Australia/PNG see-saw relationship

But it is in for a profitable run

In the hot driver’s seat....PM Peter O’Neill (left) pressing for reform.-- Rocky Roe

After a few years when Papua New Guinea and its neighbour and former coloniser Australia seemed to have drifted apart, recently the relationship has intensified immensely.

Peter O’Neill, PNG’s newly re-elected prime minister, spent nine days in December “Down South”, during which he delivered three especially strong and constructive speeches about the economic relationship with Australia.

Before coming, he had barred economist Ross Garnaut, one of Australia’s leading public intellectuals with 47 years of  involvement in PNG, from entering the country.

Garnaut consequently quit the chairmanship of PNG’s biggest earning company, Ok Tedi Mining Ltd, and was succeeded by former prime minister Sir Mekere Morauta.

Partly as a result, O’Neill became embroiled in a fierce debate with Australia’s biggest company, BHP-Billiton, which originally set up Ok Tedi. And the Australian government’s new Pacific Solution for asylum seekers has been thrown into jeopardy by a legal challenge from PNG’s controversial opposition leader, Belden Namah.

What’s triggering such willing events?

They emerged as separate skirmishes. But the context has magnified what’s at stake here.

For Australia has now invested more than $US16 billion in PNG, about the same as it has invested in its top economic partner, China.

Papua New Guinea has become a very important sphere of operations for many Australian resource companies, and for the firms that service them—across a broader front, geographically and sectorally, than ever before.

It is this investment flow which has chiefly propelled the PNG economy into “Pacific Tiger” status. Its gross domestic product has risen by more than 6 percent for six consecutive years now, hitting an average 8 percent over the last three years.

So it’s crucial that the flow keeps on coming on that broad front—especially as the construction of the country’s first, $US19 billion, liquefied natural gas plant has already peaked.

This will buy the government some time to achieve what has so far eluded all its predecessors since independence in 1975—to find the missing link between such resource growth and the economy, and population as a whole to drive the creation of sustainable jobs and successful small and medium sized businesses.

Even before independence, the Australian and German eras saw colonial authorities attempt to pay their own way, chiefly through plantation revenues, but they never quite stretched far enough.

The chief result instead was that the building blocks for PNG development—roads, ports, clinics and schools—were constantly under-funded.

It is inevitable that as PNG’s economy builds rapidly through the industry in which Australia is a world-beater, as all manner of flows multiply between our countries, then this intensification of the relationship will result in clashes and disagreements as well as in better understanding and mutual alignments.

The relationship simply starts to matter more. As long as both sides become well informed about the other and communicate honestly and often, these issues will get resolved.

One that is lurking in Canberra’s in-tray is the recent statement by Sam Koim, the smart young lawyer who heads PNG’s anti-corruption agency Task Force Sweep, that Australia is PNG’s “Cayman Islands” and that it is turning a blind eye to corrupt money pouring Down South.

At the centre, remains that core mutual project, leveraging the mining investment and high-end real estate boom to transform the economy.

Garnaut—who was a senior Finance Department officer during PNG’s early independent days—recently told Radio Australia’s Jemima Garrett that this is “a huge opportunity,” and that “right from the early days of independence there has been a great struggle for development going on. Development from the base that PNG had at the time of independence is very difficult.

“It was always the case that successful development would take generations. You’ve got to build institutions, many of them from scratch. The rules that guide a successful democracy and a successful market economy don’t emerge naturally in any human communities. They were hard to build in the West. They are hard to build everywhere.

Reach fruition

“In PNG, every important development takes a very long time to reach fruition, whether you are talking about a new mine, a new gas field, a new large-scale agricultural development or development of rural institutions for community development.

“One of the problems of standard aid and, frankly, one of the problems of government programmes is it is very hard to maintain expertise, personnel and consistent perspectives over long periods of time.”

