Fiscal reforms for Papua New Guinea fisheries

by
Jonathan Manieva^[39]

Introduction

This paper describes the experiences of the fisheries sector and the Papua New Guinea (PNG) context of the fisheries sector reform and the various mechanisms it has adopted to manage its fiscal regimes. A brief description of the institutional frameworks enhancing the adoption of the fiscal regime reforms is provided.

PNG fisheries overview

Papua New Guinea is located in the Central Western Pacific. Its has an extensive and valuable fisheries sector. The largest fishery in PNG is the tuna fishery. The other significant sectors are shrimp, bèche-de-mer, lobster, trochus (shell) and reef fish. There are also potential for inland river fisheries and aquaculture.

The PNG fisheries zone (Exclusive Economic Zone - EEZ) covers about 2.4 million km² in the South Pacific. The fisheries zone includes an extended reef system, numerous islands and an extensive coastline. Although we lack large areas of continental shelf, our coastal waters and reefs are moderately productive. At present the resources located there are harvested in most cases to provide means of subsistence as about 40 percent of the country’s population live along the coastal maritime areas.

PNG also has significant distribution of riverine and inland waters which offers potential for development of commercial and artisanal aquaculture on a large scale. Should this potential be realized this would provide a means of protein substitution and income generation for another significant mass of population living within and along these riverine and well watered landscape.

The vast area provides huge opportunities in terms of resources but also present an enormous challenge in terms of monitoring, control and surveillance (MCS).

The total sustainable fisheries potential in Papua New Guinea waters is estimated to be close to 500 000 tonnes of unprocessed marine products valued at 2 billion kina (US$600 million), and exclusive of aquaculture. However the total market value of PNG catch is estimated at only US$100-200 million due to information on the true value of artisanal fisheries being difficult to obtain. For this reason, cyclical factors and commodity price movements, especially in tuna, cause huge value swings from year to year. There is significant potential to increase the economic value and returns of these fisheries through better management and development programmes.

Bulk of the offshore fishery for deep water species (tuna and like species), is harvested by commercial operators using fishing vessels and gears and is processed either onshore and/or exported to overseas markets. The major part of inland and marine fisheries products, which represent roughly 70 percent of the total harvesting, is considered to be done at subsistence and artisanal levels.

Country Case Study

Development aspirations

The Government of PNG has embarked upon a number of initiatives to facilitate the development of an integrated tuna industry in the country. Because of the current economic difficulties it actually faces, the Government has gone its way to promote this industry as a new economic emerging sector to gradually take on the responsibility and ensure the same revenue that is currently being provided through the Mining and Petroleum sector. But, as a result of the decline of the latter within the Primary Industries, the fishing sector is gradually being developed with a view to provide employment, generate economic spin-off benefits and foreign exchange. The Government saw in fisheries a renewable resource and an opportunity for economic and social development of PNG for present and future generations.

This commitment to develop a domestic industry is pursued, given the potential contribution in employment generation, taxes, export and foreign exchange, technology transfer, skill development and significant spin-off benefits for the country’s population - five million people.

The post independence domestic fisheries objectives were to identify, quantify and develop the fisheries resources so as to provide direct revenue earnings for the State as well as to provide cash income opportunities for the people, especially in the rural sector.

The Government had then invested a lot of public resources directly into developing coastal or small-scale fisheries. This provided income opportunities as a public service. The more industrial commercial fisheries such as prawn and tuna were developed with the objective of raising government revenue. These approaches were sometimes at variance with practical approach of the objectives of the government policy.

The Government directive on maximizing revenue targets for the State is still encouraged and continues to be a burden and is in direct contrast with the development objectives of the domestic commercial fishery sector. Furthermore, the Government continues to have the duty of providing income earning opportunities from fisheries resources exploitation.

After two decades and investments (millions of kinas) in the fishery sector, there is little progress to date. In some sections of the sector there was in fact regression in terms of development. There was a domestic pole and line fishery based in the north-eastern islands (Rabaul and Kavieng) in the 1970s however it came to its end in the 1980s. This is an example of private sector fighting to survive under the pressure of Government’s fiscal policy. The private sector could not profitably run coastal small-scale fishing ventures because of the unfair competition from Government-run coastal fisheries stations. These stations were so heavily subsidized that they found themselves unable to proceed on their own when the Government decided, in the early 1990s, to privatize their operations.

