Graeme Smith* – The Interpreter (Lowy Institute)
When I penned Are Chinese Soft Loans Always a Bad Thing? for The Interpreter in March there seemed little prospect that my query would have immediate relevance. PNG Treasury officials were adamant that there was a freeze on further loans. Gripped by fiscal rectitude, they were set on paying back an interest-free loan made by the People’s Bank of China in the 1990s, even though no one had asked for it back.
To Treasury’s consternation, during the course of the PNG election campaign Peter O’Neill announced he was negotiating a soft loan with China Exim Bank. It is worth in the region of K6 billion ($2.7 billion), with the potential for up to K10 billion to be drawn upon. It dwarfs the 2006 Soft Loan Facility of $375 million made to the Pacific as a whole.
Pro-opposition blogs have denounced the loan as ‘sinister’ and suggested that Treasury will be bypassed altogether. In the absence of any concrete details of the loan, which is currently being finalised, PNG’s lively blogosphere has filled the vacuum. A thoughtful anonymous post on Keith Jackson’s blog rightly points to the effect the loan will have on the ever appreciating exchange rate, which is set to face enormous upward pressure when Exxon Mobil’s LNG project comes online.
Perhaps the greatest concern is that the loan appears to be fragmenting (even before it is agreed) into a set of smaller projects around diverse actors and local political interests, as noted in The Garamut.
Initially, the loan was specifically for a much-needed upgrade to the Highlands Highway. Projects now mentioned in association with the loan include a hydropower scheme, the infrastructure needs of Port Moresby and Lae, and even the upgrading of PNG’s state-owned enterprises. One minister’s ‘shopping list’ is said to be more than double the value of the loan facility.
To an extent, such balkanisation is a result of the Alotau Accord, an agreement reached between political groupings in the provincial capital of Milne Bay province that led to the formation of the O’Neill-Dion Government. Ironically, Milne Bay appears to be one part of Papua New Guinea that will not benefit from expenditure on ‘high priority infrastructure projects‘.
It will be interesting to see which dance partners appear on the Chinese side of the ballroom. Chinese aid officials privately concede that Chinese construction companies largely drive China Exim’s concessional loans, the majority of which go towards infrastructure development.
In a recent Wall St Journal article, which curiously described PNG as ‘an impoverished southeast Asian nation’, Peter O’Neill maintained that the Chinese partners for the new loan would be ‘Fortune 500 companies’. Success in accessing the 2006 Soft Loan facility came down to the political clout of Chinese contractors within China, and the political savvy of their PNG partners in lobbying the PNG legislature. The outlier was the choice of contractor for the $235 million PMIZ project, which involves the construction of a free trade zone and up to ten tuna canneries in Madang. The project is currently stalled in the courts. The Chinese contractor, Shenyang International Economic and Technical Cooperation Company, is a city-level state-owned enterprise (SOE) with no established presence in PNG. With less than 100 employees in China, it’s unlikely to appear in the Fortune 500 anytime soon.
The choice of an inexperienced company for a complex project seems odd, but is in line with the practice of concessional loans being used to provide selected SOEs with overseas experience. With the majority of the top 20 Chinese companies in PNG listing their business as ‘construction’ (linked article is in Chinese), it’s to be hoped that China Exim Bank calls on companies with experience in PNG, or similar countries. Papua New Guinea is no place for training wheels.
* Graeme Smith is a Postdoctoral Fellow at the China Studies Centre, University of Sydney and a Visiting Fellow with the State, Society and Governance Program in Melanesia Program, AN
Confidential government documents show that, just like his predecessor Michael Somare, O’Neill is not only being bullied by the Chinese to give them preferential access to PNG resources – he is using PNG tax payers money to subsidize the Chinese.
The O’Neill government says the controversial Pacific Marine Industrial Zone in Madang province is one of its priorities to boost the national economy but has not revealed:
- The USD79 million dollars it is borrowing from the Chinese to fund the project will be plowed straight back into the Chinese company building the PMIZ rather than being invested in PNG companies and people
- China Shenyang International Corp has been contracted by the PNG government to design, build and supply equipment and materials for the PMIZ rather than the PNG government using local businesses
- The total PNG government contract with China Shenyang International is for USD 95 million, which means PNG taxpayers will be directly subsidizing this Chinese company to the tune of USD16 million.
