Explosive new issue emerging as PNG heads to the polls

Rowan Callick
An explosive new issue is emerging in the Papua New Guinea election campaign building towards the mid-year poll: the role of China and of Chinese businesses and citizens.

The impact of the issue will be watched closely in the wider Pacific islands community, where similar concerns are also becoming common. Will it help or hinder politicians to appear to be close to Chinese national interests? What are the feelings of the long-standing Chinese islanders about the contemporary thrust into the region by new Chinese interests? Can this issue be addressed in a rational way that avoids racism?

In mid-February, seven Chinese nationals were convicted at Kavieng District Court in PNG’s New Ireland province, of conducting businesses—such as trading vanilla beans, killing and freezing seagulls and catching and drying bêche-de-mer or sea slugs—without proper work permits. They were sentenced to six months with hard labour.

This may be the tip of one iceberg. But alongside, looms another: the role of Chinese state-owned corporations in gaining access to Pacific resources.

The biggest of these projects so far, by a long way, is the US$750 million Ramu nickel mine where construction is now getting under way in the mountains behind PNG’s north-eastern coastal town of Madang.

On February 4, Papua New Guinea’s Labour Secretary, David Tibu said: “The Chinese developer does not seem to have any standards and I will not allow my countrymen and women to be used as slaves.”

How did the promising project reach such a crisis so swiftly?

The story starts with China’s pressing needs. It learned so swiftly and adeptly to attract global investment and become the world’s factory, and is now at the start of another stiff learning curve: making its own vast capital savings work for it overseas to bring home both profits and much-prized resources it requires to feed its voracious industrial machine.

CHINA NEOCOLONIALIST

President Hu Jintao, during the eight-nation tour of Africa recently, attracted incipient demonstrations branding China as “neocolonialist” as its corporations assume from Western rivals the role of leading exploiters of mineral and oil wealth.

Ramu Nickel is a green field development being run by Metallurgical Group Corporation (known as MCC), which is China’s 39th biggest company and the world’s 26th biggest contractor, earning A$15 billion revenue in 2006.

This is also the largest non-ferrous resource project that China has taken on anywhere overseas. The nickel will be scraped by bulldozers from just below the surface on the mine site in the mountains above the Rai Coast and slurried by pipeline 152 kilometres down to a new wharf on the coast, and carried back to China where it will be refined.

Since 1998, MCC has been growing by 30 percent per year and it has high ambitions—to join the Fortune 500 global giant corporations by 2010. Its motto is “commitment, faith, coordination and progress,” and its management philosophy is “being credible and faithful to society, proud of meeting clients’ needs.”

MCC retains 51 percent of Ramu after last November selling down 17 percent each to Chinese nickel houses Jinchuan Group and Jilin Ji’en Nickel Corp.

A further 8.56 percent is owned by the original explorer of the site, Brisbane-based Highlands Pacific Group, 3.94 percent by the PNG Government’s Mineral Resources Development Corporation and 2.5 percent by landowner groups.

A fully-owned subsidiary of MCC, ENFI, is undertaking the preliminary construction of the mine.

All the Chinese entities involved, as in the resources and energy sectors as a whole, are government-owned.

The MCC’s involvement was clinched during a visit to Beijing two years ago by 80 PNG top officials and businessmen, led by Prime Minister Sir Michael Somare. Under the deal, MCC will buy the entire output of 33,000 tonnes a year of nickel, for which Chinese demand has been growing at an annual 25 percent.

GOING GLOBAL

Yu Ping, the vice-chairman of China’s Council for the Promotion of International Trade, told the PNG delegation in Beijing: “China is going global. We call on PNG entrepreneurs to make full use of this opportunity.”

Unfortunately, PNG’s entrepreneurs have not been in a position to make much use of this opportunity at all. They have mostly been stuck at an early stage of entrepreneurial evolution as basic retailers and distributors.

Instead, they have found to their cost that it is Chinese migrants—including illegal entrants who bribed their way in to the country, according to widespread PNG perception—who have seized the opportunities from them, taking over swathes of urban retailing using their advantaged access to extraordinarily cheap imports from back home.

The early Ramu developer Highlands Pacific obtained from the PNG government a unique deal to peg its tax rate at the level a couple of years ago, designed to encourage the revival of the country’s mining industry.

Since then, however, the new Chinese owner has obtained—following negotiations that involved Prime Minister Somare—a tax holiday, something never granted before to a PNG resource developer, lasting 10 years.

Both the government—facing an election in June, with parliament to be dissolved this month—and MCC were keen for an early start to construction.

LANDOWNERS CONCERNS

This followed soon after a “public” forum on the project at Divine Word University in Madang, intended to placate the initial concerns of landowner groups and of a Philippines-owned tuna fishery and cannery, RD Tuna, based in Astrolabe Bay where the mine waste will be pumped.

The forum was actually closed to “outsiders” without a direct stake.

Prominent among the landowners’ concerns, has been the widely mooted prospect of large numbers of visas being granted by PNG politicians to permit MCC and its building arm ENFI to bring in Chinese workers for construction and mine operation, as has happened in countries across Africa. This causes immense resentment in PNG, which may lack other skills but is replete in mining expertise.

In its haste to get the project under way, Mining Minister Sam Akoitai, one of the country’s most able ministers, says MCC has somehow overlooked the need to submit, let alone gain approval for its feasibility study or development proposal. It shouldn’t be building anything yet.

And it may be wishing it hadn’t. Chinese developers may in Africa successfully apply their own minimal standards to their workers there. But this was never going to work in PNG, where people who feel unfairly treated speak out and have the media outlets to amplify those views and the democratic channels to enforce accountability.

After receiving a rash of early complaints, PNG’s Labour Secretary Tibu flew to the construction site unannounced, to see for himself what was going on.

His conclusion was that the PNG workers were being treated like slaves. They were paid just A$4 a day with overtime compensated by tins of fish rather than kina, with canteen arrangements “not fit for pigs,” and toilet facilities so inadequate and public that employees used nearby bushes instead, out of embarrassment.

He warned that if there was not a rapid improvement, he would close the whole site down.

IMMIGRATION HOT ISSUE

In another year, Tibu might have soon found himself being offered a cosy diplomatic post, or otherwise persuaded to keep quiet. But not in an election year, and especially with illegal Chinese immigration such a hot issue.

Now, the hasty start to construction appears set to rebound on the government, unless it is seen to impose the same standards on the Chinese as on the Western firms that have developed PNG’s other great ore bodies.
PNG’s Opposition leader Peter O’Neill has urged Ramu’s owners to follow the high standards already set by mining operators at Bougainville, Ok Tedi, Misima, Porgera and Lihir.

Those operators were or are not paragons. But they were not accused of being slave drivers.

China will surely learn from its early mistakes and become an effective commercial player in the Pacific and the broader region.

But in PNG, it is already facing some very tough challenges indeed—and so are the country’s decision-makers and regulators.