Learning from mistakes of the past

 PAPUA New Guinea is set to become a prominent member of the world’s exclusive club of liquefied natural gas (LNG) exporters.

PNG gained entry last year with the first shipment of gas from the ExxonMobil-led PNG LNG consortium.

And this week, partners of the Gulf LNG announced a tentative time-frame for the start of the country’s second multi-billion-dollar project.

The front-end engineering and design (FEED) stage is expected to begin later this year, with early work starting in 2016 and first construction contracts to be awarded in 2017. First production is expected in 2021.

“The progress being made in the advancement of this project is very good news for people in the Gulf region, and very good for all Papua New Guineans,” an elated Prime Minister Peter O’Neill said on Monday after a visit to the project’s Antelope 5 wellhead in the Gulf hinterland.

The project’s Elk-Antelope gas fields are envisaged to produce sufficient gas for at least two production trains, which will double PNG’s current LNG output.

Gulf LNG partners – Total, InterOil and Oil Search – plan to begin marketing a total of 6.8 million tonnes of LNG per year mainly to buyers in China and Japan.

It is encouraging to note that the project expects to employ more than 10,000 people during the construction stage.

This has been a much anticipated project and the joint venture partners must be highly commended for making it become a reality.

Nonetheless, in the midst of this new excitement there is every reason to be on guard to avoid falling into the same pitfalls of squandered and misspent revenues from previous resource projects. In the 1970s, with the opening of Panguna, touted as the world’s largest copper mine then, PNG shifted from purely an agricultural economy to start earning foreign exchange from its mineral wealth significantly. 

Years later, more mines such as Ok Tedi, Porgera, Lihir and Tolukuma joined the club of mineral exporters pumping millions of kina into the economy.

Then in the 1990s, PNG became an oil exporting nation, albeit a somewhat insignificant one in comparison to the Arabs and North Africans. Yet that signalled another page in our economic history.  So we had money coming in from agricultural produce, minerals and crude oil. LNG has now been added to the list of our commodity exports.

Many learned commentators, both local and foreign experts, have pointed out the fact that ours is not an issue of resource availability but one of managing those resources. Panguna, at one stage gave PNG its largest slice of revenue from its 19 per cent stake in the mine yet there was growing discontent among Bougainvilleans as little was going to them in the mine’s 17-year life.  That was compounded with claims of environmental destruction, which finally led to its closure and 10 years of civil war on the island.

When oil began flowing from the fields in the Southern Highlands, the country again realised a fresh injection of foreign earnings. 

While the principal company and others indirectly associated with the export of oil, saw significant growth in capital, the local resource owners had mixed fortunes.

A handful of landowner companies have been outstanding success stories but elsewhere the story is rather bleak. Admittedly, the Government and landowner groups have missed opportunities to properly manage and invest these revenues. There has been a lot of wastage and resulting misery for families and clans. The creation of a sovereign wealth fund therefore gives hope that such revenue will be stowed away for the future.

Provided such a fund retains its independent status and integrity, and is free from all manipulation, Papua New Guineans can rest assured there will be something to fall back on when in time of need.

The country’s accession to standards of the Extractive Industries Transparency Initiative should promote op­enness and accountability in the management of these resources.

Natural resources belong to the country and its people. The extraction of these resources can lead to economic growth and prosperity.

However, when poorly managed this results in major upheavals.  

We have walked down this path before.