year/period 14,823,622 6,578,593

C a s h F l o w S t a t e m e n tF o r t h e F i n a n c i a l Ye a r e n d e d 3 1 D e c e m b e r 2 0 0 3



These notes form an integral part of and should be read in conjunction with the accompanying financial statements.

1. General

The Company is incorporated and domiciled in Singapore. The address of its principal place of business is as follows: Level

7, Pacific Place, Champion Parade, PO Box 1786, Port Moresby, Papua New Guinea.

The principal activity of the Company is to promote sustainable development within, and advance the general welfare of the

people of Papua New Guinea, particularly those of the Western Province of Papua New Guinea, through supporting

programs and projects in the areas of capacity building, health, education, economic development, infrastructure,

community self-reliance, local community leadership and institutional capacity and other social and environmental purposes

for the benefit of those people.

2. Significant accounting policies

(a) Effect of Changes in Singapore Companies Legislation

Pursuant to the Singapore Companies (Amendment) Act 2002, with effect from the financial year commencing on or after

1 January 2003, Singapore-incorporated companies are required to prepare and present their statutory accounts in

accordance with the Singapore Financial Reporting Standards (“FRS”). Hence, these financial statements, including the

comparative figures, have been prepared in accordance with FRS.

Previously, the Company prepared its statutory accounts in accordance with Singapore Statements of Accounting Standard.

The adoption of FRS does not have a material impact on the accounting policies and figures presented in the statutory

accounts for the financial period ended 31 December 2002, except as disclosed in note 3 to the financial statements.

(b) Basis of Preparation

These financial statements have been prepared under the historical cost convention, as modified by the re-measurement

of available-for-sale investments at fair value. The preparation of financial statements in conformity with Singapore Financial

Reporting Standards requires the use of estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenues and expenses during the financial year. Although these estimates are based on management’s best knowledge

of current events and actions, actual results may ultimately differ from those estimates.

(c) Revenue Recognition

Dividends are recognised when the right to receive payment is established.

Interest income is recognised on a time proportion basis, taking into account the principal outstanding and the effective

rate over the period of maturity, when it is determined that such income will accrue to the Company.

The difference between the market value of investment in securities [note 2(f)] and cost, as well as gains made on disposal

of investments, are included in revenue as other income from investments.

(d) Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses.

Depreciation is calculated on a straight-line basis to write off the cost of property, plant and equipment over the expected

useful lives of the assets concerned. The annual rates used for this purpose are:

%

Computers 100

Motor vehicles 20

Office furniture and equipment 331/3

N o t e s t o t h e F i n a n c i a l S t a t e m e n t sF o r t h e F i n a n c i a l Ye a r e n d e d 3 1 D e c e m b e r 2 0 0 3



2. Significant Accounting Policies Continued

Repairs and maintenance are taken to the income statement during the financial period in which they are incurred.

Where an indication of impairment exists, the carrying amount of the asset is assessed and written down immediately to

its recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating

surplus.

(e) Investment in Jointly Controlled Entity

Jointly controlled entities are corporations, partnerships or other entities over which there is contractually agreed sharing

of control by the Company with one or more parties. Investments in joint ventures are stated at cost less impairment

losses in the Company’s balance sheet. Where an indication of impairment exists, the carrying amount of the investment

is assessed and written down immediately to its recoverable amount.

On disposal of an investment, the difference between net disposal proceeds and its carrying amount is taken to the

income statement.

The investment in OK Tedi Mining Limited (“OTML”) has been reclassified from Investment in subsidiary to Investment in

jointly controlled entity as at 31 December 2003 as the Company shares control over OTML with other shareholders.

Accordingly, the investment in OK Tedi Mining Limited is not consolidated and consolidated financial statements are not

prepared by the Company.

(f) Investments

Investments in debt and equity securities are intended to be held for an indefinite period of time and may be sold in response

to needs for liquidity or changes in interest rates and are classified as available-for-sale. They are included in non-current

assets unless management has the express intention of holding the investment for less than 12 months from the balance

sheet date or unless they will mature within that period, in which case they are included in current assets.

Purchases and sales of investments are recognised on the trade date, which is the date that the Company commits to

purchase or sell the asset. They are subsequently carried at fair value, with independent revaluations performed by the

Company’s appointed investment manager on a monthly basis. Unrealised gains and losses arising from changes in the fair

value of securities are recognised in the income statement in the period in which they arise.