- All the goods, technologies and services purchased for PMIZ will come from China – not PNG suppliers
- China Shenyang International will operate completely tax free in PNG, exempt from any “rate, charge, duty or imposition of any kind under PNG laws” – a concession the PNG government NEVER gives to PNG businesses
The PNG government has also granted Chinese officials full and unlimited rights to examine and supervise the project funding including granting a long-term multiple entry visa to the Chinese loan officer.
The government has also “irrevocably waived” any sovereign immunity for PNG in any dispute over the loan, AND agreed while PNG may not assign or transfer any of its rights or obligations China has full rights to assign or transfer any of its rights and obligations!
Finally the PNG government has agreed the loan contract, although signed in PNG and to be effected in PNG will be “governed by and construed in accordance with the laws of China” – bet you don’t even know what those laws are do you Mr O’Neill!
By John F.M. Kocsis, Harvard Political Review
In one of the coming decades’ most important developments, tensions between the United States and China have begun to escalate on a whole host of new fronts. Prospects for the presidency have soared to new heights of monetary nationalism, the Obama administration has announced plans to station 2,500 marines in the Pacific, and Chinese diplomats have turned up the heat on American allies in the South China Sea.
As in all great rivalries, China and America both have proxies whom they support, provided the junior partners act in their interest. One such proxy nation is Papua New Guinea, the resource-rich Pacific nation whose domestic political instability has made it a surprising focus of American and Chinese geopolitical maneuvering.
Of potential flashpoints for conflict in the Pacific arena, Papua New Guinea is generally less studied than its regional counterparts, such as the Philippines and Vietnam. New Guinean history is primarily viewed through the lens of Jared Diamond’s Guns, Germs, and Steel. This ignores the island’s long history on the world stage. A battleground between Allied and Japanese forces in World War II, the country was restored to Australian ownership at the campaign’s end. Sir Michael Somare, a perennial leader of Papua New Guinea, finally won his people independence in 1975 – but ever since, the Melanesian state has been fraught with conflict.
Despite recent military developments, Papua New Guinea is ostensibly in the throes of a petty constitutional crisis. Sir Michael Somare, in his fourth nonconsecutive role as prime minister until this past August, has returned from his convalescence in Singapore claiming to be the country’s rightful legislative chief. The person serving in that position now, Peter O’Neill, toppled the placeholder Somare who appointed in August and was voted by the parliament as the rightful prime minister. The small nation’s supreme court ruled that because Somare left for heart surgery with full intention to reclaim his seat, he is legally entitled to the role of prime minister. By and large, parliament disagrees – and Papua New Guinean ministers strongly support the new prime minister, Peter O’Neill. This vehement disagreement at the highest levels of government led to a mutiny attempt to remove O’Neill and restore Somare.
The rebellion was successful at first. Hired by Michael Somare, the Indonesian colonel Yaura Sasa and his troops seized control of the military barracks in Port Moresby, the capital, and captured Brigadier-General Francis Agwi, the Commander of the PNG Defense Force. After days of escalation, soldiers surrendered their weapons on January 30. They promised to stand down instead of facing prison time. The colonel was jailed but later released on the grounds that he was merely operating under government commands. The government of Sir Michael Somare, which the Supreme Court deemed legitimate, had, after all, executed the order.
A surface-level reading of this scenario focuses on an internal struggle within government leadership over political control and resources, a common occurrence in developing nations. However, a broader and perhaps more accurate view of the situation requires putting it in terms of American and Chinese interests. Papua New Guinea is an attractive destination for investors due to its untapped 22.6 trillion cubic feet in natural gas, not to mention its copper and gold wealth. Exxon Mobil is working on a $15.7 billion liquefied natural gas project that should due to be completed in 2014. The China Metallurgical Group Corporation (MCC) is developing China’s largest overseas mining investment, a $1.6 billion attempt to exploit 140 million tons of nickel.
