CRIKEY DAILY EMAIL - 29 OCTOBER

Canberra correspondent Bernard Keane writes:

Yesterday, the largest resources project in Papua New Guinea’s history
moved a step closer, with the PNG government approving the
Environmental Impact Statement for the vast PNG LNG project.

The project is being developed by ExxonMobil, Australian companies
OilSearch and Santos, and -- notionally -- PNG’s state-owned company
Petramin. It is anticipated it will cost more than $US11 billion
($A11.9 billion), and double the size of PNG’s GDP over its 30-year
lifecycle.

The PNG government’s stake in the project is not controlled by
Petramin but instead, effectively, by Arthur Somare, the Public
Enterprises Minister and son of the Prime Minister Michael Somare.
Control of the project has been handed to the "Independent Public
Business Corporation", in which Somare is said to be influential.
IPBC’s role was underwritten by a $US1.7 billion loan from the Abu
Dhabi government, brokered by Somare.

There is a seat on the IPBC Board for Transparency International PNG
Inc, but it is currently vacant.

PNG has also refused to participate in the Extractive Industries
Transparency Initiative (EITI), a set of international standards for
publicly reporting revenues from oil, mining and gas ventures launched
in 2002.

All this is not unrelated to Australian interests. The Australian
government, in fact, has a key role. At least half, and perhaps more,
of the $11 billion development cost will be met by various export
credit agencies (ECAs), state-owned bodies that facilitate exports
through insurance and loans. The Japan Bank for International
Cooperation is providing $US4.3 billion for the project. The US and
Italian ECAs are considering support. And sometime in the next couple
of weeks, Simon Crean will take a submission from the Export Finance
and Insurance Corporation to Cabinet proposing we provide $US500
million in loans for the project.

EFIC has invested in PNG before, of course. It provided significant
support for the development of the environmentally disastrous Ok Tedi
mine.

EFIC isn’t subject to anything like the same level of scrutiny that
most public-sector agencies face. Its internal workings used to be
subject to several FOI exemptions. The government’s recent FOI reforms
have stripped some of those away, but its activities remain mostly out
of public sight. According to local NGO Jubilee Australia, EFIC has --
contrary to its own environmental policy -- refused to respond to
submissions about the environmental impacts of major projects it is
considering supporting. Jubilee has written to Crean requesting that
he reconsider EFIC support for the PNG LNG project, which is scheduled
to be approved by the PNG government before the end of the year.

The people of PNG have seen a succession of major resource projects
fail to dent widespread poverty since independence. PNG LNG, which
continues to be dogged by disputes with local landowners who are
supposed to also have a stake in the project, may well go the same
way, with foreign companies, fly-in, fly-out foreign workers and local
politicians potentially being the prime beneficiaries, all with the
generous support of Australian taxpayers.

Rowan Callick, Asia Pacific Editor, The Australian

THE biggest business investment in the history of the Pacific region, the $15.6 billion ExxonMobil-Oil Search-Santos gas project in Papua New Guinea, came under fire yesterday from a leading Australian anti-poverty organisation.

Luke Fletcher, the policy co-ordinator of the group -- whose backers include the National Council of Churches and World Vision -- said that "it is very likely that the revenues will fall down into the black hole of corruption" unless the PNG government signs up to the World Bank-associated Extractive Industries Transparency Initiative.

He said that Australia's Export Finance Insurance Corp is set to provide hundreds of millions of dollars in support for the project, requiring approval from cabinet.

But he urged the Rudd government to consider carefully whether it wished to provide such funding at this stage, because "although the project will bring money to the PNG government, corruption will undermine the long-term economic benefits, not to mention the negative social and environmental impacts."

The economic impact study for the project, conducted by ACIL Tasman, estimated very significant benefits.

Jubilee concedes that there will be "a large increase in gross domestic product". But, it says, "the extent to which this windfall will be distributed among the people is questionable.

"Looking through a larger time-scale, the PNG economy has for years been dominated by this kind of large-scale extractive industry projects, and yet the country has seen very little genuine improvement of its standard of living."

Papua New Guinea was 148th of 182 countries listed in the UN's latest Human Development Index.

Jubilee said that "of the 7500 jobs that are estimated to be produced by the contract, only one fifth are to be provided by local PNG workers -- a general problem for the oil and gas sector in developing economies.

"The large influx of foreign workers during the construction phase is likely to have severe distorting effects on the local economy, both around Port Moresby" where the gas will be liquefied, and in the Highlands.

It says that although Oil Search, which owns 29 per cent, and Santos (13 per cent) of the project, and those who work for the companies will benefit, "the strategic dividends of a more stable and prosperous PNG far outweigh" such gains.

It says that "AusAID's two main aims in PNG" -- one of its two biggest fields of involvement, with Indonesia -- "are improving governance and fighting HIV, and both are likely to be severely undermined by the project".

http://www.theaustralian.news.com.au/business/story/0,28124,26232411-5005200,00.html