Securities listed on an exchange are valued at the latest traded price reported by the principal securities exchange on which

the issue is traded or, lacking any sales, at the closing bid prices.

Securities that are dealt on the Alternative Investment Market of the London Stock Exchange (‘AIM’) are valued by reference

to the closing middle market price based on the stock exchange daily official list on the relevant date.

Securities that are not listed on a stock exchange are valued as at the relevant date using the most recent and reliable

valuations available.

Units in collective investment schemes are valued at the mid market price.

(g) Impairment of Long Lived Assets

Property, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or

changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised

for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s

net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for

which there are separately identifiable cash flows.





(h) Leases

Operating leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as

operating leases. Payments made under operating leases (net of any incentives received from the lessor) are taken to the

income statement on a straight-line basis over the period of the lease.

When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor

by way of penalty is recognised as an expense in the period in which termination takes place.

(i) Deferred Income Taxes

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases

of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the

determination of deferred income tax.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which

the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in joint ventures, except where the timing

of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not

reverse in the foreseeable future.

(j) Provisions

Provisions are recognised when the Company has a legal or constructive obligation as a result of past events, it is probable

that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(k) Employee Benefits

Employee leave entitlement

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the

estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

(l) Foreign Currency Translation

(1) Measurement currency

Items included in the financial statements are measured using the currency that best reflects the economic substance of

the underlying events and circumstances relevant to that Company (“the measurement currency”). The financial

statements of the Company are presented in United State Dollars (“US$”), which is the measurement currency of the

Company.

(2) Transactions and balances

Foreign currency transactions are translated into US$ using the exchange rates prevailing at the date of transactions.

Foreign currency monetary assets and liabilities are translated into US$ at the rates of exchange prevailing at the balance

sheet date or at contracted rates where they are covered by forward exchange contracts. Foreign exchange gains and

losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities

denominated in foreign currencies, are recognised in the income statement.

(m) Cash and Cash Equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise balances with less than ninety days’

maturity from the date of acquisition including: cash and bank balances, treasury bills, commercial papers, certificates of

deposit and other eligible bills.





(n) 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 other sources to a Long

Term Fund, a Development Fund and a General Fund attributable to the operations of the Company.

In pursuing its objectives, the Company is able to invest and utilise its available resources from the Long Term Fund, the

Development Fund and General Fund in accordance with the Rules of the Company.

Long Term Fund

The Long Term Fund represents 2/3 of net income received from OTML after deducting operating expenses and all other

legal contractual obligations as specified in the Rules of the Program relating to the application of the income received.

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

Before 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 commitment which 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 a call 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 the next 6 months in accordance with the budget approved by the Board from time to time.

(b) To the extent that distributions and investment income received after the mine closure date are insufficient 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 of Directors in accordance

with Rules clause 10.4.

Development Fund

The fund is to be used to support and fund programs and projects that promote sustainable development in accordance

with the “Rules for the PNG Sustainable Development Program” scheduled to and forming part of the Articles of Association

of the Company.

The Development Fund represents 1/3 of income received from OTML after deducting operating expenses and 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 the Company and at

the discretion of the Board for the benefit of the people of Western Province;

(b) 2/3 of these funds to be used in accordance with the Objects of the Articles of Association of the Company 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, capacity building, economic

development, infrastructure, community self-reliance, local community leadership and institutional capacity and other social

and environmental purposes for the benefit of the people of Papua New Guinea, in particular the people of the Western

Province.

General Fund

In accordance with clause 14 of the “Rules for the PNG Sustainable Development Program”, a yearly budget of

administration costs must be prepared and approved by the Board of Directors.





(n) Long Term Fund, Development Fund and General Fund Continued

The Company budget prepared for each year after the third year of the Program must reflect that the portion of the

operating 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 3 accounting years.

The administration costs cover the normal operating expenses of the Company and of the Program including (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, and any tax payable by the Company.

3. Adjustments to Prior Year’s Statutory Accounts

The adoption of FRS does not have material impact on the accounting policies and figures presented in the statutory

accounts for the financial period ended 31 December 2002 except for the use of US$ as the Company’s measurement

currency upon the adoption of INT FRS 19 Reporting Currency - Measurement and Presentation of Financial Statements

under FRS 21 and FRS 29 (INT FRS 19) during the financial year ended 31 December 2003.

