13 May 2013

Gillard Backs PNG Gas Plant

By Luke Fletcher

Julia Gillard visited ExxonMobil's new gas project in PNG on Friday. It's the biggest development ever in the Pacific - and Australia is one of its main financers, writes Luke Fletcher

On Friday the Prime Minister Gillard was invited to kick the tyres of the largest development in the history of the Pacific region – Papua New Guinea’s PNG LNG project. She visited the plant not just as Australia’s Prime Minister but also as one of the primary financers of the $19 billion ExxonMobil project.

In 2009, through Australia’s export credit agency the Export Finance and Insurance Corporation (EFIC), the Federal Government stumped up most of the money for a loan of half a billion US dollars — this is a rarity in EFIC transactions, the vast majority of which occur without injection of direct taxpayer funds (although taxpayers effectively provide a guarantee to EFIC).

I've written about the involvement of Australian taxpayers in the project has been told in NM before, but we are now at a critical moment in EFIC's life, and should recap the story so far.

Before the PNG LNG decision was made, Jubilee Australia recommended that EFIC and the Government reconsider supporting the project due to the highly irregular process of landowner consultation, the history of conflict in the region and the poor record of the PNG Government in managing its resource wealth. The Government and EFIC brushed aside our concerns with the assertion that the economic benefits to PNG would outweigh the negatives.

There are a number of levels in which these types of projects need to be assessed. First, there are local impacts, including potential environmental and health risks (such as the Ok Tedi mine which has devastated the Fly River).

Second, there is the potential for social disharmony and conflict that comes from injecting the promise of substantial resource revenues into non-cash economies. These resource-fuelled conflicts can grow into full-blown civil wars (such as Rio Tinto’s Panguna Mine, the Solomon Islands’ Goldridge Mine and Aceh’s Arun gas fields).

Third, huge mining and fossil fuel projects of these types have the capacity to transform not just local communities, but entire regional and national economies. A big mine or hydrocarbon development can end up dominating the economy, making a nation vulnerable to the economic distortions of the “resource curse” (such as ExxonMobil’s PNG LNG).

Jubilee Australia’s most recent report, Pipe Dreams, examined all these questions with respect to PNG LNG. The report concluded that the project’s impact on the country will be decidedly mixed: the economic windfall from the significant gas revenues over the next 30 years will be mitigated by the negative impacts on other sectors of the economy, particularly the agricultural sector. And it reiterated concerns about project-related conflict, particularly in the Southern Highlands, once the construction phase stops. In the meantime, questions remain about Exxon’s role in the 2010 Tumbi landslide, which saw many highlanders killed.

About one quarter of EFIC’s financial support has gone to such projects over its history. As a result, it is arguably the most powerful development actor in the Pacific region, exercising more leverage than any single bank. Its decisions have more influence in the Pacific region than AusAID or even the Asian Development Bank. Its decisions are a green light to private capital to get into risky projects that they might otherwise shy away from. So although it is just a financing body, when it supports these resource megaprojects it actually acts as the region’s most powerful development agency.

EFIC's influence is now moving beyond the Pacific region. The organisation has just decided to join a number of other public finance agencies in support of the largest resource project it has ever financed: Rio Tinto’s Oyu Tolgoi Gold and Copper Mine in Mongolia, predicted to be the third largest mine in the world when operational in 2018. Civil society groups in Mongolia believe that Rio has not taken seriously their concerns about the likely long-term damage to the water system and have complained about the lack of proper consultation with the community.

In summary, EFIC has the capacity to make decisions which can transform regional and national economies through its financing decisions. But the process by which EFIC makes these decisions is secretive: EFIC decisions are exempt from Freedom of Information requests; financial decisions made in the National Interest (i.e. with taxpayer money) are done so behind a veil of secrecy and there is essentially no way for taxpayers to monitor EFIC’s decision-making either before or after the event.

All of this could be changed quite easily. Last year, the Productivity Commission recommended a raft of reforms to EFIC. But the new EFIC bill the government has recently introduced, which is scheduled for debate in the lower house this week, desperately needs more teeth. The recommendations that would make EFIC more accountable to Australian taxpayers and affected communities were watered down or dropped. Unless we urge our parliamentarians to put into the bill the type of reforms which Jubilee Australia have been calling for, there will be more PNG LNGs and more Oyu Tolgois in the years to come; megaprojects funded with state support granted without genuine consultation or due consideration of the consequences.

In PNG last week, the PM continued to boost the LNG project but it remains an open question whether the billions of dollars of gas revenues will make a positive impact on the lives of PNG’s poor. PNG is a long way from being able to turn resource windfalls into development, as recent studies have shown. Either way, decisions like PNG LNG and Oyu Tolgoi are too important to happen in secret. That’s why these reforms, aimed at bringing transparency to the higher risk operations of EFIC, must get back into the Trade Minister’s bill.

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