And PNG Sustainable Development Programme, a trust which a decade ago took over two thirds of the ownership of the Ok Tedi mine as BHP quit in the wake of environmental disasters there, can take such a long-term perspective, said Garnaut—who was until recently its founding chairman—“as a development partner of the government, and since the resources under its control are large enough to make a substantial positive contribution to PNG development.”

The central issue, O’Neill said, is that it is now 11 years since BHP “was done an enormous favour by the then PNG government and allowed to exit ownership of the Ok Tedi mine without accepting any financial, or moral, responsibility for the enormous environmental and social damage that occurred in the 20 years it operated the mine.”

He said: “Surely, 11 years on, there can be no reasonable case made out to justify BHP Billiton continuing to exercise effective control over PNGSDP, and as a consequence, the Ok Tedi mine itself?“ He attacked BHP for having a “colonial era” mentality

A BHP spokesman responded that when it withdrew from Ok Tedi, its “preference was to close the mine early.” But the PNG government “was concerned about the socio-economic impacts.”

He said the company thus withdrew and established PNGSDP, “an independent company which has provided a lasting legacy for the people of PNG” by ensuring that they receive all Ok Tedi’s profits. Until last November, he said, BHP appointed three of the seven directors to the PNGSDP board. But “now BHP has no association whatsoever with OTML or PNGSDP.”

Garnaut, who played a major role in planning PNG’s early framework for handling and profiting from such mining corporations, said: “In the last few years we have had very large levels of resources investment boosting economic activity. The contribution to revenue will come later on. There is always a substantial lag in that, but a big immediate boost to general economic activity.

“So this is a great opportunity. Whether or not it is transformational in a positive way for PNG development will depend on the quality of financial management and the quality of implementation of development programmes.

“In PNG, right from the early days of independence there has been a great struggle for development going on.”

Garnaut said that one dimension of the desired mutual respect, “is to be able to straight-forwardly and constructively put alternative views to those you are hearing from a PNG leadership…that we are not supine in our relations with PNG.”

In such a mode, while applauding “some of the goals and aspirations that Prime Minister O’Neill has articulated,” as “a very important contribution to successful outcomes,” and supporting his government’s focus on infrastructure, he warned that its budgeting this year for the highest deficit since independence also amplified macroeconomic risk.

Little focus

There has been too little focus on maintenance of existing infrastructure assets as well as development of new ones in the resources boom so far, he said.

“The main risk I see in the current budget is the sudden, within one year, extraordinarily high level of growth in public expenditure, the most rapid growth since independence in any budget, and the very high budgeted deficit.

“Papua New Guinea has people who understand these risks and I wish them well in managing them.”

PNG has agreed to host a processing centre for asylum seekers who seek to get to Australia by boat, but it is proving to be a tough challenge.

The continuing independence of the PNG judiciary was an important sub-theme in last year’s drama as rival prime ministers and governments struggled for supremacy—eventually resolved decisively in O’Neill’s favour at the July election.

The courts have long proved capable of irritating and frustrating politicians in PNG.

Luther Wenge, a former acting judge who became for a decade the elected governor of Morobe province—whose capital is the second city, Lae—won a succession of inconvenient constitutional challenges.

The most important, and most disconcerting, were his overturning in 2002 of the new 10 percent Value Added Tax—ripping a great hole in the budget, until legislation restored it—and his sinking of the Enhanced Cooperation Programme in 2005.

Under the latter, 154 Australian Federal Police officers had been deployed to PNG and 60 other officials, as part of a $US850 million aid package. But Wenge claimed the rules under which the Australian police were operating, infringed the PNG constitution, and won. The ECP limped along, but much of its impetus was lost.

Now, Namah is seeking to do the same, challenging as unconstitutional the deal struck between the Gillard and O’Neill governments to re-establish an asylum seeker processing centre on Manus island, in the country’s distant north.

Namah is a former army captain who served five years jail for sedition, and also a former Forestry Minister who then built a fortune as a businessman who described himself as being “into the multi-billion-dollar business of logging.”

He was deputy prime minister to O’Neill but clearly saw himself as inexorably shifting to the top job.