Items included in the statutory accounts of the Company for the financial period ended 31 December 2002 were measured

and presented using Singapore Dollars (S$) as the Company was statutorily required to present its statutory accounts in

S$. Upon adoption of INT FRS 19, the Company determined US$ as its measurement currency as US$ best reflects the

economic substance of the underlying events and circumstances relevant to the Company. Items in the financial

statements, including the comparative figures, have been measured and presented in US$.

There is no significant impact on the results or net assets of the Company for the financial period ended 31 December

2002 arising from the adoption of the Singapore Financial Reporting Standards.

4. RevenueFor the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Dividends from investment in jointly controlled entity 65,504,400 7,171,184

Other dividends 3,163 -

Foreign exchange gains/(losses) 1,140,532 (26,004)

Gains/(losses) from market value of securities changes (150,230) -

66,497,865 7,145,180

Interest income on investments and cash balances 1,436,497 34,896

67,934,362 7,180,076

The Company received gross dividend income of US$65,504,400 (2002: US$7,171,184) from its investment in a jointly

controlled entity, OK Tedi Mining Limited, during the financial year. A 10% dividend withholding tax of US$6,550,440

(2002: US$717,228) was deducted in respect of this dividend income and paid to the Papua New Guinea Internal Revenue

Commission during the financial year (see note 8).




5. Expenses

For the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Constitutional & Establishment 19,872 32,298

Commitment fees paid to OTML (note 20) 796,667 -

Board of Directors 489,054 136,927

Board Committee - 8,638

Company Secretary 21,824 38,637

Advisory Council 15,244 -

Annual Report Meeting 44,319 97

Shareholders’ Costs 17,970 -

Administration 1,138,813 286,574

Total Governance and Administrative Expenses 2,543,763 503,171

Development Program Costs 223,003 -

Investment Program Costs 69,035 -

Total Development and

Investment Program Costs 292,038 -

6. Operating Surplus Before Tax

The following items have been included in arriving at the operating surplus before tax:

For the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Charging:

Depreciation 72,844 5,086

Rental expenses 46,138 -

Audit fees 28,156 8,586




7. Staff Costs

For the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Wages and salaries 308,973 30,527

Employee benefits and on-costs 61,935 4,579

Superannuation contributions 22,393 2,466

393,301 37,572

The number of persons employed at the end of the financial year was 11 (2002: 4).

8. Tax

Tax expense

For the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Tax expense attributable is made up of:

Current income tax - Foreign 6,550,440 717,228




8. Tax Continued

The foreign tax is the dividend withholding tax deducted from the dividend income that the Company received from its jointly

controlled entity, Ok Tedi Mining Limited. The 10% dividend withholding tax has been paid to the Papua New Guinea Internal

Revenue Commission during the financial year.

No Singapore income tax is payable on the basis that the dividend and interest income is not remitted to Singapore.

The tax expense on results differs from the amount that would arise using the Singapore standard rate of income tax due

to the following:

For the Financial

period from




31 Dec 2003 31 Dec 2002

US $ US $

Operating surplus before tax 65,098,561 6,676,905

Tax calculated at a tax rate of 22% (2002:22%) 14,321,683 1,468,919

Effect of different tax rates in other countries (7,860,528) (860,542)

Income not subject to tax (534,592) (1,846)

Tax benefits of deductible expenses not recognised 623,877 110,697

6,550,440 717,228

9. Cash and Cash Equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprises the following balances with less than

90 days’ maturity:

2003 2002

US$ US$

Cash and bank balances 874,103 6,578,593

Cash held in investment funds 4,960,628 -

Commercial papers and certificates of deposit 8,988,891 -

14,823,622 6,578,593

The weighted average effective interest rate on interest-bearing cash and cash equivalent balances at 31 December 2003

of US$14,497,450 was 0.83%.

Currency profile

US Dollars 14,507,783 6,487,973

PNG Kina 315,839 90,620

14,823,622 6,578,593




10. Available-for-sale Investments

2003 2002

US$ US$

Current

Corporate bonds (quoted) 9,479,702 -

Accrued interest 362,089 -

9,841,791 -

Long term

Government bonds (quoted) 34,693,667 -

Corporate bonds (quoted) 1,067,387 -

Equity securities (quoted) 4,220,922 -

Accrued interest 455,968 -

40,437,944 -

Total 50,279,735 -

Available-for-sale investments are accounted for in accordance with the accounting policy set out in note 2(f). The weighted

average effective interest rate on corporate and government bonds at 31 December 2003 was 3.75%.

