CANBERRA - Nautilus or Oil Search - which was the worst investment decision by the O'Neill government?
Neither should have involved government funding – Papua New Guinea had much more pressing needs in areas such as health and infrastructure.
This type of project should have obtained private backers to bear the risks in an experimental technology.
The fact that the O'Neill government was dragged through the courts to make its extra contributions suggests the government is having serious second thoughts about the project.
In such circumstances, Nautilus should just move to private backers. Why are they having difficulty raising additional funding from private sources?
Thirty years ago, when I was an economist in the Pacific area of Australia’s aid agency, seabed mining was considered a long-term but uncertain possibility.
Over the following decades, technology has improved. However, there remain serious concerns. When talking about the potential of deep sea mining (DSM), the recent Pacific Possible report by the World Bank notes:
"There are, however, significant challenges to this emerging industry. These include weak regulatory and institutional capacities and patchy traditions of transparency and stakeholder consultation, substantial uncertainties about the economic potential of DSM, and limited understanding of the environmental and social risks associated with DSM mining (page 71).
"This is an unusual situation for governments and industry alike, where the underlying data used to model costs and benefits is limited to scarce observations for which connectivity to the surrounding environment is not well understood. DSM mining is proposed at great depths where regulatory monitoring is exceptionally difficult."
Like Oil Search, the Nautilus investment was a poor judgement call by the O'Neill government for the people of PNG.
There were better uses for the funds available, especially given the uncertainties highlighted by the World Bank. Nautilus should refund the moneys invested by the PNG government.
Certainly there should be no more government financing. Then there is a need for properly verified research to provide the necessary assurances to protect the people in surrounding areas.
There is a need to change PNG's system of taxation to ensure a fairer return from any resource project that proceeds.
It is likely that Nautilus will have generous accelerated depreciation arrangements and other incentives which would mean that even from just a revenue perspective there will be no quick fixes to the government's budget deficits.
I applaud Sir Arnold Amet's willingness to engage in this important issue facing PNG. I do hope lessons have been learnt - and these include the government being equally cautious about directly investing in agro-industries.
The government's role should focus on research, infrastructure, appropriate regulation and removing barriers such as an uncompetitive exchange rate and limited private banking credit. There are better ways for funding and decision-making around such uncertain projects.
We just don't know how bad the Nautilus project could be - let's be more careful until we know more. Those "chimneys" won't be going anywhere so there is time.