Liquid Gold: The Oil Palm and Disregard of Social and Environmental Norms (Papua New Guinea)

Background

In 2000, the Government of PNG requested assistance from the Asian Development Bank (ADB) for the preparation of an agro-industry development project to generate income-earning opportunities for the rural population. A project preparatory technical assistance (PPTA) was approved in November 2000. 1 The Prime Minister of PNG stated, “The Government, in recognition, identified the Oil Palm industry as a vehicle and growth strategy to enhance the economic and socio-indicators of Papua New Guinea. The Government through the PNG-ADB Nucleus Agro Enterprise Project, has identified areas in PNG which are suitable for Oil Palm Development, such as: Turubu/Sepik Plains in East Sepik, Bewani in West Sepik, Amazon Bay in Central Province and Arowe in West New Britain Province.”2 Thus, the Nucleus Agro-Enterprises project (NAEP) was approved for lending by the ADB to the Independent State of Papua New Guinea on 18th December 2001.

In October 2001, the government endorsed a proposal from Ramu Sugar in PNG to set up an 8,000 hectares oil palm plantation in Usino-Bundi in Madang province. About 6,500 hectares would be operated by Ramu Sugar and the other 1,500 hectares by smallholders. In August 2001, the governor of the East New Britain province, which currently has no oil palm plantations, announced that the province would start to encourage the establishment of oil palm plantations. The provincial government plans to convert a large area of land in the Open Bay area of North Baining for this purpose. In August 2001, the governor of Morobe province presented a pre-feasibility study on a 30,000- hectare oil palm project on the border of the Morobe and Gulf provinces. In June 2002, the Oil Palm Industry Corporation (OPIC) announced that a large number of new oil palm projects could be developed in PNG within the next five to ten years if current feasibility studies on proposed projects are completed and approved by the government.

The ADB provided its first loan for oil palm development to PNG in 1986. The project completion report rated the project as partly successful. During appraisal, the project cost was estimated at $49.9 million. The output from the Project was about 70,000 tons of fresh fruit bunches in 1998. The peak harvest of about 107,000 fresh fruit bunches was expected by the year 2004. The total number of project beneficiaries was 1,731 or 79 percent of the appraisal target of 2,200 farmers. The report stated that, “the farmers are very enthusiastic about this enterprise and virtually all are planning to plant an additional two hectares of oil palm. Overall, the project impacts are significant and the Project is rated as generally successful.”3

According to a 2001 ADB news release on the PNG NAEP, “Agricultural production in PNG is the mainspring of growth and the principal tool for reducing poverty in rural areas.” These enterprises will in turn provide much needed employment to subsistence farmers, shifting them away from the informal subsistence economy. The Bank claimed that this will improve incomes and standards of living in rural areas throughout PNG. However, the project was heavily criticized for promoting export-driven approach to development rather than respecting and building on PNG’s wise constitutional principles of culturally-sensitive and ecologically-sustainable development.

Environmental and Social Impacts

According to the ADB-OED report, “Land degradation, as a result of oil palm cultivation, is not expected to be significant as the Project has avoided steep land and gullies as planting areas. In addition, the rapid buildup of palm fronds on the floor of interrows minimizes soil erosion risks and conserves soil fertility.” However, the report stated, “the concern on the environmental impact from oil palm development is from the mill processing of FFB was not addressed at appraisal as the processing of the fruit bunches by the plantation palm oil mills was regarded as outside the scope of the Project. However, the processing of smallholder’s FFB by the privately owned mills would result in generation of additional waste. Because the privately owned mills have failed to install proper treatment plants, the waste is being discharged directly into the sea. The Government has established guidelines for palm oil waste treatment. Unfortunately, no monitoring is being undertaken to ensure that palm oil mills comply with the guidelines. It was observed that the full complement of treatment ponds necessary to treat palm oil waste has not been established in the mills. Thus, the discharge from these mills could have some adverse effect on the coastal ecosystem. It is important that the PNG Bureau of Water Resources monitor the situation regularly as untreated mill effluent could cause damage to the reef and inshore marine life.” The report further stated, “there are no control measures to minimize air pollution from the burning of fruit fiber and empty shells in the mills. While the mills’ contribution to the greenhouse effect is negligible, the fallout of fine dust is both a nuisance and a health hazard to nearby residents.”