Currency profile

US Dollar 35,602,971 -

Euro 10,525,476 -

Canadian Dollar 2,742,909 -

Sterling 649,874 -

Yen 292,909 -

Other 465,596 -

50,279,735 -

11. Other Debtors and Prepayments

2003 2002

US$ US$

Prepayments 62,844 52,026

Interest receivable 3,216 14,557

Deposits 4,471 1,447

70,531 68,030




12. Investment in Jointly Controlled Entity

2003 2002

US$ US$

Investment in a jointly controlled entity

(unquoted, at cost) 2,903,581 2,903,581

This amount represents stamp duty and legal fees incurred relating to the transfer of shares in the jointly controlled entity

to the Company.

Under the Companies Act, a company is a legal subsidiary of another company if the latter owns more than 50% of the

equity interest of the former. However, this legal subsidiary is not consolidated because it does not meet the definition of

subsidiaries under FRS 27: “Consolidated Financial Statements and Accounting for Investments in Subsidiaries” as the

Company does not have control in this legal subsidiary independent from other shareholders. Accordingly, this legal

subsidiary has been accounted for as an investment in a jointly controlled entity by the Company in accordance with FRS

31: “Financial Reporting of Interests in Joint Ventures” as this joint venture entity is jointly controlled by its shareholders.

Details of the jointly controlled entity are as follows:

Name of jointly Principal Country of business Equity

controlled entity activities and incorporation holding

Ok Tedi Mining Limited Mining and processing Papua New Guinea 52%

of copper ore

In accordance with the Funding Facility Deed dated 22 November 2001 and the Equitable Mortgage of Shares dated 7

February 2002 between the Company and Insinger Trust (Singapore) Limited, there is an equitable charge over the OTML

shares which creates an interest in the dividend stream from the shares held in OTML (but not the shares themselves).

In 2003, the jointly controlled entity changed its accounting year end from 30 June to 31 December with its financial

statements covering the eighteen months period ended 31 December 2003.

The jointly controlled entity was transferred by BHP Minerals Holdings Proprietary Limited to the Company for nil

consideration on 7 February 2002 and this gave rise to a discount on acquisition of $105,785,694.

The following amounts represent the Company’s 52% share of the results and net assets of the joint venture if the

Company had equity accounted for its share of the results and net assets of its joint venture. When applying equity

accounting, the discount on acquisition is amortised to the income statement over the estimated useful life of the related

non-current assets.




12. Investment in Jointly Controlled Entity continued

2003 2002

US$ US$

At the beginning of financial year at 7 February 2002 / At date of acquisition 11,268,490 2,903,581

Share of results before tax 65,067,308 23,561,594

Share of tax paid to the Papua New Guinea tax authorities (17,871,407) (7,989,422)

Share of results after tax 47,195,901 15,572,172

Share of other recognised losses (5,967,002) -

Amortisation of discount on acquisition 11,975,739 9,979,782

Dividends received (65,504,400) (7,171,184)

Exchange differences 16,359,158 (10,015,861)

At the end of the financial year/period 15,327,886 11,268,490

The Company’s share of assets and liabilities of the joint venture comprises:

2003 2002

US$ US$

Non-current assets 111,746,032 100,205,136

Current assets 103,207,827 90,378,900

Current liabilities (38,990,113) (20,832,949)

Non-current liabilities (76,805,687) (62,676,686)

Net assets 99,158,059 107,074,401

Contingent liabilities

The Company has incurred the following contingent liabilities in relation to its interests in the jointly controlled entity:

2003 2002

US$ US$

Bank guarantees 14,426 70,302

Capital commitments

The Company has incurred the following capital commitments in relation to its interests in the joint venture:

