Michael Baume [AFR News - 12.08.02]
Tomorrow, Prime Minister John Howard goes to Papua New Guinea with a mission that's just as important to Australia (but for different reasons) as the China gas contract and the exemptions he won from US steel tariffs.
The huge problem for Australia that must be resolved is the disastrous decline in the PNG economy.
While Australia's substantial loans to PNG are vital, the old cry of "trade not aid" has never been more relevant. And that's where there's a need for his 24-hour visit to pave the way for the eventual prospect of some more Howard Woodside-type magic.
The biggest single project that could provide it is the PNG-Australia gas pipeline project. This is still not bedded down, with the Queensland Government having made the extraordinary, and unhelpful, decision to prefer an untested methane extraction process from Queensland coal fields to power its Townsville electricity project.
What the project needs is a solid Australian order book - prerequisite for project funding. While there's no doubt about the adequacy of reserves of PNG wet gas, which is a feedstock for petroleum products, its exploitation depends on sales of gas to Australia.
The project's operator, ExxonMobil, and its partners, Oil Search, ChevronTexaco, Japan PNG Petroleum and the PNG Government, are still upbeat about prospects. And in the first step to building a viable customer base in Australia for PNG gas, AGL has agreed conditionally on commercial terms to take up to 50 petajoules of gas a year from 2006.
The PNG Government's financial participation in the gas project is essential to underpin investor confidence. But PNG needs to find a lot of money from somewhere to take up its 15 to 30 per cent equity in the very expensive infrastructure.
The Australian Government is more likely to give its blessing than its cash, and its Invest Australia organisation is already involved in the search for project investors.
But it is not only about money; the question of sovereign risk is a real one, especially for potential customers such as Comalco which, as a member of the company group that included Bougainville Copper, is well aware of the consequences of regional instability.
During the recent elections, the Highlands was a major trouble-spot. It would be very much in the interests of both PNG and Australia if some co-operative solution to that problem were to emerge.
The Howard Government faces a heavy responsibility in PNG; it cannot stand idly by and watch yet another collapse of a potential economic lifeline for a nation in serious recession whose major income earners are in steady decline.
Minerals and oil make up 60 per cent of PNG's exports, with agriculture providing about 25 per cent. But Bougainville Copper has gone; the Ok Tedi mine, minus BHP, has only another five to eight years to go; oil field production slowed last year; commodity prices for coffee, copra, palm oil, cocoa and unprocessed logs are all down.
Massive debt, institutionalised corruption, lawlessness and a farcical election (in the Highlands) do nothing to generate the investor confidence that is vital if any kind of economic recovery is to take place.
Australia has a massive self-interest in the gas project, which would provide cheap, environmentally clean energy at a time when the country is coming under increasing pressure over Kyoto. And an ACIL Consulting report that underlines the economic benefits to Australia estimates that in a typical operating year the project would provide a $1.62billion increase in gross economic output, about three-quarters of it in Queensland, with Commonwealth tax revenues benefiting by $113 million a year and Queensland's by between $9million and $19 million. This is on top of the $1.5 billion boost to gross economic output during construction.
For the sake of an economic revival by Australia's distressed neighbour, it is reasonable to hope that John Howard's brief but important visit to PNG will prepare the way for yet another success.
[Michael Baume is a former Liberal MP and a former investment editor of the AFR. He is a shareholder in Oil Search.]
|
Post Courier