Australian-backed gas project fails to deliver PNG economic boom – Report
Study shows PNG would have been better off if massive ExxonMobil-led project had never happened
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A boy walks on the ExxonMobil pipe in Papua New Guinea. Jubilee Australia says projects like these need greater accountability in their economic modelling. Photograph: Ian Shearn https://www.theguardian.com/australia-news/2018/apr/30/australian-backed-gas-project-fails-to-deliver-png-economic-boom-report |
By Christopher Knaus and Helen Davidson
Sun 29 Apr 2018 19.00 BST Last modified on Tue 1 May 2018 00.13 BST
The Guardian has reported that the massive ExxonMobil-led liquid natural gas project in Papua New Guinea, backed by a $500m Australian government loan, has failed to deliver on a promised economic boom for the country, a new report has found.
The PNG people would have been better off if the project had never happened, according to the analysis, commissioned by research group Jubilee Australia.
The US$19bn project has been supplying LNG to Japan, South Korea and China since 2014, using gas production and processing facilities connected by 700km of onshore and offshore pipeline across PNG.
The project, owned by an Exxon-led joint venture, was strongly backed by the Australian government through the largest loan ever provided by the nation’s export credit agency.
The $500m loan from Australia’s Export Finance and Insurance Corporation (Efic) was made with two chief aims: to help Australian exporters win contracts in the project’s construction phase; and to potentially add “considerably to PNG’s economic growth”.
But the Jubilee report found that while the project had been a “remarkable technical success”, with export gains exceeding expectations, the promised economic windfall has failed to materialise for PNG people.
The report author, Paul Flanagan, a former senior Australian treasury official, found that overall, the PNG economy had grown by 10% – far less than the near-doubling of GDP predicted in Exxon-commissioned modelling produced in 2008 by the strategy consultants, Acil Tasman (now Acil Allen).
That same modelling, which has been removed from the ExxonMobil website, predicted the project would help drive significant growth in other areas of the economy, but the reality has been quite different. The report found:
1. instead of household income increasing by a predicted 85%, it fell by 6%.
2. instead of employment increasing by 42%, it fell by 27%
3. instead of government expenditure to support education, health, law and order, and infrastructure
4. increasing by an estimated 85%, it fell by 32%
5.instead of imports increasing by a predicted 58%, they fell 73%
“On every other measure of economic welfare (household incomes, employment, government expenditure, imports and every non-resource sector of the economy), the PNG economy currently would have been better off without the PNG LNG project, often drastically so,” wrote Flanagan.
Separately the project has consistently sparked security concerns, with the Highlands region’s notorious tribal violence as well as local landowner anger directed at the project over alleged non-payment of royalties.
The Jubilee report made several recommendations to the Australian government, including the development of a code of conduct for economic modelling.
Dr Luke Fletcher, executive director of Jubilee said there was little to no transparency about what assumptions were made by economic modellers hired by resource firms proposing large-scale projects. Fletcher said the problem wasn’t just restricted to PNG but occurred across Australia.
“It’s about transparency about how these models are conducted, but also accountability when the models turn out to be bogus or problematic,” he said.
ExxonMobil did not respond to questions about the Jubilee report.
Efic was asked detailed questions about the economic outcomes of the project. A spokesman said Efic “takes steps to ensure that all transactions that it enters into comply with relevant laws and regulations, and Efic transaction documentation contains provisions to this effect”.
Guardian Australia made attempts to obtain due diligence reports on how it assessed and approved the loan, however Efic refused to provide the reports on the basis of a special exemption contained in freedom of information laws.
The funding of the PNG LNG project was “the biggest decision Efic ever made,” said Fletcher.
“The argument we’re making is that this is a decision which had a huge impact on the economy of a country of six million people,” he said.
“These decisions have huge consequences, not just for particular communities but in this case for an entire nation. There needs to be more of a public discussion about what taxpayer money is going towards.”
Fletcher noted the broad exemptions Efic had from freedom of information laws.
“Given what we’ve seen in PNG … there’s just no way for there to be accountability unless we’re able to understand its decision making. Unless it’s releasing its decision-making and benchmarking its due diligence, there is no way we can hold them to account.”
Fletcher said the report estimated the PNG government should have collected around 1.4bn kina (AU$567.8m) in revenue but was instead collecting about 500,000 kina (AU$203,000).
While this shortfall was likely “a combination of generous fiscal terms and aggressive taxation tactics by the companies”, Fletcher said, there were also concerns about the government management of what was collected.
“The resource curse is a well established phenomenon where you get a huge resource boost to a relatively undeveloped economy and despite what you’d expect the economy doesn’t do well,” he said.
A 2017 analysis by the Lowy Institute found that from 2003 to 2011 PNG experienced “comparatively healthy macroeconomic conditions”, including a “major boost” to the domestic economy from the LNG project’s construction phase.
“However, from 2012, fiscal policy settings began to deteriorate and the budget deficit increased markedly,” the Lowy report said, adding that while the end of the commodity price boom was a factor, so too were expansionary fiscal policies adopted by the PNG government.
Fletcher said profligate spending during the construction phase, weak central institutions like the sovereign wealth fund and central bank, and poor management of the exchange rate which hit non-resource sectors hard, were all potential contributors to the dramatic economic decline.
“This is exactly what happens when a country goes down this path – it puts all its focus and belief that resources are going to solve everything,” said Fletcher.
“This is not just a PNG problem, Australia in many ways could be seen to be cheerleading, not just with Efic but in encouraging PNG down this path, with an unique belief that big resource projects can solve anything.”
