I agree that Australia will not accept PNG as a state of the Federation of Australia. One of the main reasons is PNG will be seen as a liability to Australia and contributing little to the economy. Not in terms of natural resources but very little of manpower. More than eighty percent of us have no wage job translating to being on the dole in Australia. New Zealand has more chance of being a state of Australia than PNG. New Zealanders enjoy the same privileges as Australian citizen, They dont require vivas to travel to Australia but we do and do not enjoy other privileges in Australia as they do. After all our way of life is completely different to theirs. The Aboriginal people are still struggling to fit into their society.
Defragmentation of PNG should not be entertained by PNGs. One of the biggest campaign in the period between self government and independence was "united, bung wantaim and Hahebou". This was the biggest campaign by the "fathers" of PNG to unite us all. Lets all unite to be Papua New Guineans. We can make it happen.
The idea of regional government sounds good but may not work in all regions as we know it today, ie Highlands,Momase,New Guinea Islands and Southern. For instance in the Highlands region where I come from I can see disagreements between us on many logistics issues like where will the capital be, Goroka, Hagen or even Kundiawa, Mendi or Wabag. In fighting between the provinces as we know today that certain group of people are controlling the affairs of the region,for instance beaurocrats in the government. Some of the "richer provinces" may not want share their wealth with the more moderate ones.
But who knows it may work nicely in PNG. Less beaurocrats, more autonomy, and probably more unity among the regions and the country.