On Sunday night, SBS’s Dateline ran a feature story about PNG LNG, Papua New Guinea’s $16.6 billion liquefied natural gas development project, the biggest development project in the history of the Pacific region. ExxonMobil, with its Aussie partners Oil Search and Santos, plan to build a pipeline and related infrastructure to extract and transport gas from the remote Southern Highlands Province to a plant near Port Moresby. There it will be liquefied and loaded onto container ships in order to be sent to buyers in China, Taiwan and Japan.

The venture is being aggressively supported by the PNG Government, which, as well as benefiting from the royalties that will come when the gas starts to flow, also has a share in the project. There has been no shortage of hype from its representatives (all the way from Prime Minister Michael Somare down) and from the PNG press about what the project will deliver; up in Moresby these days, the talk is of little else and a new era of prosperity confidently assured. Nevertheless, there have also been some dissident voices warning that the project may simply be the latest in a long list of mining ventures that promise wealth and development for PNG but instead end up doing great damage and benefiting only a few.

The Dateline report did a very good job cataloguing concerns about the problematic aspects of the project (more of which below). However, it gave little attention to one detail about the PNG LNG which is critical to Australians: namely, that we are all investors. This part of the story needs further explanation and analysis, because it raises some important questions about the generally secretive nature of some aspects of government trade policy, and about the conflicts of interest that arise for Australia when it spruiks sustainable development in a former colony that is also its largest aid recipient.

The details are these: last December, Trade Minister Simon Crean announced that Australia will support the PNG LNG project to the tune of $550 million through our export credit agency, the Export Finance and Insurance Corporation. The EFIC is a commonwealth statutory authority whose role is to provide loans, guarantees and insurance to support Australian exporters doing business overseas. While most of EFIC’s business is entirely unobjectionable, approximately one quarter of its portfolio goes to support large extractive industry projects (mining, oil and gas), generally in developing countries.

The half-billion-dollar PNG LNG loan is the largest in the EFIC’s history. Of the total loan, 80 per cent will be directly provided by the Australian taxpayer. This is relatively unusual: most of the time when EFIC provides loans or insurance, it uses its own funds (although all the operations of the EFIC are effectively guaranteed by the Government). Nevertheless, on the odd occasion that the Government does provide direct financing through EFIC, it tends to be for sizeable loans or insurance facilities for big extractive industry projects like PNG LNG.

So, what are the concerns about the project? The first relates to the complications that can occur when the sudden introduction of large extractive industry projects in undeveloped regions brings a cash economy into traditional societies. Not only is there the tendency for such revenues to entrench social and gender distinctions (powerful men tend to gain control of payments), even more serious problems can result when some communities feel excluded from the ‘benefits’ received by their neighbours.

The resulting civil conflict can be devastating, especially in PNG, where conflict associated with the Panguna copper mine resulted in a decade-long civil war in Bougainville. Over the last year, there have been a series of violent incidents in the PNG LNG project areas (including this one), both during and after the officially required landowner negotiations, which have resulted in injuries and deaths.

Rather than proceeding with caution, the PNG Government — concerned that if they did not keep to the timeline the investors and partners would not consider it a reliable investment — pressured many landowners into signing Benefit Sharing Agreements before the deadline. As a result of this, the PNG LNG project now possesses the two most serious risk factors for violence in an extractive industry zone: one, the region (the Tari basin) has an established history of ethnic/tribal violence, and two, the negotiations with the traditional owners occurred in an atmosphere of unrest and intimidation.

Amos Roberts’s interviews captured very clearly the potent mix of expectation and confusion that the PNG project has brought to people in the affected areas, and his Dateline report is a clear warning that further violence may unfold.

Second, there has been a lack of due process regarding social and environmental impacts. In particular, the construction could worsen the spread of HIV/AIDS into the Southern Highlands, and could have serious environmental impacts on pristine rainforest and marine ecosystems. The issue is one of transparency, and the rules here are unambiguous. In cases where a project has social and environmental risks, international best-practice requires that the risks are fully and publicly catalogued and appropriate mitigation plans put in place, before any financing decisions have been made. This has not occurred.

Finally, there is a very real risk that PNG LNG revenues may not find their way to the people who need them, and that rather than benefiting the country the project could actually further entrench the culture of corruption that has held up real improvements for Papua New Guineans.

The decision to set up a Sovereign Wealth Fund to manage the revenues, although a good idea, will not alone ensure that the revenues go to help the people of PNG. Research on these funds shows that they are only effective if certain systems of accountability are in place, most of which PNG does not have. According to Transparency International, the Pacific nation is one of the 30 most corrupt countries in the world and recently the Global Fund to fight AIDS, Tuberculosis and Malaria rejected a request from PNG for a new grant because it could not be assured that its money was going to the proper places.

These concerns were comprehensively outlined last December in Jubilee Australia’s Report on the EFIC, Risky Business. Before the report was published Jubilee Australia raised these concerns firstly with the EFIC, then with the Minister for Trade and his Department. But despite the genuine risk of conflict, the lack of due process regarding social and environmental reporting, and the question marks about governance and revenues, the EFIC and Simon Crean decided to back this project.

The point is that the EFIC is not just another investor. In such a risky venture, the support of export credit agencies like EFIC is crucial to guarantee other private financiers and make the project viable. It was support from the EFIC that enabled the country’s two largest mining disasters — Ok Tedi, which has done irreparable damage to PNG’s waterways, and Panguna, the project which directly led to the Bougainville conflict, along with other, smaller tragedies as well.

The problems around the PNG LNG project show that it’s time the EFIC procedures and processes were reformed, in order to better scrutinise its decisions and to help ensure that disasters like these are not repeated.

 

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