PNG gas project: risk an issue

By Nigel Wilson August 19, 2002

THE federal Government has been told some form of political risk insurance will be required for the $US3.5 billion ($6.5 billion) PNG gas-to-Queensland project to proceed.

The issue of country risk has emerged as a key problem as project proponents conduct an intensive marketing campaign to convince big industrial customers to place orders for PNG gas before the end of the year.

Project partner Oil Search managing director Peter Botten said the question of Australia providing soft loans of up to $800 million to the PNG Government so that it could take up to 30 per cent of the project -- a proposition rejected last year by the Australian Treasury -- was no longer relevant. "What is clear is that the project represents the best way that PNG can reduce its dependence on Australian aid," he said.

Japanese giant Itochu has conducted due diligence on the project and its report will be considered as a matter of urgency by the new administration.

"But the issue is political risk and that's a question we have taken up with the federal Government," Mr Botten said.

The risk question was relevant both for potential customers and the financiers of the vast project.

Mr Botten said it appeared the federal Government was becoming increasingly aware of the need to introduce large volumes of gas to southern and eastern states so gas prices could be competitive.