New PNG leader drops a nationalistic gauntlet

When James Marape won a parliamentary vote on May 30 to become Papua New Guinea’s (PNG) next prime minister, he used his inaugural address to rail against the perceived plundering of the nation’s natural resources by foreign companies.

A native of Hela Province, seat of the country’s original liquified natural gas (LNG) fields, Marape pledged to “take back” the economy and review “outdated” resource laws, saying “we will look into maximizing gain from what God has given this country from our natural resources.”

Existential angst over PNG’s relations with foreign corporations and the notion that the benefits of resource extraction are not being adequately returned to PNG was a recurrent theme under the administration of Marape’s predecessor Peter O’Neil.

Marape’s heartfelt feelings on the issue ostensibly led to his resignation as Finance Minister from O’Neill’s Cabinet in April, a move that precipitated a crisis in confidence that brought down the government and ultimately led to Marape’s election as the new premier.

Upon his resignation, Marape criticized O’Neill over his handling of the LNG contracts, telling reporters he had quit in frustration after failing to convince O’Neill to transfer more of the wealth accruing from the project to PNG businesses and landowners.

It’s hard to overemphasize the impact ExonnMobil’s US$19 billion LNG project had on Papua New Guinea when it first commenced operations back in 2010.

Executives here go misty-eyed over the kick the project gave PNG’s economy as workers poured in to oversee the design and construction of gas production and processing facilities that spanned five remote and rugged provinces and hundreds of miles of pipe.

An influx of cash-rich expats, coupled with income generated by thousands of jobs for PNG citizens, created ripple effects that pushed the World Bank’s estimate for nominal gross domestic product (GDP) to a record high of $23.06 billion in 2014.

The project’s completion ahead of schedule the same year proved PNG could host a mega-energy project and supply LNG to an Asia market earmarked to see demand more than triple by 2025, paving the way for France’s Total to sign a follow-up $13-billion agreement in April this year.

Total’s Papua LNG development, to be undertaken in tandem with ExxonMobil and Australia’s Oil Search, aims to double PNG’s LNG exports and fill a global supply gap forecast to hit in the early 2020s.

Under a fiscal framework deal signed in April, Total is conducting an engineering study to confirm the feasibility of developing what it calls a “deep onshore operation” in PNG’s pristine rainforest.

The French oil major plans to develop two gas fields in PNG’s central Gulf province, 60 kilometers of onshore piping and two new LNG trains with a capacity of 5.4 million tons per year.

This will be complemented by ExxonMobil adding a third train to its existing PNG LNG plant, which will handle the processing for both projects, ahead of developing a third new field.

Papua LNG’s potential, along with that of two copper and gold mines valued at more than $10 billion, underpins cautious optimism that has led the World Bank to predict PNG’s economy will grow 5.1% this year.

“The Total-led LNG project is super important for PNG,” said Tjeerd Ritmeester, editorial manager for research and advisory firm Oxford Business Group in PNG.

“The country is in a process of diversification but is still over-reliant on extractive industries. Papua LNG has the capacity to catapult the economy back in a modus of growth.”

But possible legal or contractual changes under Marape could give investors pause.

Sebastian Liu, a global threat analyst for Asia Pacific with Healix International Risk Management Services, said tweaking legislation to achieve more equitable benefit-sharing from resource projects would likely be Marape’s main focus after he completes a diagnosis of the economy.

“While he has said he does not intend to renege on legally binding project agreements, closer scrutiny of provisions and disagreements on tax and royalties distribution may lead to a delay in the finalization of contracts,” Liu said.

“Any delay may lead to Exxon and Total diverting their efforts into LNG projects elsewhere in order to compete against projects in Africa and Latin America,” he predicted.

Time is of the essence. Marape on Friday (May 31) was quick to name a caretaker Cabinet that is likely to put the minds of the resource community at ease, but nonetheless represents a significant shift in direction for PNG’s politics.

