From Dependency to Sustainability

A Case Study on the Economic Capacity Development of the Ok Tedi Mine-area Community

Paulina Siop

• Publisher: Asian Development Bank
• Year: 2008
• Print ISBN: 9789715617079
• eBook ISBN: 9789292571948
• Topic: Economics
• Subtopic: Environmental Economics
• Index: Economics

The Star Mountain Investment Holding Limited (SMIHL) is a Papua New Guinean (PNG) landowner holding company operating in Western Province, in the shadows of the huge Ok Tedi mine. The initiative drew on a Future Generation Fund and was, for the community, a response to years of frustration with wasted opportunities for economic development which were attributed to a lack of organizational and economic development capacity, capture of benefits by local elites, and the absence of a consensus on how to address the community's long-term interests. Among other things, the case highlights the value of locally-led and facilitated change processes, and the understanding of local cultural dynamics and capacity issues that goes with it.

MINE-AREA COMMUNITY INVESTMENT PROGRAM

Design and Development

The Mine-area Community Investment Program was designed to develop the economic capacity of the community. Capacity development was needed at different levels using different approaches, and it was recognized that it would require an enabling environment. The key components of the program included development of an investment structure, support for business development, community development initiatives, leadership strengthening (both community and business), and OTML management support.

The community and stakeholder consultations focused on “soft” issues—such as developing trust, understanding, and commitment—while the organizational development aspects addressed “hard” issues, including setting up the landowner companies and sourcing finance.

The objectives of the program components were as follows:

• Organizational Structure Development

to create an investment structure that would promote savings and investment by community groups and individuals;

to establish a representative umbrella company for the community that would take control of existing local business opportunities and take on other larger business opportunities now and in future;

to create an organization that would provide a vehicle to filter benefits from business and investment directly to individual families in the villages; and

to create a context in which other local business activities could be supported.

• Business Development

to facilitate development of Star Mountain Investment Holding Ltd (SMIHL), the landowner umbrella company;

to source financing for SMIHL business start-up;

to facilitate business start-up processes for SMIHL;

to facilitate development of clan companies as portfolio investment opportunities for the people; and

to streamline current local businesses under SMIHL because there were too many small but unsustainable businesses demanding work from OTML.

• Mine-area Community

to take ownership of the program;

to support with financial allocations for the savings and investment exercise, and draw on their remaining financial benefits; and

to take responsibility for their own economic empowerment.

• Leadership

to understand the sustainable development issues confronting the community and respond positively to support the program;

to promote the program in the community; and

to accept some loss of power and control over the economic benefits.

• OTML

to provide the enabling environment for the program to be successfully implemented and managed;

to give due recognition to SMIHL as the true landowner company; and

to provide support where necessary.

Investment Structure

A three-tier investment structure (Figure 2) was developed as the core of the program to provide the basis to develop the economic capacity of the mine-area community. It was designed to capture the inflow of cash benefits from individuals, clans, and local businesses and to redirect it to sustainable economic development activities. The three levels are also the entry points for the current benefit streams going to the mine-area community:

Figure 2. Ok Tedi Mine-Area Community Investment Structure

Level 1. Level 1 comprises the community umbrella companies— SMIHL and Mineral Resources Star Mountain (MRSM). SMIHL is locally controlled while MRSM is controlled by Mineral Resources Development Company (MRDC) under the government equity arrangement in OTML. SMIHL, being locally controlled, is seen as the main commercial arm to harness and manage the current economic opportunities for further business and investment growth.

Level 2. The second level comprises the clan-based companies, which are designed purposely to link the investments with the people to filter cash and other benefits directly to individual members of the community. These companies are treated as investment portfolio companies; equity in existing local businesses held by the community is allocated to the respective clan members under their clan companies. Effectively, the clan companies provide a level of investment to maximize future benefits for the community.

Level 3. Level 3 accommodates family initiatives (small and micro businesses). The activities are somewhat detached from those in levels 1 and 2 but are nevertheless recognized and supported, given the investment potential they have in this high cash-flow environment. Appropriate support is provided to encourage families to develop their own economic capacities to prepare for mine closure.

Program Implementation

A three-phased approach to program implementation was taken. First, a thorough community consultation and communication process was conducted with different community groups and OTML to solicit support for the program, but most importantly to effect change in the savings and investment decisions of the people.

The second phase involved the administrative inputs by the business development team. Mobilization of shareholding under the various companies of the investment structure was organized and registrations were formalized with the Government’s Investment Promotion Authority. Also, the equity interests of various clans and groups were streamlined and formalized under the investment portfolio companies.

The third phase involved the technical (business) inputs that were required to launch the start-up of the companies and associated activities. The program was implemented over 2 years, 2002 and 2003, by the business development team.

Community Consultation and Communication

Community consultation and communication were critical components of the program because the implementation of phases 2 and 3 were dependent on the acceptance and support of the community. The consultation and communication approach was carefully planned to capture the interest of the leaders and members of the communities. This was especially crucial when there was no savings and investment culture in the community—combined with a general distrust of local business management. The community needed to have a sense of ownership of the program, but most importantly take proactive steps to change their savings and investment behavior. Questions about who could lead the community consultation effectively, what messages would help to garner community support and cooperation, and which community persons should be drawn in for support, helped to frame the process. The consultation process was designed to have a domino effect on the target groups: initially consult with key community leaders and get their support, and together consult ...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Foreword
• Background
• Mine-Area Community Investment Program
• Analysis, Reflections, and Lessons
• Conclusion
• Back Cover