A Note on Mining: Lessons from PNG and Elsewhere

By retired NZ diplomat Gerald McGhie

Gerald with Rev Yabaki March 2011

I wonder whether the current outbreak of mining in the Pacific will produce the expected returns to governments and landowners. 

 

The key question relates to governance. Do Pacific governments have the resources to manage the huge amounts of money at stake? The evidence to date is not encouraging.

As the largest and wealthiest Pacific Island country PNG is probably the most at risk. On her recent visit even the United States Secretary of State, Hillary Clinton warned about the misuse of large sums coming into the economy from oil exploration.

A recent report commented as follows – 
 

“PNG TO PROBE VAST GIVEAWAY OF CUSTOMARY LAND
Loggers allegedly cutting trees under pretext of agriculture 

PORT MORESBY, Papua New Guinea (PNG Post-Courier, March 29, 2011) - An expert team is to probe how five million hectares of customary land were acquired by foreign firms to cut logs under the pretext of developing the land for agriculture and other business activities.

[Reports claim that] villagers would not seek legal redress for environmental damages because of the amendments to the Environment Act enacted by Parliament last year. The land allocation has come to the attention of the United Nations Committee on Elimination on Racial Discrimination which has sent a protest note to the Government to explain the millions of hectares of land given away to companies, mainly foreign owned.”

But there is a further dimension. Populist pleas are beginning to emerge from the provincial areas. The former Prime Minister Sir Julius Chan was reported as follows

PNG’S CHAN: GOVERNMENT SHOULDN’T OWN RESOURCES
New Ireland governor wants autonomy for province 

WELLINGTON, New Zealand (RNZI, March 29, 2011) - A former Papua New Guinea prime minister and now governor of New Ireland province, Sir Julius Chan, says it’s vital the people control the country’s resources. Sir Julius has been pushing for autonomy for his province, along the lines of what is currently in force in Bougainville. He also wants the Land Act of 1992, which gives the government sole ownership of whatever is under the ground, re-written. Sir Julius says one aspect of autonomy is to control the resources and this will also ensure stability and help the people flourish once the mines close. 

 

The idea looks appealing but the provincial governments in most cases are no more effective than central government. One wonders whether the celebrated but flawed "trickle down" theory will work any better in the Pacific than elsewhere in the world and out in the provincial areas.

A recent report says

PNG LANDOWNERS GET ZILCH IN $2 MILLION LOG EXPORT
PNG senior officials dealt with Malaysian investors behind closed doors 

PORT MORESBY, Papua New Guinea (PNG Post-Courier, April 12, 2011) – In Papua New Guinea (PNG), a total of 4.9 million- kina [US$2 million] was earned from logs exported from Central Province in a deal that has left the customary landowners high and dry. An investigation has found that senior government officials from the Central Province facilitated the deal for the Malaysian investor and his PNG counterparts to log the forest. This was one of several case studies highlighted in the report compiled from the investigation conducted by academic Colin Filer who presented his report, The Land Grab in Papua New Guinea to the International Conference on Global Land Grabbing last week at the Institute of Development Studies, University of Sussex in England. According to the report, a Special Agriculture and Business Lease (SABL), more than 42,100 hectares of land in Central Province was issued to a company called Baina Agro-Forest Limited for a period of 40 years. The lease covered a largely uninhabited area of lowland hill forest, about 60 kilometer northeast of Port Moresby, which intersected a forest area of 57,000 hectares. 

 

Not for the first time the customary landowners are left wanting when the big deals involving land resources are under way. Given that the vital place of land and customary title throughout the Pacific it is important that Pacific governments realise just how important any moves they make involving the resources of the people are.

But there is also Tonga

 The Taimi O Tonga reports

KOREA BEGINS SEABED MINERAL EXPLORATION IN TONGA
27 Korean researchers to spend 4 months collecting data 

AUCKLAND, New Zealand (Taimi o Tonga, April 12, 2011) - Korean research ship RV Araon has embarked on its first exploration expedition for seabed minerals in Tongan waters last Saturday.

Some regard is paid to the environment. As the report says

Another key focus at the moment is to study the impact on the environment and the ecosystem of a wholesale extraction exercise. According to KORDI local officer Mr. Jang Wan Bang, a team of 27 researchers from Korea will spend the next four months collecting data from ocean beds within Tongan waters, in areas where it is up to several thousand metres below the surface.

Given the precedent of BP’s exploits in Gulf of Mexico oil extraction from several kilometres below the ocean’s surface of Tonga exercise will ring alarm bells amongst the environmentalists. New Zealand's protest against deep sea mining of the east coast of the North Island should also be read with interest.

The challenges presented by mineral exploration become even more sharply focused when one looks at the economies of some of the States involved. 

 

Tonga is relevant as this report on Tonga’s high risk of debt distress

REGIONAL LENDER: TONGA DEBT PUSHED TO LIMIT

ADB urges restraint on government payroll  

NUKUALOFA, Tonga (Matangi Tonga, March 24, 2011) – Tonga is at high risk of debt distress and cannot afford to take on more borrowing, according to an Asian Development Bank report that was released this month. Calling debt distress a key issue for Tonga, the ADB's Pacific Economic Monitor for February, points to a need for expenditure restraint by government, "particularly on personnel expenditure, as non-wage and salaries spending is already significantly over budget." It was one of three recent assessments, including reports by the World Bank and Tonga's Minister of Finance, which concluded that the Tongan economy will remain weak during 2011 - its third consecutive year of economic contraction. It is clear from the reports that the huge cost of reconstruction of the Nuku'alofa CBD after the riots of 2006 has forced Tonga into a high debt situation, and that a downturn in the world economy has stalled the nation's recovery on all fronts. According to the World Bank's East Asia and Pacific Economic Update 2001:1, Tonga's public debt is projected to reach 58.5 percent of GDP in the next fiscal year. "The loans contracted to finance the increased construction expenditure are causing a sharp increase in Tonga's level of indebtedness," the report said.

The promise of large returns from mineral resources must seem highly attractive to Pacific governments who find it difficult to balance their budgets. This is a Pacific wide phenomenon – New Zealand is included. But once the mineral resources have gone, as our found to have cost, there is not much else to develop.

That is why the quality of governance remains so important.