2003 2002

US$ US$

Capital expenditure 818,237 1,291,373




13. Property, plant and equipment

Office furniture

Computers Motor vehicles and equipment Total

US$ US$ US$ US$

Cost

At 1 January 2003 12,383 51,290 1,485 65,158

Additions 20,566 65,030 145,137 230,733

At 31 December 2003 32,949 116,320 146,622 295,891

Accumulated depreciation

At 1 January 2003 2,939 1,850 297 5,086

Depreciation charge 23,641 20,505 28,698 72,844

At 31 December 2003 26,580 22,355 28,995 77,930

Net book value

At 31 December 2003 6,369 93,965 117,627 217,961

Net book value

At 31 December 2002 9,444 49,440 1,188 60,072

14. Other creditors and accruals

2003 2002

US$ US$

Amount due to BHP Billiton Limited 3,500,000 3,500,000

Other creditors and accruals 154,524 85,887

Amount due to directors - 48,009

3,654,524 3,633,896

The amount of $3,500,000 due to BHP Billiton Limited (“BHP”) was drawn from the funding facility per the Funding Facility

Deed signed between the Company and BHP on 22 November 2001, and is secured by a charge over the dividend income

stream from the shares held in OTML. Interest is not payable on the amount owing to BHP.

15. Members’ subscriptions

As a Company “limited by guarantee”, the Company does not have any issued shares or shareholders. At 31 December

2003, there were 3 members of the Company (2002: 3).




16. Long Term and Development Funds

Long Term Fund

The Long Term Fund is accounted for in accordance with the policy set out in note 2(n).

2003 2002

US$ US$

At the beginning of the financial year / at 20 October 2001 3,531,283 -

Investment income for the year/period 1,550,451 5,928

Investment expenses (62,325) -

Transfer from General Fund 37,094,581 3,525,355

At the end of the financial year/period 42,113,990 3,531,283

The weighted average rate of return on investment for the Long Term Fund for the year was 8.06% (2002: 0.58%).

Development Fund

The Development Fund is accounted for in accordance with the policy set out in note 2(n), and is allocated between the

Western Province Program Fund and the National Program Fund as follows:

Western Province National Total 2003 Total 2002

Program Fund Program Fund US$ US$

At the beginning of the financial year

at 20 October 2001 588,547 1,177,095 1,765,642 -

Investment income for the year/period 293,170 586,341 879,511 2,964

Investment expenses (2,237) (4,473) (6,710) -

Development program expenses (125,238) (97,765) (223,003) -

Transfer from General Fund 6,182,430 12,364,860 18,547,290 1,762,678

At the end of the financial year/period 6,936,672 14,026,058 20,962,730 1,765,642

The weighted average rate of return on investment for the Development Fund for the year was 9.15% (2002: 0.58%).

17. Commitments

Operating lease commitments

The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date

but not recognised as liabilities, are as follows :

2003 2002

US$ US$

Not later than 1 year 32,468 -

Later than 1 year but not later than 5 years 60,224 -

92,692 -





18. Financial Risk Management

The Company’s activities expose it to a variety of financial risks, including the effects of changes in debt and equity market

prices, foreign currency exchange rates and interest rates. The Company’s risk management programme focuses on the

unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the

Company by maintaining an appropriately diversified investment portfolio across asset classes and currencies.

The Company has appointed a professional investment manager to carry out the investment activities in accordance with

the investment strategy and policies approved by the Board of Directors. An Investment and Risk Management Committee

of the Board has been established to monitor investment and risk management performance and the performance of the

investment manager.

The Company does not have any significant concentrations of credit risk, and policies are in place that limit the amount of

credit exposure to any one financial institution.

19. Fair Values of Financial Assets and Financial Liabilities

The carrying amounts of the following financial assets and liabilities approximate their fair values: cash and cash

equivalents, other debtors and prepayments, available-for-sale investments and other creditors and accruals.

20. Related Party Transactions

The following transactions took place between the Company and related parties during the financial year:

(a) Commitment fees paid

Commitment fees of US$796,667 (2002: nil) were paid to a jointly controlled entity in accordance with Clause 2.2 of the

Subsidy Deed between the Company and Ok Tedi Mining Limited signed on 11 December 2001 and are non-recurrent.

(b) Directors’ remuneration

Directors’ remuneration included fees, salary and other emoluments (including benefits-in-kind) computed based on the cost

incurred by the Company, and where the Company did not incur any costs, the value of the benefit is included. In 2003,

the total directors’ remuneration is US$374,552 (2002: US$136,927), comprising directors’ fees of US$347,375 and

allowances of US$27,177. There has been no change in the amount of remuneration payable to individual directors. In

addition a director received US$35,000 from the jointly controlled entity in respect of his services as a director of that

entity.

