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Failed predictions & resource curse leave people worse off


CANBERRA - A major study released yesterday by Jubilee Australia, ‘Double or Nothing: The Broken Economic Promises of PNG LNG’ concludes that “on almost every measure of economic welfare, the PNG economy would have been better off without the project”.

The report, co-authored by me and Dr Luke Fletcher, compares the projected economic benefits of the PNG LNG project with actual outcomes.

It uses PNG government data to examine the predictions of the 2008 project report commissioned by ExxonMobil and promoted by Oil Search and this examination finds that the very positive predictions for the PNG economy were largely incorrect.

Specifically, growth in the resource sector has matched the confident predictions even with the fall in oil prices in 2014. However, all other parts of the PNG economy have not done as well as predicted.

This is a major ‘broken promises’ gap and is the basis for the title of the report.

The PNG LNG project promised to double GDP, but the outcome of 10% is close to nothing (especially when the size of PNG’s GDP is facing a major downgrade).

Revenues to the budget are only one-third of expected levels and, after allowing for project costs, will continue having a net negative impact on the budget (so below nothing) until around 2024.

Of even greater concern, the study finds that the PNG economy, apart from the resource sector, has actually gone backwards relative to its underlying growth path.

The most likely explanation for this sad outcome is PNG has slipped again into poor policies associated with the ‘resource curse’ - the paradox that countries with an abundance of natural resources tend to have less economic growth, less democracy and worse development outcomes.

The temptations of the rosy PNG LNG promises were too strong for politicians despite warnings from PNG Treasury, the Bank of PNG and outside academics.

During the O’Neill-Dion government, PNG descended into very damaging economic policies of a bloated budget and PNG’s largest ever deficits, fixing the exchange rate at an over-valued level, making foolish investments in areas such as Oil Search and harming the independence of PNG’s economic institutions.

With the focus being so strongly on getting the PNG LNG project operational, there was a lack of policy emphasis on other parts of the economy. This is the ‘resource curse gap’.

PNG needs to learn the lessons from this experience. This is the third time it has suffered from the resource curse: the first was with Bougainville Copper and the experience of the late 1980s; the second was the Kutubu-Porgera expectations that crashed so badly in the mid-1990s; and the PNG LNG period is the third resource crisis.

The benefits of PNG’s resource wealth in theory could be tapped without damaging the rest of the economy. But it would require very different choices by PNG’s politicians.

PNG probably lacks the strong governance and institutions required to deal with the powerful resource sector lobby. Even in Australia, the power of vested interests around the resource sector is blocking sensible options for sharing resource benefits more equitably and efficiently.

Aggressive tax minimisation is practiced. Until PNG has stronger governance arrangements, there is a high risk that major new resource projects will simply repeat this cycle of falling into the resource curse, and damaging the rest of the economy.

Fundamentally, PNG needs a new development path – one that is more inclusive and delivers greater benefits to the people.

A resource-led path is clearly failing in terms of economic welfare, most people in PNG are one-third worse off now than in 1980.

PNG’s comparative advantage is not in oil and minerals. Rather, it is the richness of its peoples’ cultural diversity, its extraordinary beauty and biodiversity, the wealth of its soils. PNG has better development options.


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Philip Fitzpatrick

I've just been reading the second Jubilee Australia report on the PNG LNG project.

Like the first report it talks about Exxon-Mobil abrogating the responsibility for identifying the landowners, saying that role is the responsibility of the government.

I get the impression that Jubilee Australia also believes this is the case.

However, a reading of the PNG Oil and Gas Act says this is not the case. To my mind it is pretty clear that the responsibility lies with the licensee.

Here is what Section 47 says:

(1) It shall be a condition of every petroleum prospecting licence that the licensee undertake social mapping studies and landowner identification studies in accordance with this section.
(2) It shall be a condition of every petroleum retention licence that the licensee undertake social mapping studies and landowner identification studies in accordance with this section, to the extent that such studies have not been undertaken pursuant to a petroleum prospecting licence out of which the petroleum retention licence was granted.
(3) It shall be a condition of every petroleum development licence that the licensee undertake social mapping studies and landowner identification studies in accordance with this section, to the extent that such studies have not been undertaken pursuant to a petroleum prospecting licence or petroleum retention licence out of which the petroleum development licence was granted.
(4) Prior to first entry on to the licence area for the purposes of exploration pursuant to a petroleum prospecting licence or a petroleum retention licence, the licensee shall undertake–
(a) a preliminary social mapping study; and
(b) a preliminary landowner identification study,
of the customary land owners comprised in the licence area, with particular reference to that part of the licence area where the licensee’s exploration activities are to be concentrated.
(5) If a licensee or a person makes an application for a petroleum development licence under Section 53, the licensee shall submit with that application a full-scale social mapping study and landowner identification study of customary land owners in –
(a) the licence area of that petroleum development licence; and
(b) other licence areas, including pipeline areas, which pertain to that petroleum development licence; and
(c) the land within five kilometres of any facility which would be a dedicated project facility (other than a facility which would be situated on such a petroleum development licence) of the petroleum project; and
(d) other areas which would be affected by the petroleum project if developed.

Note Clause 5.

Isn't that pretty clear?

Paul Oates

Apparently Peter O'Neill has called this report 'Fake News' but then admitted he hadn't actually read the report.

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