His aggressive style and courting of controversy saw him dropped by O’Neill after the election in which O’Neill was the clear winner. He shifted across and naturally became opposition leader.

It is intriguing why Namah has chosen to make the Manus centre his first major battleground with the government. Perhaps, he was impressed by the way Wenge, although defeated at the 2012 election, courted PNG nationalism.

He says about the Manus centre: “We have compromised the sovereignty of our nation.”

He didn’t have much to say about the issue before, when he was in government. Previously, it has been Powes Parkop, the governor of Port Moresby, a highly articulate former journalist and human rights lawyer who originally came from Manus, who has led the constitutional questioning of the asylum seeker centre.

Parkop says that detaining people in PNG without trial is unconstitutional. It is against the country’s culture and laws to hold people indefinitely, he says, “even if they are aliens from outer space.”

It is also intriguing why Namah—who says the detainees have not committed any crime in PNG and so are being detained unlawfully—launched his legal challenge in the National Court, where cases are heard by a single judge. More usually, constitutional issues are determined by a five-judge bench at the Supreme Court, where the case will almost certainly wind up.

Namah’s lawyer in the challenge is Loani Henao, who was a failed candidate at last year’s election for Namah’s party. Henao says: “By virtue of the memorandum of understanding (between Australia and PNG), the asylum seekers who were in Australia were in effect forced to come in to PNG territory.”

The legal year did not formally start in PNG until February 1, and the courts may not be inclined to go out of their way to accommodate Namah by arranging a hearing rapidly.

When he was Deputy Prime Minister, first Namah ordered the suspension of Chief Justice Salamo Injia, then last May, he notoriously stormed into the Supreme Court with police and ordered the arrest of Injia, whom he accused, with Justice Nicholas Kirriwom, of “clearly political and vindictive” actions. He said then: “My leadership style is probably new and strange to our country, but I strongly believe (its) time has come.”

The O’Neill government has since come to a rapprochement with the judiciary. And while it would be wrong to assert that Namah’s form on judicial independence—encapsulated in the melodramas last year—would colour the manner in which the courts will consider his claim, it might be naïve to assume it will not affect the way or timeframe in which the hearings are organised.

O’Neill was due to underline the importance of the deal he has struck with Canberra, by flying in late January to Manus – where he was expected to be warmly received. For people on Manus, the asylum seekers have brought with them, the attention not only of Canberra but also of Port Moresby, and O’Neill was due to announce some “early harvest” funding for a community that has long complained of being overlooked because of its small size and distance.

The 220 inmates of the centre are at present living in temporary accommodation. The construction of permanent facilities will see the centre expand to house about 600 people.

Manus MP Ron Knight told ISLANDS BUSINESS: “We really need the injection of assistance and cash for our province. Why would we knock that back? Manus has settled into accepting the (asylum seeker) deal and looks forward to the permanent site construction.”

Whatever the outcome of Namah’s challenge, the ripples from this Pacific Solution seem destined to keep spreading, for better or for worse, into the most remote corners of the region.

During his long visit to Australia, O’Neill presented an especially cogent picture, through his core speeches, of a government pressing for reform.

His two core messages were that he intends his government to help increase the country’s wealth, and that he wants to spread the benefits more broadly.

O’Neill brings something to his role that is largely lacking in Australian politics—business experience. He is a qualified accountant, and made a reasonable fortune out of running his own company before he turned to politics.

Like the Australian government, O’Neill is convinced this is the Asian century, and that PNG too is well placed to benefit from its opportunities. But to do so effectively, it must boost its productivity, he stressed.

“What really brought this home to me was the revelation by the developers of our first LNG project” that it is now running at more than 20 percent over budget.

“What concerns me is that we have taken our eyes off the main game when it comes to lifting our productivity and addressing rising cost factors impacting on the development of our resource sector. We are all paying the price.”

This relationship between the two biggest countries in the Pacific is in for a lively—but potentially hugely mutually profitable—ride.

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