The interest for an integrated industry was that government would develop infrastructure and provide a favourable environment for the private sector to achieve the policy for developing the fishery sector. A contended private sector would be more responsive to assist the government with its need to develop the fishery sector thus providing employment and income opportunities for its people. Consequently the Government would in turn earn revenue through income and company taxes along with duty and excise taxes.

Institution reform

In response to these continuing failures, the Government, in the last decade, launched the process of restructuring and reforming the fishery sector particularly in the areas of administration and resource management policies. Under this process, the Government initially moved the fisheries functions from the Department of Primary Industry (DPI) to the newly created Department of Fisheries and Marines Resources (DFMR), provided with its own Ministry. Consequently, the recognition of fisheries as a major renewable resource capable of providing sustainable economic return to the country enabled the adoption of the Fisheries Act (1994) thus establishing the National Fisheries Authority as a semi-corporatized government agency.

The fiscal regime transformation to accompany this institutional change was the granting of the financial autonomy at the institutional level.

This empowered NFA to maintain and finance its operations from internally raised revenue, the greatest part of which deriving from access fees from DWFNs. Others sources include mandatory licence fees, assistance from donor agencies and penalties arising from successful prosecutions against illegalities.

The surplus of profit declared is paid as dividends to the national treasury. These funds are merged into the national budget expenditures and commitments such as public goods and services outside the fisheries sector. However the financial autonomy that has been granted to the National Fisheries Authority (NFA) allows it to dispose of its internal budget and steady financial resources to carry out its functions and designated projects. Under the former structure, operational budget and financial plans were subject to the approval of the Ministry of Finance during the annual national government budget allocation process.

The NFA acting as an implementing agency, a balance had to be found with the principal objectives, that is to say it had to optimize revenue-raising measures and also assist the development of the fishery sector. The balance was slightly modified and instead of concentrating on mobilization of returns for the government, the emphasis was placed on the necessity to develop the fisheries sector in order to provide maximum and sustainable returns to the economy from the fisheries resources.

Trade implications

The shift in focus was also imposed with the major changes in the global trade liberation. World Trade Organization (WTO) provided a unique framework of reciprocal obligations and benefits, in both developing and developed countries. This framework implementation favours export opportunities based on comparative advantages confered to PNG’s as a member of WTO and its acceptance for improved and strengthened rules based system.

PNG now realized that it must be a participant in the global trading system and needs to integrate its policies into its multilateral trading systems.

Renewable natural resources like fishery and forestry, under these frameworks, offer great potential for trade, and Papua New Guinea, also believes that the manufacturing sector (especially downstream processing) is the crucial element for the sustainable growth of the economy in the long run.

There is favorable investment climate generated by the zero-rated taxes on fisheries products exports under the sectoral fiscal arrangement adopted by Government as prescribed by WTO and APEC arrangements. The trade opportunities under the Melanesian Spearhead Group Trade arrangement only provide impetus to enable onshore processing and exportation.

Domestication policy

Noting the desire to advance in this sector the Government recognized that an integrated fisheries sector needs to be developed consisting of fishing (domestic and foreign), processing (preservation, cutting, fresh/chilled products and added value) and coastal inshore fisheries development. It is noted that the PNG Government desire to stimulate the development of this sector is not new but has already been formulated decades ago.

The domestication policy of 1995 requires and encourages the full participation of PNG citizens and PNG-based companies to participate in the industry. The constraints perceived by the Government are still the same but the number of opportunities is high for both national and provincial governments and local authorities to appreciate the value and benefits that the local communities can generate from the development of an integrated fishing industry.

Access fee and licence fee

Longline fishery

After years of foreign commercial fishing, under this policy PNG is attempting to promote direct participation of local companies and individuals in the tuna fishery. With this policy, mid-1995, the Government ceased issuing licences to foreign longliners, by, and introduced a “domestication” policy on longline fishery. This fishery, involving smaller, lower value vessels, is fully domesticated, with only citizen- or nationally-owned vessels licensed in the fishery, in order to promote a domestic tuna longline industry.

