Tattoos – Life’s Storyboard
Marape election faces challenge in PNG supreme court this month

In Papua New Guinea, reality will dim any nationalist dreams

Marape Morrison
James Marape and Scott Morrison - Australia will respond to PNG's calls but will not make the kind of sweeping overhauls to the relationship that Marape has called for

ASSESSMENTS WRITER | Stratfor Worldview | Edited

AUSTIN, USA - Papua New Guinea's new prime minister, James Marape, is touting a more nationalist push on resources for his energy- and mineral-rich country and hinting at a rebalance in great power relations, vexing both foreign companies and regional heavyweight Australia.

Since taking office in late May, Marape has launched a formal review into a multibillion dollar liquefied natural gas (LNG) project, threatened to seek Chinese help in refinancing the country's K27 billion debt and mulled an overhaul of the country's natural resource laws to increase PNG’s share of revenue.

But despite his ambitious intentions, the eager new leader will find it difficult to take any of these efforts too far, because there's only so much the small resource- and aid-dependent Pacific country can push the envelope without jeopardizing its political stability and primary income streams.

Just a month after taking office in May, Marape began a full review of Total's Papua LNG deal, with an eye on improving the terms. (The review also put on hold an as-yet incomplete agreement for Exxon's PNG LNG expansion project, which is connected to Total's Papua LNG deal.)

But shortly after, he was quick to reassure that his administration was still pro-investment and that adjustments need not be drastic.

And on 2 September, the government announced it would move forward with the Total deal after the company agreed to make the pipeline accessible to third parties and to open up the possibility of a government stake in the future, and after it granted state-owned Kumul Petroleum Holdings the option to take on ownership of some LNG tankers. 

For foreign companies already locked into investments in PNG’s substantial oil, natural gas, gold, copper and nickel reserves, Marape's new nationalist push risks troubling their long-term plans.

The way Total was able to save its project by agreeing to some concessions could temporarily alleviate some of these concerns. But perhaps most importantly, the settling of the deal after such extreme political rhetoric serves as a testament to the limitations Marape's government will surely face when it comes to implementing its wider "Papua New Guinea-first" platform. 

Marape's ambitious vision for the country includes reducing its reliance on primary resource extraction by building onshore processing and increasing agricultural exports to nearby Asian markets.

He's also stated that he wants to overhaul the country's resource-related legislation by 2025 to ensure that it earns at least half of the foreign revenues on all resource projects via taxes and royalties. But in doing so, he faces a steep uphill climb, because energy and resource exports made up over 77% of exports in 2017 (Agriculture, by contrast, accounted for only 15%).

When it comes to oil and gas in particular, LNG accounted for 34% of exports in 2018, making it a critical revenue stream for his government to sustain and thus protect. Accounting for just 3% of global LNG exports, PNG is also dwarfed by much larger exporters in the region (namely, Australia, Indonesia and Malaysia), as well as a growing field of other potential nearby exporters such as East Timor.

This means that despite his attempts to pressure foreign majors, Marape will have to tread lightly — knowing that foreign energy firms can take their lucrative projects elsewhere, should his government's meddling become too burdensome to their bottom lines.

Marape's other big priority will be managing the country's debt burden, which now amounts to nearly one-third of its gross domestic product (GDP). The massive debt was largely racked up under Marape's predecessor in recent years. 

The 2015 drop in oil prices hit the country hard, worsened by an ill-fated K2.8 billion loan used to buy a stake in the Australian oil and gas company Oil Search. And as a result, the 2018 government budget was in a K1.6 billion deficit.  

To help dig the country out of its debt, Marape has sought additional help from its two vying suitors, China and Australia. On 7 August, Marape's government announced it had approached China in the hopes of having Beijing fully refinance Papua New Guinea's debt burden.

This raised a furore from neighbouring Australia, who fears such a move could lead to a loan default and the Chinese repossession of a major New Guinean port, mine or infrastructure project.

Several weeks later, Marape's government called for greater financial assistance from Australia. Specifically, he said he wanted 25-50% of total Australian aid to the country in the form of direct budget support.

After Canberra declined the request, PNG tacitly threatened to seek help from China instead. And, just as intended, this prompted Australia to mobilise a high-level delegation to the country to reportedly discuss terms for a significant loan. 

But while such efforts to play China and Australia off each other might help shake a more money loose from Canberra, there's probably only so much more cash the regional giant can funnel to PNG.

In addition to a recent partnership to develop a joint naval base on Manus Island, Australia is already the country's largest trade and investment partner, with K23 billion in bilateral trade and $58 billion in investment in 2018. Between 2019 and 2020, Australia provided about K1.4 billion in aid. 

Australia's assistance, however, is often slotted for programs specifically focused on making PNG more financially independent and politically stable. China's assistance, by contrast, often comes in the form of loans with far fewer strings attached. Beijing's state-owned China Development Bank, for example, is slated to deliver a K1 billion loan to help with PNG's budget deficit at the end of the year. 

That said, China has so far accounted for only about 17% of PNG’s total foreign aid in 2019, paling in comparison to Australia's 40%. But PNG is also a keystone of Australian efforts to secure its periphery from China's growing presence, especially as Beijing's rivalry with one of its strongest allies, the United States, heats up.

And for this reason, Canberra will want to keep Beijing from growing its financial influence further. 

But at the same time, Australia is also facing mounting political pressure at home to curb government spending and wean the country's Pacific neighbours off aid. Thus, it won't be able to completely counter Chinese largesse.

Instead, it will move to prevent China from making major inroads — dangling the sweetener of its non-loan aid and ability to help PNG complete the restructuring needed to continue receiving International Monetary Fund assistance.

