Risks and Fiscal Concerns in the Extraction of Natural Resources : A Study of Transnational Corporations in Papua New Guinea

Transnational corporations (TNCs) dominate the extraction activities of high-value mineral resources in Papua New Guinea (PNG). The discussion covers how PNG’s scarcity of technical expertise and capital has affected its negotiating leverage with extractive industry TNCs. These TNCs have generally been in stronger positions when negotiating the fiscal terms of their operations with the PNG Government. This chapter investigates the risks and the fiscal challenges for TNCs operating in the natural resource sector in the host country of PNG. It examines the importance of fiscal negotiations for formal agreements between a host country, which is endowed with natural resources, and extractive TNCs. The chapter contextualizes the extraction activities and taxation of a developing country, and the impact of institutions, including agencies such as the International Monetary Fund and other global financial bodies on host country policies. Given the PNG record of poor fiscal outcomes and operational disasters from copper and gold mining, a key question of the chapter is, ‘will the current and significant natural gas project improve PNG’s tax revenues?’ Further, ‘are the recent and successful natural gas activities in PNG reflective of any initiatives for social and environment issues or changes in regulatory controls? Finally it asks, ‘what are the wider lessons from this case study for other extractive industry TNCs?