According to the local environmental Group CELCOR, many of the ADB-funded large-scale monoculture cash crops projects have been controversial as they were often socially and environmentally damaging. ADB has received much criticism for using poverty reduction as a front to subsidize and support the private sector. Furthermore, the conversion to cash crops often results in irreversible environmental damage. This is particularly significant for PNG since no less than 65 percent of its land are still forested and are ecologically intact. And over 85 percent of its five million population are dependent on a healthy and intact natural environment for survival.

In Oro Province, oil palm plantations have encroached upon the habitat of the world’s largest and endangered Queen Alexander Birdwing butterfly, which is endemic to the area. Further expansion of oil palm in Oro Province would increase the risk of extinction of this butterfly specie. There were concerns that in East New Britain, the Open Bay oil palm proposal would threaten one of the most spectacular cave systems on Earth –- the Caves of Pomio.

The rivers have been drained from inland areas where the oil palms are planted. The downstream of the operation has affected the livelihood of the people. Villagers complained of reduced food supplies from the river and coastal region, contaminated water, as well as skin irritation after the introduction of oil palm in their area.

PNG is known for its extensive and diverse coral reef and fringing reef systems. However, there is a concern that increasing land clearing for timber and subsequently for oil palm will increase the amount of pollutant and sedimentation entering the coastal region. Excessive nutrients run-off from the residues of fertilizers used in oil palm plantations are corrosive to the fragile and sensitive reef systems. This inevitably contributes to the destruction of pristine reef systems and hence, valuable fish breeding and spawning grounds.

Oil palm processing mills are usually located close to urban centers for ease of transportation and access to infrastructures. In Popondetta in the Oro province, the entire town and surrounding area have been infested with flies which are health hazards. The stench of rotting waste from the mill could be smelled for kilometers and the smoke from the Higaturu palm oil processing mill could be felt from as far as the Managalas plateau.4

ADB Safeguard Policy Violations

Like many large-scale projects, the introduction of agro-enterprises in PNG also brought many complex and costly social problems once unknown to rural PNG.

Indigenous Peoples Policy

The change that comes with this kind of externally imposed project is often disruptive and undermines the existing customary system and structure which has sustained local communities for as long as they can remember. Often, not everyone in the community is in agreement with the agriculture project. Sometimes, customary land boundaries are crossed to establish the crops. In other times, the parent company leases out lands to people from other areas for their agriculture plots resulting in communal tension and misunderstandings. This manipulation of land use and transfer of tenure is not based on customary process and often results in discontent and anger within a community and among communities. Conflicts from land disputes increased as these kind of schemes are introduced.5

The transition from subsistence to cargo or cash-dependency has both social and economic ramifications. According to CELCORE, “It is unfair and patronizing to classify rural Papua New Guineans as ‘rural poor’ as they have access to abundance of resources as long as their land remains intact and the natural environment healthy.” The natural environment forms the basis for their subsistence and strong cultures and social safety net. However, agriculture projects as proposed by the ADB drastically undermined this strong system as these projects often require major cultural shifts and restructuring of community activities and relationships. Growers essentially lose control of their lifestyle once they become bound to a long contractual arrangement with the parent company of NAEP, they said.

Rise in drug and alcohol abuse was found as a major social problem. Money from cash crops production has increased the purchasing power of growers. Often, men were the key recipients of money from the produce even though the entire family may have been involved in the whole production cycle. Unfortunately, alcohol is one of the most popular items purchased by men in places with smallholder scheme. They also claimed that rise in crime rate was also very high in these project areas.

Landowners and smallholders in existing oil palm project areas are unhappy with the low return from their labour and once productive land. Many growers complained that big promises were made to coerce them into accepting oil palm as a good development project just to find themselves trapped in a situation of total dependency on the oil palm company and commodity price fluctuations. Normally, growers allocate the best farmland available in their charge to oil palm. According to local people, the oil palm cultivation is not the best crop. However, it was introduced to produce oil for developed nations such as Australia.

Environment Policy

The ADB-OED report accepts that some environmental issues were not addressed in the project. According to CELCORE, “downstream communities often bear the brunt of waterway pollution which is another source of communal conflicts.”6

Due to the long delay in project start-up, the scheduled two-year project has just completed its first quarter of implementation. Selection of subprojects and pilot projects has recently completed so the analysis is based on one of out the total of four key activities to be undertaken by TASMU. No field monitoring of any of the selected projects has been carried out.7

The focus of the feasibility studies and piloting of projects of the Nucleus Smallholders Agro Enterprises Project offers a lot of scope for the ADB to implement its environmental guidelines and policy. In the Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan to Papua New Guinea for Nucleus Agro-Enterprises in November 2001, specific assurances in relation to the environment were given by GOPNG. These assurances which have been incorporated into the Loan Agreement were:

(i) The Government, through DNPM1 (Department of National Planning and Monitoring) and TASMU, will ensure that

a) environmental concerns are fully taken into account from the time of the formulation of selection criteria to the completion of the subproject feasibility studies;

b) opportunities exist to maximize potential environmental benefits and minimize environmental conflicts and costs; and

c) any investment proposal resulting from a subproject feasibility study is tested on the basis of environmental parameters as well as technical and financial parameters.

