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New Jubilee Report: Efic-funded PNG LNG Has Hurt PNG's Economy

Release Date: 29-Apr-2018

*** Media Release ***

A new report on the economy of Papua New Guinea will reopen the case for the Australian government to be held accountable for the negligent decision to lend AU$500 million taxpayer money to the PNG-LNG project.

Jubilee Australia’s new report,Double or Nothing: The Broken Economic Promises of PNG LNG’, is co-authored by Paul Flanagan and Dr Luke Fletcher. Paul has worked for the Australian government in senior executive positions and with the PNG Treasury where he was Team Leader and Senior Advisor to the SGP Program from February 2011 to August 2013. Luke is the Executive Director of Jubilee Australia.

Summary of findings:

●Despite predictions of a doubling in the size of the economy, the outcome was a gain of only 10% and all of this focused on the largely foreign-owned resource sector itself;

●Despite predictions of an 84% increase in household incomes, the outcome was a fall of 6%;

●Despite predictions of a 42% increase in employment, the outcome was a fall of 27%;

●Despite predictions of an 85% increase in government expenditure to support better education, health, law and order, and infrastructure, the outcome was a fall of 32%; and

●Despite predictions of a 58% increase in imports, the outcome was a fall of 73%.

PNG LNG is an Exxon-led project which supplies about 8 million tonnes of LNG a year to Japan, South Korea and China. It is projected to run for 30 years. In 2009, Australia’s Export Credit Agency, Efic lent AU$500 million to Exxon, OilSearch, Santos and the Government of PNG. Efic’s decision was based on advice from DFAT provided to the then-Minister for Trade, Simon Crean, on advice from DFAT. This is the largest loan ever made by Efic.

“In 2008 Australian economics consultants, ACIL-Tasman provided inflated projections of growth in employment, essential services, household income and the broader economyif the PNG LNG project went ahead. This new analysis proves just how misleading these promises were and how PNG has slipped back into the poor policies associated with the resource curse. Currently, on almost all economic indicators, the people of PNG would have been better off had the project not happened at all,’ said Paul Flanagan.

“Australia’s Export Credit Agency, Efic is an agency that is out of control. It has deplorable due diligence and accountability; as a result, it makes decisions like this that not only undermines the livelihood and prosperity of our neighbours in PNG, but also our own nation’s security,” said Dr Luke Fletcher, Executive Director of Jubilee Australia.

“The Australian government continues to withhold the secret advice that was used by Efic to loan AU$500 million of taxpayers money to Exxon and its project partners.

“In light of this damning new evidence of economic regression, the advice provided to Trade Minister Crean in 2009 which recommended Efic support the PNG LNG project should be released alongside all related risk analysis.

‘‘Exxon and Oil Search should be paying half a billion dollars (AUD) to the PNG government every year, since the gas started to flow in 2014. Instead, they are paying a fraction of this amount, partly because of their use of tax havens in the Netherlands and the Bahamas.

“Unless there is greater accountability on the use of foreign loans and a crack down on the use of tax havens by companies like ExxonMobil and OilSearch, the pattern of Australian governments and corporations causing harm to our region simply to create profits for big business will continue,” concluded Dr Fletcher.

‘Double or Nothing: The Broken Economic Promises of PNG LNG’ is the first of two papers on the PNG-LNG pipeline that has been commissioned by Jubilee Australia. The second paper will discuss the unpaid royalties and development benefits and the escalating violence as a result of the PNG LNG project.

 Download the report here: 
Double or nothing: The broken economic promises of PNG LNG, 2018 Double or nothing: The broken economic promises of PNG LNG, 2018 (878 KB)

END

 

Contact

Dr Luke Fletcher +61 435 901 086 Luke@jubileeaustralia.org
Paul Flanagan +61 467 528 893 paul@flanagan.id.au

 

BACKGROUND

The PNG LNG pipeline consists of gas wellheads in the Hela Province in the Southern Highlands of PNG, a gas pipeline running from the highlands to just north of Port Moresby and an LNG liquefaction plant. The lead operator is Exxon-Mobil, although there is also significant involvement form the ASX-listed OilSearch.

It is the largest development project (in monetary terms: US$16 billion, further blowing out to US$19 billion) in the history of the Pacific region.

Construction on the project was started in 2010 and completed in 2014, at which point the gas started to flow.

Concerns about the economic non-viability of the project and the dangerous risks of social conflict in the project area were raised by Jubilee Australia in an open letter to Australia’s then Trade Minister Simon Creanin October 2009, two months before the decision was taken.

The letter to Mr Crean predicted that the PNG LNG project would not likely lead to poverty-reducing growth in PNG and would likely entrench a culture of corruption in the country. It argued that there was a serious risk of the project increasing social disruption and violence in the project areas. Finally, it claimed that the project would undermine the aims of Australia’s aid program in PNG.

Efic’s National Interest Account approval process was completed behind closed doors and, despite requests by politicians, journalists and Jubilee, the official advice given to Minister Crean, upon which the loan decision was taken, has never been revealed.

The Export Finance and Insurance Corporation (Efic) is Australia’s export credit agency. Efic provides loans, insurance and other financial services to Australian companies that do business overseas. Historically, around one quarter Efic financing by value goes to companies involved in the resources (mining, oil and gas sector). Projects supported by Efic have been implicated in environmental disasters (Ok Tedi mine, Panguna mine) and human rights abuses (Porgera mine, Panguna mine) and tax evasion (Oyu Tolgoi mine, Mongolia).  

 

Exxon and OilSearch’s Use of Tax Havens

The report shows that since 2014, the project companies should be paying revenues of approximately 1.4 billion Kina (AUD$560 million), and yet they are only paying a fraction of this amount. The lack of revenues flowing are seriously undermining any potential positive benefits to the PNG economy. The report argues that these missing revenues are a result of two phenomena: a secret fiscal agreement struck between the companies and the government, and ExxonMobil and OilSearch’s use of tax havens in Holland, Delaware and the Bahamas. Indeed, Exxon appears to be using the same techniques to avoid paying taxes from its operations in PNG as, a recent Australian Senate inquiry has heard, it is also using for its operations in Australia.