Papua New Guinea: Time to explore

Papua New Guinea: Time to explore

Published: June 12, 2009

Foreign Direct Investment

Remote yet resource-rich, Papua New Guinea has started to spark the attention of foreign investors, although tenacity is paramount, reports Michael Deibert.

(Read the original here)

In Papua New Guinea’s Madang province, hundreds of Chinese workers at the vast Ramu Nico nickel and cobalt project are the face of a remote nation confronting its ever-more attractive position on the global investment market.

Consisting of ethnic groups speaking more than 800 languages, Papua New Guinea (or PNG, as it is ubiquitously referred to in-country) has been richly endowed with other natural resources of a sort that international firms have only recently begun to fully explore.

The Madang mine, a $1.4bn undertaking by the China Metallurgical Group Corp (MCC), is the largest construction project in the country; it employs between 3000 and 3500 workers and will employ more than 4000 people when it is fully operational.

Bridging gaps

Consisting of a pair of sites that overlook some of the world’s most virgin tropical forests, accessibility to the mine has been vastly improved by MCC’s construction of a 250-metre bridge across the Ramu River, which ranks as one of the longest bridges in the country. A trip that once necessitated an eight-hour walk through dense forest now takes about 40 minutes from the river.

“When I first came here, there was no infrastructure and sometimes the road wasn’t passable,” says Liu Tian Hua, an engineer working on the project. “Living and working conditions are still very hard here but I think that we are making a profit both for MCC and for the local people, so I am very proud to work on this.”

PNG is often referred to as ‘the land of the unexpected’, and MCC has certainly found that to be the case. There have been strikes at the Madang mine by workers complaining of low wages and in November 2008, 213 Chinese employees were arrested, accused of entering the country with improper permits. However, MCC is gradually learning how to do business in the country, and cites a 2.5% ownership stake in the Madang mining that has been granted to a quartet of local landowner groups.

“In China, land belongs to the government, but here, land belongs to the landowners,” says James Wang, MCC vice-president for operations in the PNG capital, Port Moresby. “We need to make them see a real benefit from this, otherwise we can’t survive here. The Chinese team is becoming familiar with these issues and more confident with them.”

Political stability

One issue in PNG’s favour in recent years has been the relative stability brought to the country’s often-turbulent political scene by the seven-year tenure of prime minister Michael Somare, the longest period in office by a national leader since the country achieved independence from Australia in 1975. Veteran observers say that this political calm has been beneficial to the country’s economic development.

“We’ve had booms and busts, but the whole drive has been to keep the exploration and the resource industry going,” says Greg Anderson, executive-director of the PNG Chamber of Mines and Petroleum, an association that collectively represents the interests of those industries in the country. “PNG is in one of the most healthy macro-economic states it has been in for a long time because we’ve had a period of stability. And for the past three or four years we have had very good prices right across the board for agricultural products as well as mineral resources,” he says.

PNG’s GDP was estimated to have grown in 2008 by a robust 6.3%, while its GDP per capita was estimated to be a modest $2300. The country’s links with former colonial power Australia remain extensive, with Canberra supplying $300m in aid, almost 20% of the national budget, during fiscal year 2007/08.

The biggest foreign investment partnership with Australia in recent years is perhaps the PNG government’s involvement in a $11bn liquid natural gas (LNG) project operated by ExxonMobil Corporation and designed to filter gas southward via a pipeline to Australia.

Pipeline potential

An economic impact study on the LNG programme, prepared by Australian consultant ACIL Tasman, said that the project “has the potential to transform the economy” of PNG, potentially doubling the country’s GDP from K8.65bn ($3.17bn) in 2006 to an average K18.2bn a year. With the country’s mining revenues predicted to begin declining in about 2013 when many mines reach the end of their economic life, projects such as the LNG endeavour could become increasingly important to the country’s economic livelihood.

“We see this project as being potentially viable in a range of economic areas where the state would continue to benefit,” says Peter Graham, venture manager for ExxonMobil’s PNG LNG project. “The project is developing more than just the gas, it is also about developing PNG’s capacity, to leave a sustainable positive influence on the country.”

One hindrance in the country’s development, however, has been a persistent, pervasive nucleus of corruption that has had a strong influence on PNG’s body politic.

A 2007 report by PNG’s Public Accounts Committee, a constitutional body responsible for monitoring the spending of public money and quoted by the Berlin-based international corruption watchdog Transparency International, said that it found “evidence of misapplication, fraud, negligence, dishonesty and disregard for the law and for the welfare of the state and its citizens by public servants at every level in every inquiry held”. The lone exception, the report said, was PNG’s department of labour. The report also criticised “a clear web of organised and systemic illegality, designed to access public money in an illegal manner”.

Both Prime Minister Somare and the minister for public enterprises, Arthur Somare (the prime minister’s son), declined requests for comment for this article.

“The resources available to the PNG government are considerable and they should be much wealthier than they are,” says Jenny Hayward-Jones, director of the Myer Foundation Melanesia Programme at the Lowy Institute, an international policy think tank based in Sydney. “They’ve managed [the resources] quite well, but they haven’t actually delivered many benefits to their people. They are not making any progress on social indicators, health indicators are going backwards, education indicators are going backwards – they have been in decline over the past 10 years,” she adds.

Health issues

In contrast to all the development and international interest in the country, many of the country’s statistics remain grim, with an infant mortality rate of 46.67 deaths per 1000 live births and an estimated 6% of the population infected by the HIV virus. However, it is anticipated that the country’s vigorous mineral potential will help it to ride out the global financial crisis to construct a more economically viable and diversified state.

“We’ve got a very high level of exploration at the moment,” says Greg Anderson, whose Port Moresby office overlooks a backdrop of construction cranes. “And we hope that we’ll be able to nurture that through the current downturn,” he adds.