21. Subsequent Events

The following non-adjusting subsequent events have arisen after the balance date:

(a) Dividends from jointly controlled entity

Gross dividends from OTML of US$20.8 million (US$18.72m net) and US$17.4 million (US$15.6 million net) were

received on 31 January 2004 and 31 March 2004 respectively.

(b) Repayment of advance

The US$3.5 million amount due to BHP Billiton Limited (note 14) was repaid on 22 March 2004.

22. Authorisation of Financial Statements

These financial statements were authorised for issue in accordance with a resolution of the Board of Directors of PNG

Sustainable Development Program Limited on 2 April 2004.


The Company is a party to a number of the agreements that

were entered into to give effect to BHP Billiton’s exit from Ok

Tedi Mining Limited. A brief description of the documents to

which the Company is a party, and a summary of the

Company’s obligation under each document, is as follows:

Master Agreement dated 11 December 2001 betweenthe Independent State of Papua New Guinea, MineralsResources Ok Tedi No. 2 Limited (MROT), BHP BillitonLimited, BHP Minerals Holdings Proprietary Limited, InmetMining Corporation, Ok Tedi Mining Limited, and PNGSustainable Development Program Limited. This

agreement sets out how the overall transaction is to be

documented and completed. The Company’s principal

obligation under this agreement is that it agreed to comply

with the Rules of the PNG Sustainable Development Program.

Fourth Restated Shareholders’ Agreement dated 11December 2001 between the Independent State of PapuaNew Guinea, Inmet Mining Corporation, MineralResources Ok Tedi No. 2 Limited, PNG SustainableDevelopment Program Limited, and Ok Tedi MiningLimited. This agreement restates the agreements between

the new shareholders of OTML and, where necessary,

amends the previous shareholders’ agreement to reflect the

new shareholding in OTML following the transaction. No

special obligations are imposed on the Company by this

agreement, which governs the relationship between the

shareholders of OTML.

Deed of Indemnity - BHP Billiton dated 11 December 2001between PNG Sustainable Development Program Limitedand BHP Billiton. Under this deed the Company has agreed

to indemnify any member of the BHP Billiton Group (other

than OTML) and their directors officers and employees

against:

• Any liability under a claim for environmental damage

arising out of the operation of the mine after the effective

date of the transaction (7 February 2002); and

• Any claim made in contravention of the undertaking given

by the State to the BHP Billiton parties not to prosecute

them for a breach of environmental laws in relation to the

operation of the mine prior to the effective date as

contained in section 5 of the Mining (Ok Tedi Mine

Continuation (Ninth Supplemental) Agreement) Act 2001

(the Act).

Deed of Indemnity - The State dated 11 December 2001between PNG Sustainable Development Program Limitedand the Independent State of Papua New Guinea. Under

this deed the Company has agreed to indemnify the State

against all liability arising under a claim for environmental

damage caused by the operation of the mine before the

effective date resulting from an act or omission by BHP

Billiton in breach of its obligations under its management

agreement or in breach of environmental law.

Option Deed dated 11 December 2001 between PNGSustainable Development Program Limited and Ok TediMining Limited. Under this deed the Company has agreed at

the request of OTML to indemnify the independent directors

of OTML in respect of claims against them arising out of their

acting as such director to the extent that appropriate

insurance is not available on commercial terms.

Subsidy Deed dated 11 December 2001 between PNGSustainable Development Program Limited and Ok TediMining Limited. Under this deed the Company has agreed to

pay as a non-refundable subsidy an amount equal to

increased borrowing costs and charges incurred by OTML as

a result of not being a subsidiary of BHP Billiton up to an

average weighted increase of all rates, costs and charges of

2.5% and on a maximum loan commitment of US$120

million.

Funding Facility Deed dated 22 November 2001 betweenBHP Billiton Limited and PNG Sustainable DevelopmentProgram Limited. Under this deed BHP Billiton has agreed

to provide a facility to the Company of up to (currently)

US$85 million to enable the Company to meet:

• Capital calls from OTML;

• A claim under an indemnity given by the Company;

• A financing subsidy to OTML under the Subsidy Deed; and

• In certain circumstances, operating expenses.

The facility reduced to US$70 million on 7 February 2004,

and is not available after 7 February 2005. Advances under

the facility do not bear interest, and repayments are only

required out of available cash flow.

