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Jubilee Statements

Monitoring the impacts of government and corporate behaviour in communities overseas.

Concerning signs for Papua New Guinea as LNG project looks back on its first year

Release Date: 15-Feb-2011

One year on from the signing of Papua New Guinea’s largest ever extractive industry project, led by American giant Exxon Mobil and Australian partners Oil Search and Santos, the PNG LNG project has already been linked with a number of worrying incidents, including tribal conflict, local landowner unrest, alleged abuses by the companies involved, and concerns over transparency of government decisions. In recent weeks the project reached boiling point when landowners closed down gas plants and mobilised on project sites following increased discontent over their benefits payments. A National Court Judge has stepped in to stop all LNG payments from banks and to freeze all accounts relating to benefit agreements until proper and transparent processes are set up for the distribution of landowner payments. Jubilee Australia is concerned that this and a number of other developments during the first year of the project warrant serious examination, not least by the Australian government, which has helped finance the project through its largest ever export credit loan.  

The national PNG Government, itself having gone through a complete upheaval in the last two months with its PM exiting and then abruptly returning to power, is responsible for a number of developments related to the LNG project. In October the PM confused onlookers by appointing a new minister to assist on the LNG project, only to dismiss him, and then re-appoint him, within a matter of weeks. There have been a number of public statements of concern over the LNG project by prominent PNG figures, including the former Attorney General, who claims that he was never properly consulted over the signing of the LNG deal in 2009.  Media reports have also detailed accusations between the Cabinet and the former Police Commissioner in relation to LNG operations. Meanwhile, the government discovered that it did not have enough money in its budget to fund preliminary logistical and infrastructure needs related to the LNG project and had to rush through a supplementary budget mid year. Just some examples of the confusion surrounding government involvement in the LNG project.  

While contracts have been awarded and construction has advanced, local landowners in project areas have become increasingly unsettled, with a number of work stoppages occurring throughout 2010 due to attacks on project sites and machinery, with the deaths of local people involved in the conflicts. Since the beginning of 2011, growing discontent in project areas surrounding the Hides gas conditioning plants in the Southern Highlands, has seen groups of landowners gather in their hundreds to stop work on project sites. The latest work stoppage on 22 January was led by an angry group of landowners who mobilised when a local boy lost his life after consuming a toxic substance obtained from one of the project sites. The Hides gas conditioning plant in the Southern Highlands currently remains closed with Exxon Mobil staff having been withdrawn from the site. The angry locals point to unfulfilled promises from the national government and local authorities, relating to benefit funds and business development grants they say they have not yet received. A number of landowner organisations are also asking questions about the payment of business development grants to a select number of landowner corporations that met with government officials in a resort near Port Moresby just after Christmas, rather than conducting a proper consultation process involving the larger group of landowners through the Departments of Petroleum and Energy and Commerce and Industry. 

Media reports have cited the use of mobile unidentified police squads throughout projects sites, and proposals by authorities to establish a Special Operations Group for the LNG project. These developments are eerie reminders of the days of the Bougainville Copper project which saw a number of human rights violations against the local population at the hands of such mobile squads. A special feature story from Dateline in May 2010 reported one incident of local boys being taken away and beaten up by security forces, using a  vehicle owned by Australian company Oil Search. In addition to these issues, wider concerns have arisen as to the effect of making large cash-payments to powerful males in various communities and the impact this has on exacerbating the causes of conflict and disputes between tribes, not to mention the impact on women which must be taken very seriously. 
Locals have reported feeling the effects of inflation on PNG’s economy, with prices for basic staples already being distorted and Port Moresby becoming prohibitively expensive. These and other developments provide cause for concern when predicting the long term effect of the LNG project. 

Meanwhile, plans for the management of project revenues are being advanced. In June 2010 the government announced the creation of a new company, Kroton 2, to manage the State’s interest in the project as well as any future petroleum projects in the country.  Kroton 2 was previously a subsidiary of the Independent Public Business Corporation (IPBC), which itself was a key player in the LNG deal, directed by the Prime Minister’s son, Arthur Somare. 

Announcements at the end of 2010 shed light on the establishment of PNG’s Sovereign Wealth Fund following discussions between the PNG Government, the Australian government and various other international actors. The Sovereign Wealth Fund will hold the revenues from the LNG project in an offshore location, with three main pots of money: A Strategic and Stablisation Fund, a Future Fund and an Infrastructure Fund. How this fund will be governed and the oversight mechanisms that are involved are still to be seen. 

We consider it vital to closely monitor the revenue streams and mechanisms for revenue management throughout the project, especially given past experiences of wealth from large mining projects in PNG failing to translate into progress on human development targets such as life expectancy, education and health services in PNG.

The more recent progress report commissioned by PNG LNG joint venture partners’ (including the Australian government) make no mention of deaths that have occurred due to project-related conflict and only brief mention of grievances and disputes.  The report notes that the Environmental and Social Management Plan (ESMP) for the project went through its first revision in September and a revised plan was presented to the Lenders group.  We would urge lenders, including the Australian government’s export credit agency, EFIC, to make public this updated plan and to take into account the serious developments that are taking place on the LNG project. 

We will continue to monitor the project and related developments, with a 40 page report on the LNG project and management of revenues to be released by Jubilee Australia mid 2011.