Thursday, November 08, 2012

High stakes for PNG as Garnaut and BHP lashed

By ROWAN CALLICK | The Australian

AUSTRALIANS HAVE INVESTED as much in Papua New Guinea -- about $16 billion -- as in China.
And much more is waiting in the wings, if a long list of exploration ventures progresses to feasibility studies and on to projects, mines and oil and gas fields.
What does the extraordinary recent parliamentary assault by prime minister Peter O'Neill -- on whom so many hopes rest -- on BHP Billiton, and on Ross Garnaut -- one of the Australians with the most enduring involvement in PNG, 46 years -- mean in this context?
Professor Ross Garnaut

Pacific Island Affairs Secretary Richard Marles has been in PNG this week, so we must presume that he has raised this question and will be able to inform our own parliament on his return.
Miners and oil and gas corporations are not known as shrinking violets, easily spooked. They operate in the world's most challenging environments, physically and sometimes socially.
They produce gold, say, or liquid gold -- oil -- from within pools of rural poverty.
But they do have choices, for instance as Central Asia, Africa and South America open up to investors.
And boards weigh carefully the challenges that each option throws up. Governance is a key measure.
The governments of resource-dependent developing countries face three challenges of equal weight: making sure that revenues are maintained; that the benefits are spread effectively and fairly; and that other economic sectors are not squashed.
Papua New Guinea has done well in recent years in attracting the exploration dollar.
But great perils remain, including the risk of distributing and spending the anticipated income boost before it is even earned.
The $16 billion  ExxonMobil-operated liquefied natural gas project is due to start producing in 2014.
But the Ok Tedi copper mine will continue, until then, to be PNG's biggest single source of revenue, providing the government with one in every six kina it receives.
Many thought that the mine was closed a decade ago when its developer and operator, BHP, withdrew in the face of waves of assaults in the media and the courts after the tailings dam there failed due to earth tremors, and pollution spilled down the Ok Tedi river.
But BHP negotiated with the government a structure whereby it handed control of the mine to a charitable trust -- PNG Sustainable Development Program (PNGSDP) -- which keeps two thirds of revenues ready for when the mine eventually closes, and a third is spent on development in the meantime.
Garnaut last week stepped down from chairing that trust -- a role taken over by former prime minister Mekere Morauta, who has just retired from politics -- but remains chairman of Ok Tedi mine.
O'Neill said Garnaut "is no longer welcome to this country". Nor, it seems, is BHP, which he also attacked.
The issue at stake would appear to be control of the Ok Tedi revenues.
Where should this reside? What structure offers the best hopes for effective distribution?
A recent review of PNGSDP by Australian and PNG academics said its "governance arrangements have served it well, and its independence from government, though sometimes a source of tension, is widely recognised as a strength".
The O'Neill government has itself supported the creation of a sovereign wealth fund to hold some of the windfall revenues from the gas project -- whose aim is also to keep politicians' hands off.
Garnaut told The Australian last week that politicians in PNG may be tempted "to think of better ways of using (the Ok Tedi dividends) right now rather than putting it into long-term development".
It is very strange that such an uncontroversial comment should place the government at odds with its biggest source of revenue, and potentially with the wider sector on which its future depends.

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