These vessels target the fresh and chilled tuna product markets. Access to PNG’s rich waters by foreign longliners is routinely sought, but denied in favour of the development of the emerging local industry. The current longline catch is around 5 000 tonnes (tuna and shark, whole weight) with exports mainly to Japan and Australia now valued at close to K40 million. Under the management plan, one hundred licences are available with a little over 50 percent currently issued. They pay a domestic level of licence fee, which is considered just to cover administration costs. However, this promising local fishery, which has grown steadily since the mid-1990s, may be at the crossroads due to increasing freight costs and limited cargo availability for this primarily export market (see Table 1).

Purse seine fishery

Generally, the provision for foreign purse seine vessels to have access to the PNG’s EEZ are done through bilateral arrangements between governments, fishing associations, or individual companies from the fishing States.

There are currently five major Distant Water Fishing Nations (DWFNs) operating through enterprises and associations in the PNG’s EEZ under bilateral fishing access agreements. The four DWFNs include Taiwan, Korea, Philippines and Chin. PNG is a party to one multilateral arrangement with the United States concluded in 1987, which continues to provide island member countries with significant benefits.

The important factor in the access agreement is the access fee. The access fees are largely determined using the previous year’s catch and effort data as reported by the fishing partners to NFA. The market price negotiated is based on the INFOFISH quoted price, which now incorporates the yellowfin price component in fish price. The set minimum percentage rate of return is six percent and is non negotiable. The standard access fee formulae is as follows:

Table 1: Licence fees

In addition to the access fees, the agreements include a training levy, observer levy, project development levy and insurance bond for the vessels which is payable by the DWFN partner. This is over the required statutory licence fees and charges.

Current access is valued at over K40 million (US$10 million) per year, including fees, levies, expenditure during port calls etc.

The Regionally capped limit under the Palau Arrangement on the number of seiners to fish within PNA Group provides an attraction to new vessels to consider operating as domestic based operators. This attraction, combined with the national fiscal incentive under Pioneer Industries had a direct impact on the current shore-based operators. Under this national fiscal package, the operator benefited from a tax exemption on importation of equipment and materials for construction or generally a tax exemption for a period of 10 years.

The Pioneer Industry Act is now revoked. The current legislation with the objective to provide the incentives as the former is the Free Trade Zone Act. This legislation foresees the concession of exemptions to investors interested to invest in declared Free Trade Zones.

The sectoral domestication policy increasingly promotes linking locally based foreign purse seine to invest on onshore activities, preferably in the form of value-added processing of the catch for export. Towards the end of the 1990s, PNG saw an increasing number of vessels fishing as PNG-based purse seine vessels and as such outside any form of access agreement

Locally based foreign numbers

The contribution of a local fishing industry is quite significant to certain provinces’ and PNG’s economy where a value-added processor (cannery) is established, contributing in excess of K38 million per annum compared to total foreign vessels of over K35 million annually in access fee from Distant Waters Fishing Nations. Some of these vessels are linked to an onshore processor like a tuna cannery, a loin plant or other similar industries.

At present PNG has an established tuna cannery now processing 100tonnes/day, which is located in Madang. This cannery provides 3 000 jobs and exports US$10 million to US$15 million a year. This operation had made another commitment for the construction of a second larger plant (200 tonnes/day), in conjunction with a larger cold storage (2 000 tonnes) and an existing ice plant. It is anticipated that the Madang Province is reaping over K40 million of economic spin-off annually from the tuna fishing and canning operation situated there.

The eleven purse seiner vessels (average 600 GRT) associated to this cannery only pay the domestic licence fee of K4000 (US$1 000) inclusive of other statutory fees per vessel. This category also enables the PNG-based seiners to operate in the archipelagic waters as an added incentive.

The other cannery in Lae processes imported mackerel. Its establishment was under the then Pioneer Industry Status concessions regime.

Partial access

This category of access fishing licences are granted on a concessionary basis in conjunction with onshore investments. This is a shift from the initial full discounting for domestic licence fee on the locally based foreign vessels. At present the rate discounted is 40 percent of full foreign access fee. These allow foreign purse seiners to operate in national waters to supply tuna to their onshore plants.

A near completion tuna loin plant which should become operative in December 2003 is established under this category. A further proposal for the establishment of another two loining plants has been made. These have the potential for 3 000 employment opportunities for citizens living in the surrounding areas situated and will offer further additional opportunities for spin-off creation. These proposed shore facilities are linked with access fishing vessel operators and will afford the similar level of fee structure.

