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Sunday, April 29, 2018

No Gain in Gas in Papua New Guinea

The massive ExxonMobil-led liquid natural gas project in Papua New Guinea, backed by a $500m Australian government loan, has failed to deliver on a promised economic boom for the country a new report has found. The PNG people would have been better off if the project had never happened.
The US$19bn project has been supplying LNG to Japan, South Korea, and China since 2014, using gas production and processing facilities connected by 700km of onshore and offshore pipeline across PNG. The project, owned by an Exxon-led joint venture, was strongly backed by the Australian government through the largest loan ever provided by the nation’s export credit agency. The $500m loan from Australia’s Export Finance and Insurance Corporation (Efic) was made with two chief aims: to help Australian exporters win contracts in the project’s construction phase; and to potentially add “considerably to PNG’s economic growth”.
Paul Flanagan, a former senior Australian treasury official, found that overall, the PNG economy had grown by 10% – far less than the near-doubling of GDP predicted in Exxon-commissioned modelling produced in 2008 by the strategy consultants, Acil Tasman (now Acil Allen).
That same modelling, which has been removed from the ExxonMobil website, predicted the project would help drive significant growth in other areas of the economy, but the reality has been quite different. The report found:
  • 1) instead of household income increasing by a predicted 85%, it fell by 6%.
  • 2) instead of employment increasing by 42%, it fell by 27%
  • 3)instead of government expenditure to support education, health, law and order, and infrastructure increasing by an estimated 85%, it fell by 32%
  • 4) instead of imports increasing by a predicted 58%, they fell 73%
  • 5) instead collecting  around 1.4bn kina (AU$567.8m) in revenue the report estimated the PNG government should have collected about 500,000 kina (AU$203,000).
  • “On every other measure of economic welfare (household incomes, employment, government expenditure, imports and every non-resource sector of the economy), the PNG economy currently would have been better off without the PNG LNG project, often drastically so,” wrote Flanagan.
  • Dr Luke Fletcher, executive director of Jubilee said there was little to no transparency about what assumptions were made by economic modellers hired by resource firms proposing large-scale projects. Fletcher said the problem wasn’t just restricted to PNG but occurred across Australia. 
    “It’s about transparency about how these models are conducted, but also accountability when the models turn out to be bogus or problematic,” he said. “The argument we’re making is that this is a decision which had a huge impact on the economy of a country of six million people,” he said. “These decisions have huge consequences, not just for particular communities but in this case for an entire nation. There needs to be more of a public discussion about what taxpayer money is going towards.” Fletcher noted the broad exemptions Efic had from freedom of information laws. “Given what we’ve seen in PNG … there’s just no way for there to be accountability unless we’re able to understand its decision making. Unless it’s releasing its decision-making and benchmarking its due diligence, there is no way we can hold them to account.”
  • Fletcher said, there were also concerns about the government management of what was collected.
    “The resource curse is a well-established phenomenon where you get a huge resource boost to a relatively undeveloped economy and despite what you’d expect the economy doesn’t do well,” he said. Fletcher said profligate spending during the construction phase, weak central institutions like the sovereign wealth fund and central bank, and poor management of the exchange rate which hit non-resource sectors hard, were all potential contributors to the dramatic economic decline.
    “This is exactly what happens when a country goes down this path – it puts all its focus and belief that resources are going to solve everything,” said Fletcher. “This is not just a PNG problem, Australia in many ways could be seen to be cheerleading, not just with Efic but in encouraging PNG down this path, with an unique belief that big resource projects can solve anything.”

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