Yesterday, the largest resources project in Papua New Guinea’s history moved a step closer, with the PNG government approving the Environmental Impact Statement for the vast PNG LNG project.
The project is being developed by ExxonMobil, Australian companies OilSearch and Santos, and — notionally — PNG’s state-owned company Petramin. It is anticipated it will cost more than $US11 billion ($A11.9 billion), and double the size of PNG’s GDP over its 30-year lifecycle.
The PNG government’s stake in the project is not controlled by Petramin but instead, effectively, by Arthur Somare, the Public Enterprises Minister and son of the Prime Minister Michael Somare. Control of the project has been handed to the “Independent Public Business Corporation”, in which Somare is said to be influential. IPBC’s role was underwritten by a $US1.7 billion loan from the Abu Dhabi government, brokered by Somare.
There is a seat on the IPBC Board for Transparency International PNG Inc, but it is currently vacant.
PNG has also refused to participate in the Extractive Industries Transparency Initiative (EITI), a set of international standards for publicly reporting revenues from oil, mining and gas ventures launched in 2002.
All this is not unrelated to Australian interests. The Australian government, in fact, has a key role. At least half, and perhaps more, of the $11 billion development cost will be met by various export credit agencies (ECAs), state-owned bodies that facilitate exports through insurance and loans. The Japan Bank for International Cooperation is providing $US4.3 billion for the project. The US and Italian ECAs are considering support. And sometime in the next couple of weeks, Simon Crean will take a submission from the Export Finance and Insurance Corporation to Cabinet proposing we provide $US500 million in loans for the project.
EFIC has invested in PNG before, of course. It provided significant support for the development of the environmentally disastrous Ok Tedi mine.
EFIC isn’t subject to anything like the same level of scrutiny that most public-sector agencies face. Its internal workings used to be subject to several FOI exemptions. The government’s recent FOI reforms have stripped some of those away, but its activities remain mostly out of public sight. According to local NGO Jubilee Australia, EFIC has — contrary to its own environmental policy — refused to respond to submissions about the environmental impacts of major projects it is considering supporting. Jubilee has written to Crean requesting that he reconsider EFIC support for the PNG LNG project, which is scheduled to be approved by the PNG government before the end of the year.
The people of PNG have seen a succession of major resource projects fail to dent widespread poverty since independence. PNG LNG, which continues to be dogged by disputes with local landowners who are supposed to also have a stake in the project, may well go the same way, with foreign companies, fly-in, fly-out foreign workers and local politicians potentially being the prime beneficiaries, all with the generous support of Australian taxpayers.
This is what Somare was quoted as saying about the gas reserves in the Post Courier:
Our natural resource development projects generate the highest economic returns in the Asia Pacific Rim and our people should not be denied the benefits of their rightful participation in a competitive global LNG market.
The gall of the man.
Kudos to you for reporting on this hugely important issue. Lets hope it manages to connect with a wider Aussie audience so journos can afford to spend more time analysing what could be one of the biggest heists of all time
EFIC Stands By Its Social and Environmental Policies
This story makes criticisms of EFIC’s environmental and social policies which require a closer look. I think it’s important to place some facts on the record to balance the discussion.
Before financing any transaction, EFIC makes a commercial judgement on the viability of the transaction, considers the benefits to Australian exporters, and applies a rigorous environmental and social assessment. This is a threshold test. If the deal doesn’t meet our environmental and social standards, then EFIC doesn’t get involved. EFIC has rejected transactions on environmental grounds.
EFIC’s Environment Policy is based on the OECD Recommendation on Common Approaches on the Environment and Officially Supported Export Credits. This is the OECD rule book for export credit agencies which incorporates environmental standards set by the International Finance Corporation – an arm of the World Bank. Not only do we take seriously our obligation to comply with these rules, we are proud of the fact that we have helped shape and advance those standards. And in March this year, EFIC voluntarily adopted the Equator Principles – a complementary set of global standards for environmental and social assessment for project finance.
So what does this mean in practice?
Let’s look at just a few projects that EFIC has helped finance in the last six years:
• In 2003, EFIC supported a gas pipeline from Mozambique to South Africa which saw the replacement of gassified coal feedstock resulting in improvements in greenhouse gas and waste emission levels. CO2 emissions, for example, were reduced by 47% or almost 5 million tonnes.
• In 2004, EFIC supported a mineral sands project in Mozambique which just last week won an international award for green mining due to its successful implementation of an extensive social development programme.
• In 2005 and again in 2008, EFIC supported the installation of solar-powered kits for drip irrigation works in Sri Lanka. This allowed the replacement of diesel-powered pumps and replaced the previous reliance on flood irrigation with much more reliable drip-irrigation.
• In 2007, EFIC supported the Lumwana copper mine in Zambia. This project too had a major social development programme including the installation of water pumps in nearby villages as well as construction of a school and medical clinic.
Not only does EFIC apply rigorous standards to ensure that environmental and social considerations are fully assessed before we proceed with a transaction but many of our projects include elements that are positively beneficial.
We are proud of our track record. It’s a track record that is easily and publicly available. Every year, EFIC publishes an Annual Report which is tabled in Parliament by the Minister for Trade. Although not obliged to do so, we choose to operate on the basis of the ASX Good Corporate Governance and Best Practice Recommendations.
One of our key policy commitments is to make available for public comment details of any transaction we are considering with a potentially significant environmental or social impact – our so-called Category A Disclosure process. Since adopting this process in 2000, we have disclosed details of 15 potential transactions. When listing these projects we proactively email interested parties to ensure that they are given time to respond (on the one occasion that we missed this step we extended the submission period once we discovered our error).
EFIC has received 3 submissions on these 15 Category A transactions. One project did not proceed on other grounds and a written response to that effect was made. The remaining two projects are still open for evaluation and no financing decision has yet been taken. Our consultations are ongoing – including meetings that have already been held with the respondents.
Far from conducting our activities out of public sight, EFIC’s environmental and social assessment is both a thorough and transparent process.
The LNG project in PNG is one that has the potential to bring enormous benefits to the people and economy of Papua New Guinea. Should EFIC provide financing for this project, it will only occur after the full and rigorous environmental and social assessment that our policies and international obligations require.
Nicholas Giurietto
Head of Marketing and Corporate Communications
Export Finance and Insurance Corporation