With access now linked to onshore development, more such developments can be expected. Even if all of these were to become operative, it is considered that they would process only about half of the tuna which can be captured in PNG waters on a sustainable basis. A considerable portion of the tuna processed would come from the locally based foreign vessel from outside PNG waters under the FSM Arrangement.

The FSM Arrangement is also another attraction that has appealed to our domestication policy for vessel operators to consider basing locally.

The ever changing global environment with the new initiatives of establishing the Central and Western Pacific Commission will be used as spring brook for developing a fully fledge tuna industry by companies that have been traditionally fishing in the PNG waters as distant water fishing vessels.

Licence fees and statutory charges

Besides the access fee and domestic fishing licence fees, the NFA also imposes other statutory charges. These includes application fees, buyers licence fees, storage licence fees, export licence fees, factory licence fees, aquaculture fee, support craft fee, support aircraft fee, foreign fishermen fee, national crew fee.

Resource rents

As mentioned earlier, since the early 1980s, tuna was caught by foreign vessels fishing in PNG waters under access agreements, but with an increasing portion (20-30 percent) of the catch (since the mid-1990s) now being taken by domestic and locally-based foreign vessels, much of this domestic catch is now processed onshore. The access agreements with the US, Taiwan, China, Korea and the Philippines continue, as sufficient local capacity to harvest the sustainable catch level is not yet available, and the catch would be taken elsewhere in any case.

Table 2: Other onshore licences

Review of access/licence fee

The gradual growth in the domestic vessels will mean a corresponding decline in the quota for foreign vessels. The access and licence fee system is been reviewed also in light of the recognition that increasing portion of the catch will be being taken by domestic vessels and locally-based foreign vessels.

Intention is to ensure that fee levels for locally-based foreign purse seiners are not automatically set at licence fee levels only as is the case at present so that the future revenue base is protected. Further the consideration is to allow for the need to have some element of cost recovery in domestic licence fees.

Private sector driven

The private sector is small but gradually growing. The rapid growth took place in the last three to four years and has been substantially attributed to the government’s monetary and fiscal reforms.

Development cannot progress and be sustained without an environment that is conducive and beneficially healthy to the private sector, which will be the principal actor in the fishery sector development.

Government through NFA has embarked on initiatives with the private sector to facilitate the development of the fisheries sector as the measure of enhancing a conducive private sector growth environment. Some of these initiatives will be encouraged through the NFA Domestication of the Tuna industry policy and overall development of the sector. The following achievements are proposed:

1. Construction of fish chillers at the major airports of the country.

2. Introduction of pilot airfreight shipments of fresh and chilled tuna and fisheries exports.

3. ADB coastal fisheries management and development.

4. EU rural coastal fisheries management and development

These direct investments into supporting infrastructure and donor assistance aim to have a greater intervention within the Government priority areas.

Provincial fisheries regimes

Under the Organic Law on Provincial and Local Level Government reform in 1995 all provincial levels of fisheries structure were abolished and provincial fisheries now comes under Agriculture and Livestock Department as division of fisheries or some administrative section dealing with fisheries matters. The decentralization empowered local government to establish revenue-generating mechanisms including the fisheries sector where their jurisdiction extends. These mainly cover inshore fisheries (within 3 miles in maritime zones) and inland fisheries. The objective is to establish provincial licensing regimes for those fisheries under their jurisdiction.

However, these intentions have not yet been fully explored and initiated although discussion on this objective has been in progress. The main reason has been the provincial fisheries offices’ inability and incapacity to establish plans and policies for administration and implementation.

NFAs recognition of the obstacle has lead to the initiation of an operational framework under a Memorandum of Understanding with the maritime province. This has begun initially with selected Maritime Provinces to receive NFA budget assistance in areas of service delivery and maintenance of assets and locally-based fisheries management in the effort to participate in the management decision-making and policies development at the provincial level. What’s happening now is that all onshore facilities licences and fish buyers’ licences are collected by the NFA.

The way forward

PNG is abundantly endowed with natural resources including fisheries resources, however, poverty continues to affect a large proportion of PNG’s population. The proceeds of natural resource exploitation have not led to that responding level of onshore investment, development and job creation. Income is unequally distributed. Poverty is concentrated in rural areas where the majority of the population dwell.

The Government aims to provide for the majority.