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    Open Letter to Minister for Trade, Simon Crean

    Tuesday, October 27, 2009


    Dear Mr Crean,

    As you know, investors and Governments are at the point of signing the biggest business investment in the history of the Pacific region, an LNG pipeline from the Southern Highlands and Western Province of PNG to Port Moresby, and related facilities which will cost around US$15 billion.

    It seems the best kept secret about this project is that the Australian Government is considering becoming a stakeholder in the deal. The Export Finance Insurance Corporation (EFIC), the statutory authority that insures and finances Australian exporters, has asked you to lend it hundreds of millions of dollars so it can co-finance the project.

    No doubt EFIC and the project’s main sponsors, ExxonMobil, Oil Search, and Santos, have told you that you should support this project because it will bring all manner of benefits to the people of PNG. However we suspect that they may not have told you the whole story, so we have prepared some information to help you make up your mind in the coming weeks.

    One: Will the project lead to poverty-reducing growth in PNG?

    Unlikely. The LNG project may double the size of PNG’s GDP. But as positive as this may sound, the poor are likely to be excluded from the benefits. In the absence of structural reforms towards better governance and transparency in state economic affairs, this growth will deepen the culture of graft from mineral and petroleum revenues.

    For years, the PNG economy has been dominated by this kind of large scale extractive development. Those with strong connections to the economy have benefited. Yet the 85% of Papua New Guineans who live in rural areas and are largely excluded from the formal economy have seen no discernable improvement.

    Two: Will the project offer much in terms of domestic employment for PNG?

    No. Skills and training for locals will be minimal, as is typical of oil and gas sector projects in developing countries. An estimated 1,500 jobs, only a fifth of total employment generated, will go to locals.

    Three: Will the project entrench the culture of corruption in PNG?

    Yes. PNG is already one of the most corrupt countries in the world (ranked equal 151st out of 182 countries by Transparency International). The PNG government and landowners have a combined stake of 19% in the project, increased by a shrewd deal negotiated by Arthur Somare (son of the Prime Minister Michael Somare) with the Abu Dhabi government, to secure a loan enabling PNG to buy more equity. Conveniently, oversight of the LNG project is also in the hands of Arthur Somare, who by his effective control of the Independent Public Business Corporation (IPBC) has the ability to direct the dispersal of revenues once they start to flow in to the country.

    Four: Is there an international accountability mechanism to improve transparency of revenues and ensure that funds are spent for the public good?

    Yes. Extractive Industries Transparency Initiative (EITI) is a well-known set of international standards designed to increase transparency of resource revenues. There is ample evidence to support the positive impact of EITI, particularly in the benefit to providing civil society with the hard figures they need to keep their government accountable for public spending.

    The PNG government has steadfastly refused to sign on to the EITI, meaning that there will be no effective way to track the revenues once they begin to flow.

    Your government could make its support of this project conditional upon PNG government signing the EITI. Yet you have not done so.

    Five: Is there a risk of the project leading to social unrest and even violence?

    Yes. The landowner consultation process has not been handled well. At a benefits sharing agreement meeting held earlier this year, Independent Observers such as Transparency International PNG were kicked out of the meeting. In August protests at Hides saw dissatisfied landowners occupy the petroleum production facility. And just last week a group of angry landowners assaulted an ExxonMobil executive in a hotel lobby in Port Moresby.

    Unrest and disputes have plagued the landowner consultation process, and the threat of social conflict is very real. The current developments are reminiscent of those that preceded the Bougainville disaster, where disputes over spoils of the Porgera copper mine and the environmental destruction it caused led to a decade long civil war from 1988.

    Six: will this project undermine Australia’s aid and development priorities in PNG?

    Yes. Australia's Aid priorities in PNG include both 'promoting good governance' and 'fighting HIV'. There is no doubt that Australian support of the LNG project, in its current form,, will undermine both of these objectives.

    If you choose to finance this project as it stands, it will show that the stock price of a couple of Australian mining companies and a few thousand Australian work contracts are more important to you than the lives of hundreds of thousands of people in PNG who live in dire poverty. You will be using our tax dollars to underwrite corruption, environmental destruction, potential civil conflict, and to undermine our own aid program.  We think that Australians should expect more from their Government and their money.

    Yours Sincerely,

    Jubilee Australia - campaigning since 2001 to expose and challenge the economic policies and practices that entrench people, communities and countries in poverty www.jubileeaustralia.org

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