Learning lessons from our past

Editorial, Normal

The National, Tuesday July 7th, 2015

 The news just gets better and better for Papua New Guinea’s liquefied natural gas (LNG) sector.

Nine months after the Spi­rit of Hela carried the first cargo of LNG export to Japan in May, 2014, PNG started reaping the benefits.

In February this year, Oil Search Limited announced its first share of cash flow from the PNG LNG project – a whopping US$850 million (K2.2 billion).

The State is a shareholder in Oil Search through the National Petroleum Company PNG (NPCP), which is a partner in the project and received its share of US$418 million (K1.1 billion).

And last Friday, the joint venture partners in the coun­try’s second LNG project announced the location of their central processing facility and plant site. According to the ann­ouncement, the central pro­cessing facility on which the project was based, would be near Purari River in Gulf, about 360km north-west of Port Moresby and would be connected to the LNG facility by onshore and offshore gas and condensate pipelines. Caution Bay near Port Moresby has been selected as the site for the LNG plant.

The sites were chosen for their technical, economic and environmental benefits and followed extensive surveys and studies by Total over the past year.

The project will be known as Papua LNG and will be operated by Total SA and partners InterOil and Oil Search. The long-awaited decision is a milestone for the joint venture partners and will be welcomed by all stakeholders, including the landowners and people of Gulf.

In the midst of the excitement, there is every reason for PNG to be on guard to avoid falling into the same pitfalls of squandered and misspent revenues from previous resource projects.

Moreover, PNG must learn its lessons from the past. 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. 

Years later, more mines such as Ok Tedi, Porgera, Lihir, 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 been added to our list of high-earning commodity exports.

Many learned commentators, including international 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 the country’s 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 17-year mine life. That was compounded with claims of environmental destruction which led to its closure and 10 years of civil war on the island.

When oil began flowing from Oil Search fields at Kutubu, Gobe and Mananda, 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 and expansions, the local resource owners have had mixed fortunes.

A handful of landowner companies have been outstanding success stories but elsewhere the story is rather bleak. “There is nothing to show for all oil flow,” has been an oft-repeated cry from some quarters. Admittedly, governments, landowner groups and individual tribal leaders have missed great opportunities to properly manage and invest the revenues. There has been a lot of wastage, resulting in misery for families and clans.

Due to the anticipated billions of kina from the LNG sector, there are well-founded reservations about PNG’s ability to use the benefits prudently.

The proposed Sovereign Wealth Fund gives hope that such revenue will be stowed away for the future.

Natural resources belong to the country and people.  Extraction of these resources can lead to economic growth and social development.

However, when poorly managed this has resulted too often in corruption and conflict. We have walked down this road before.