All of the Company’s obligations (both actual and contingent)

under the Deed of Indemnity - BHP Billiton, the Deed of

Indemnity - the State, the Funding Facility Deed, and the

Subsidy Deed, are secured by a charge over the dividend

stream attached to the shares held by it in OTML (but not

the shares themselves). This charge is held by a security

trustee, Insinger Trust (Singapore) Limited (Insinger), in trust

parri passu for all parties entitled to a payment under any of

the above documents. Accordingly, the Company is also a

party to the following documents (all dated 7 February 2002)

which give effect to these security arrangements:

• An Equitable Mortgage of Shares in favor of Insinger;

• A Security Deed between PNGSDPL, OTML and Insinger;

and

• A Security Trust Deed between PNGSDPL, BHP Billiton,

ISPNG, OTML and Insinger.

AGREEMENTS ENTERED INTO BY THE COMPANY IN RELATION TO BHP BILLITON’S EXIT FROM OTMLAND TRANSFER OF ITS SHARES TO PNGSDP LTD

A n n e x e s


M a p sP a p u a N e w G u i n e a


W e s t e r n P r o v i n c e


Details Western Province PNG

Population 153,304 5,190,786

Number of Districts 3 87

1. Middle Fly District 55,853 persons

2. North Fly District 50,914 persons

3. South Fly District 46,537 persons

Number of Local Level Government areas 14 297

Proportion of PNG population 3.0%

Average annual growth rate 1990 - 2000 3.3% 3.2%

Sex Ratio 107 males p/100 females 108 males p/100 females

Population Density 2 persons per km2 11.2 persons per km2

Average household size 6.0 persons 5.1 persons

Land mass 97,300 km2 462,840 km2

Arable Land Area 2,757 km2 60,235 km2

Crude birth rate 46.7% 36.1%

Crude death rate 10.8% 11.8%

Infant mortality rate (per 1,000 live births) 54 73

Child mortality rate per 1,000 live births) 19 31

Population with no education (1990) 52.7% -

Population with Grade 6 + education (1990) 25.7% 16.5%

Literacy rate (1990) 67% 45%

% of persons in formal employment (1990) 21% 18%

% of persons in subsistence &

semi-subsistence employment 1990 69% 74%

B a s i c S t a t i s t i c s


C o r p o r a t e D i r e c t o r y

Board of DirectorsDr Ross Garnaut AO BA PhD (Chairman)

Sir Ebia Olewale Kt

Honorable Jim Carlton AO BSc

Mr Donald Manoa

Ms Patricia Caswell BA (Hon) Dip Ed BEd

Dr Jakob Weiss BA Econ MBA PhD

Mr Lim How Teck B Acc CPA FCMA AIBA PBM

Registered OfficeDrewCorp Services Pte Ltd

20 Raffles Place

#09-01 Ocean Towers

Singapore 048620

Company SecretaryMs Madelyn Kwang

Tel (65) 6531 4187

(65) 6531 2266

Fax (65) 6533 1542

(65) 6533 7649

Head Office7th Floor

Pacific Place

PO Box 1876

Port Moresby 121

Papua New Guinea

Chief Executive OfficerMr Robert Igara CMG BEcon Grad Dipl in Intl Law MBA

Tel (675) 320 3844

(675) 320 3845

(675) 320 3846

Fax (675) 320 3855

BankersBank of South Pacific

Commercial Centre

PO Box 1710

Boroko

Papua New Guinea

Bankers continuedANZ Banking Group Limited

31/F, One Exchange Square

8 Connaught Place

Central Hong Kong

ANZ Banking Group

10 Collyer Quay

#17-01/07 Ocean Building

Singapore 049315

Funds ManagerNewton Investment Management Limited

71 Queen Victoria Street

London EC4V 4DR

United Kingdom

AccountantsDeloitte Touche Tohmatsu

Level 12, Deloitte Tower

Douglas Street, P.O.Box 1275

Port Moresby, Papua New Guinea.

AuditorsPricewaterhouseCoopers

8 Cross Street #17-00

PWC Building, Singapore 048424


Credit House, Cuthbertson Street

PO Box 484

Port Moresby

Papua New Guinea

LawyersGadens Lawyers

PO Box 1042

12th Floor Pacific Place

Port Moresby

Papua New Guinea

B24257 PNG ANNUAL REVIEW 2003 - PNGSDP · Ok Tedi Mining Ltd Operations ... and Ok Tedi Mining...

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