(ii) All environmental mitigation measures identified as the result of a subproject feasibility study or pilot project investment plan will be incorporated into the project design and followed during project construction, operation, and maintenance in consultation with the Government’s Office of Environment and Conservation and in accordance with ADB’s environmental guidelines.

These agreements were also reflected in the Environmental Considerations of the Loan Covenant. Specifically, it stipulated that: The Borrower (GOPNG) shall ensure that TASMU and the Screening Committee ensure that in evaluating and/or funding any Subproject in which environmental considerations are involved (including resettlement, gender and other social dimensions),

(i) Environmental concerns are fully taken into account from time to time in the formulation of detailed selection criteria to the completion of the SFS;

(ii) Opportunities exist to maximize potential environmental benefits and minimize environmental conflicts and costs; and

(iii) Any investment proposals resulting from an SFS is tested on the basis of environmental parameters as well as technical and financial parameters.

However, these provision were not properly adhered to in this project

In the loan document, the ADB said that it is formally committed to following its environmental policies including the Environmental Assessment Requirements and Environmental Review Procedures of the ADB. From the first Inception Report reviewed, it was evident that this requirement was conveyed to the executing agent, TASMU and GOPNG. How this translates into practice in the field remain to be seen.

The following are some issues identified to date:

· In accordance with the 2003 guideline, (para 4) ADB’s environmental assessment process starts as soon as potential projects for ADB funding are identified. Environmental assessment is ideally carried out simultaneously with the pre-feasibility and feasibility studies of the project. In this project, some information related to the environment was captured in the RFA of the first batch of the potential projects but they were mostly very brief and have not included many of the components outlined in the guideline.

· It appears that the REA checklists have not been used contrary to the provision in the MOU. Relevant RDE checklists should have been used to categorize each of the projects selected during the preliminary rapid appraisal process under the new ADB policy.

· It appears that IEE was carried out in the RRA process which suggests that TASMU might have assumed that all potential projects fall into Category B without actually following through the REA process for categorization. However, the components of the IEE were different from those specified in the ADB guideline.

· Only one out of the six projects which went through the RRA process had been environmentally categorized. However, the categorization was based on the PNG Government and not as specified in the ADB environmental guidelines. The Bank’s stipulates that it is the borrower’s responsibility to carry out the EIA. And this was clearly reflected in the Loan Agreement. However, corruption and general governance failures within GOPNG as well as the capacity limitation of the Department of Environment and Conservation mean that this would be a highly unrealistic expectation.

Lessons to Learn

The project did not assess the environmental and social impacts of the main project as well as its sub projects. The project did not properly follow the ADB environmental guidelines. The public participation was not adequate or did not exist at all. The project did not produce a social program to educate people parallel to increasing income.

It created social tension in the local communities as their customary land rights was not properly considered during the design and implementation.

-“We, the landowners are developing and will continue to develop OUR LAND on our own term. We therefore sternly warn all those parties involved in wanting to use OUR LAND for oil palm to STAY OUT! Any attempt to bring oil palm on our land will be strongly resisted.” Excerpt from a newspaper advertisement put out by a group of landowners in PNG, February 2003.

(Footnotes)

1 ADB. TA 3545-PNG: Agro-Industry Development for $500,000, approved on 14 November 2000.

2 Address to the New Britain Palm Oil Limited & the business community in Kimbe, West New Britain.

3 ADB. “Asian Development Bank PPA: PNG 19122 Project Performance Audit report on the West New Britain smallholder development project (loan nos. 784[SF]/785-PNG) in Papua New Guinea.” 1999.

4 Tan, Lee. “NGO Forum on ADB Briefing Paper.” Australian Conservation Foundation/Friends of the Earth Australia,2003.

5 CELCORE. “Case study on Nucleus Agro Enterprise Project.” ADB and Environment. Manila: NGO Forum on ADB, 2003.

6 Ibid.

7 Ibid.