Meanwhile, back at home, PNG’s innately fragile and fragmented political context will make rebalancing the country's resource-dependent economy a particularly challenging feat for Marape's government.

The country is deeply fractured, geographically and ethnically. Disruptive pushes from fragmented regional power bases have led to a dispersed, decentralized government that grants a strong hand to provinces.

The successful pushes of the resource-rich states of Enga, New Ireland and New Britain for a road map to greater autonomy could prompt other regions to follow suit. Meanwhile, the region of Bougainville is planning a nonbinding independence referendum in November, which risks whipping up secessionist fervour elsewhere in the country. 

PNG’s new prime minister can only go so far without jeopardising the country's fragile political stability and vital foreign revenue streams. 

However, greater revenue-sharing on LNG projects across the country might help quiet some of these calls for regional autonomy. But if Marape is unable to deliver on his political promises and placate key stakeholders, there's a chance his term — scheduled to end in 2022 — could very well be cut short.

Since gaining its independence in 1975, the country has seen a slew of feeble governments defined not by party or ideology, but by personal politicking and lawmakers defecting to other parties for their own self-interests.

As a result, only a handful of these administrations have completed a full term. And indeed, Marape's rise to power embodies this trend as well. When an 18-month constitutional grace period expires, he'll be vulnerable to a vote of no-confidence beginning in October 2020 — the very same tool used to force O'Neill's resignation in May. 

To ensure he doesn't suffer the same fate as his predecessor, Marape he will need to deliver a high-profile victory on resource deals that both saves face for the government and doesn't jeopardize vital projects.

Meanwhile, on debt and aid, he will need to extract at least some concessions from Australia to illustrate his ability to diplomatically secure the country's interests.

But in doing so, foreign players will be aware that he can only push so far due to his cash-strapped country's reliance on the revenue flows from both foreign LNG firms and Canberra.

As such, while both Australia and foreign major oil companies will respond to Papua New Guinea's calls for adjustments, they will not make the kind of sweeping overhauls to their relationship with the government that Marape has called for.

Comments

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Robert Wilson

Well spoken Arthur, your article should be hand delivered to every PNG politician and they should be asked to sign a receipt acknowledging the truth of what is written and their pledge to address the plight of their constituents. This document along with their written pledges put in all PNG newspapers and posted on noticeboards around the country.

It is far too easy for these people to run away from the effects of their mismanagement and corruption.

David Kitchnoge

PNG's issues have fundamentally been both inadequate collections from our nation’s endowment (revenue) and inappropriate allocation of our resources (spending). Prime Minister Marape appears to get this much and it's a great start.

Yes we need to be getting our fair share of revenues from our resources but it's also critical that we spend our money wisely. I believe our situation would be vastly different if we spent what we've had in the right places.

The current government has hinted on major shifts in policy in the resources sector moving from concession based arrangements to production sharing arrangements.

The intention is great but the appropriateness of PSC needs to be assessed on a case-by-case basis taking into account how such a regime would affect our global competitiveness.

But the real value has been the increased and increasing awareness of our situation now than it has been in the past. Knowledge is power and I think we have learnt and are learning some hard lessons.

Fervently hoping that we apply our collective knowledge in the right ways for the betterment of our lot.

Arthur Williams

I’m a simple person who lived in PNG for over 30 years who feels there is something very wrong with the neo-con, liberal capitalist or whatever titled system you wish to use, when a very large island nation with a small population that is blessed with a super abundance of resources has experts talking about its fragile state.

Indeed why the ex-Trust territory of PNG with such abundance of wealth has depended for over 44 years since independence on previous supervising Australia for many billions of grants and other forms of aid.

I would love someone to research the true figures of the massive billions of income earned by the various extractive companies over those past 44 years together with the billions earned in cash crops such as coffee, cocoa, copra, oil palm plus the many billions from of often transferred priced tropical logs and the wealth derived from our huge economic marine zone fisheries.

Surely the economy of PNG would have been different if the past governments had managed all these varied resources in a properly considered manner.

Instead there was a rush by simple often inexperienced public servants and their political masters to rapidly grant poorly considered deals with the very savvy experienced negotiators of multi-national often used to dealing with poorly regulated or blatantly corrupt 3rd World nations.

I can only dream of the many commercial projects that could have benefited the majority of PNG’s citizens if the early educated elites had not allowed themselves to be blinded by bribes, handouts or promises of Elysium Fields not today but tomorrow.

One only has to read the media to see how even resource rich provinces have remained for the most part in a pre-independence time warp.

Many people in their rural villagers daily hear the chainsaws in their forests or eat the dust of huge trucks laden with logs, oil palm bunches, coffee bags while others see the LNG ships leaving Moresby every week or logging ships leaving isolated beaches laden with their forest plunder.

Yet when they walk the muddy bush tracks or paddle miles to the nearest aid-post find there are no drugs to treat often common illnesses or medical conditions.

Even basic treatment for their eyes or teeth are lacking and maternal and neo-natal mortality still far too high. Their children sit at rough-hewn timber desks on earthen floors and read chalked notes on old decaying blackboards. Inap pastaim!

There must be a better way than this! Waigani, sit down quietly and reconsider the Gulf LNG must be IN the Gulf FOR the Gulf people mainly to benefit.

Wafi Golpu & Frieda must be carefully re-evaluated and Total and other exploiters told in no uncertain manner that any extraction project must be on PNG terms for the well-being of its citizens not the distant wealthy shareholders wanting to see excessive returns for their investments in distant lands.

Forest ministers must keep their decades long promise of ‘A ban of round logs exports’ and no more oil palm allowed to denude virgin forests.

Only onshore processing to be allowed of all fish caught in PNG’s economic zone. If they don’t like our conditions, tough go elsewhere.

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