In a solemn ceremony at Government House in Port Moresby, Marape appointed seven men who had all served in O’Neill’s government ahead of confirming their portfolios next month.

They included Charles Abel, the deputy prime minister and treasurer, as well as the former ministers for defense, finance, mining, national planning, and public works.

“Marape talked a big game on the natural resource sector because that was the reason for his split with O’Neill, but the resource community will be breathing a sigh of relief as they have been dealing with these people for a long time,” said Jonathan Pryke, director of the Lowy Institute’s Pacific Islands Program.

The foreign investment community also hopes that when Marape talks about bringing more resource wealth back to PNG, he is not suggesting a renegotiation of terms with foreign partners, but rather an improvement of the mechanisms that have historically failed to put money in the hands of PNG’s small businesses and landowners.

“I don’t think they can expect no changes as the failure of landowner distribution is because the government doesn’t have the capacity to do it,” Pryke said. “There’s an expectation that natural resource companies are going to have to take more of a hands-on approach and help these communities.”

As a landowner in the LNG project territory himself, Marape is intimately aware of the system’s failings, and has come out strongly in favor of devolving greater power to provincial governments and away from Port Moresby.

Provincial governors are already in the new prime minister’s ear, with Northern Province governor Gary Juffa on May 30 urging Marape to press on with laws that transfer ownership of assets based in PNG to domestic holders.

“Foreigners own our economy and are designing our future. We must own fish canneries, timber mills and gas-processing facilities,” he said.

“There was a massive push in the O’Neill administration for decentralization because the perception was too little was coming from Port Moresby to the provinces. We will see that continue in this government,” said Pryke.

While some on social media greeted the unveiling of the caretaker Cabinet with disappointment due to the lack of fresh faces, there is still a sense that Marape represents a genuine changing of the guard.

Notable by their absence were key figures from the outgoing O’Neill administration, including the former premier himself, as well as his APEC, Lands and Physical Planning Minister Justin Tkatchenko, Foreign Affairs Minister Rimbink Pato, and state investments chief William Duma.

Marape, the 48-year-old son of a pastor who grew up in a Highlands village and was educated at the University of PNG, is regarded as the first true-born PNG citizen to take the reins of government, and thus represents a significant break with the country’s colonial past. The country achieved independence from Australian colonial rule in 1975.

“There is a real hunger for generational change and a sense it’s time for PNG to move on to the post-independence generation,” said Shang McLeod, a research associate at the Lowy Institute’s Aus-PNG Network.

How that shift in thinking impacts PNG’s dealings with its foreign partners and investors remains to be seen, but the consensus so far is that there is unlikely to be radical change.

“Growing up in a post-independence PNG means he’s less tied to the relationship with Australia, but I think he’s pretty positive about it,” McLeod said.

While it is too early to anticipate Marape’s stance on the redevelopment of a naval base at Lombrum on PNG’s island of Manus by Australia and the US, it is notable that Manus governor Charlie Benjamin was among a group of MPs who defected with Marape from the O’Neill government in April.

Benjamin is a vocal opponent of the joint naval initiative at Lombrum signed in March, which provides a framework for PNG and Australia to cooperate on training and infrastructure development at the base, a plan viewed by defense analysts as directly pointed at China.

For his part, Marape in February strongly protested the negative publicity over the handling of Australian asylum seekers at a notorious detention center on the island under an arrangement in place with Canberra since 2013.

The issue is immediately in focus after several inmates at the center committed acts of self-harm this week upon learning that Australia had last month re-elected Scott Morrison as prime minister partly on an anti-immigration platform.

Morrison himself is currently visiting the Solomon Islands, which along with PNG is receiving heightened attention for the critical role the Pacific Islands play in balancing the strategic interests of China on one hand, and the US and Australia on the other.

Marape has a clear run in government until PNG’s next election in 2022, providing him with ample time to clarify the extent to which he is prepared to strike a more independent path for PNG at home and abroad.