As is typical of situations in which foreign investment is involved, outside nations require government compliance in forging ahead with their designs. China had an easy time injecting itself in the nation when Somare was in charge. The once and perhaps future prime minister supported Chinese interests in his Environment Act, which amended the law so that landowners could no longer contest damaging activities on their land – a move that authorized the MCC’s plan to dump toxic mine waste into the Bismarck Sea. This provision was repealed by the O’Neill government, which claimed to look out for both the environment and the rights of its constituents.
The acts of Peter O’Neill are not necessarily so principled. While Somare instituted a “look north” policy during his tenure, O’Neill has increasingly conducted his primary business with Julia Gillard and her Labor government in Australia. Sir Michael Somare saw China as the country to emulate. He invited members of the People’s Liberation Army to train the Papua New Guinea Defense Force. He also established a program for PNG officers to undertake military training in the People’s Republic of China for up to three years. Historically, since Papua New Guinean independence, training aid had been under the aegis of Australia, New Zealand, and the United States. In the past couple of months, O’Neill has attempted to revert to those days, inviting Australian troops back to the island.
Last spring, Secretary of State Hillary Clinton admonished Somare for getting too close to his neighbor to the north. She warned of a “resource curse,” insinuating that he would fail as leader if he lacked commitment to good governance, transparency, and accountability. Clinton has taken a Kissinger-esque stand when it comes to the nation, urging the U.S. Congressional Foreign Relations Committee, “Let’s put aside the moral, humanitarian, do-good side of what we believe in and let’s just talk straight, realpolitik.” She bluntly claimed that China is trying to “come in under us” regarding “Papua New Guinea’s huge energy find.” As if there was any doubt, she strongly asserted, “We are in a competition with China.”
U.S. diplomats aren’t the only ones to recognize the recent skirmish’s implications on the Chinese-American divide. Resentful PNG citizens have circulated text messages claiming, “The Somare regime existed through Asian mafia’s funding.” Papua New Guinea has experienced the rapid rise in Chinese immigrants to which the entire Pacific region has become accustomed. Nativist anti-Chinese riots ulcerated in 2009; accordingly, most citizens strongly prefer America to China. However, as America’s unipolar moment fades into a period of increased Chinese assertiveness, it is not hard to imagine a future of Chinese dominance in Papua New Guinea.
Pacific Islanders might not like their new neighbors, but many established politicians have a tendency to get along with Beijing just fine. As China’s aggression continues, its influence is unlikely to go anywhere but up.
By Simon Eroro
FORMER PNG Customs Commissioner Gary Juffa is seeking legal advice from his lawyers to stop a rice project promoted by Eliana Tjandra from the Papindo Group of companies, a naturalised citizen.
Prime Minister Peter O’Neill, when interviewed yesterday, said any investments in the country must follow strict procedures and refused to entertain the project.
Mr Juffa said Ms Tjandra has brought in investors from Indonesia and China with the intention to secure vast tracts of land in Central Province to cultivate and sell rice for commercial purposes in the country.
The former PNG Customs boss said Ms Tjandra is currently facing charges of fraud for conspiring with Lands Department officers to illegally obtain titles to parcels of land in Port Moresby and she is out on bail.
Mr Juffa, who is a clan leader from Northern Province, has come out strongly against the project and urged leaders to seek the interests of the people rather then allow what he called “absurd projects” that demeaned and deprived people from exercising their right to conduct business in their own country.
He is adamant that his clan and others in the province would be affected by this project to the extent that they may be unable in the future to engage in the growing and selling of rice.
“Rice has slowly become a popular crop in Oro Province with substantial volumes being grown by villagers who sometimes sell their rice at markets, shops and even to the local schools and hospital,” he said.
Mr Juffa claimed that the project was hostile to the interests of his Soriane clan of more than 5000 people and indeed all Papua New Guineans who are involved in the growing of rice.
“This absurd project seeks to ban the growing and selling of rice by any entity, individual or organisation in the country. It is a project that seeks to marginalise all citizens and prevent them from benefitting from the growing and selling of rice by Papua New Guineans in their own land,” he said.
“While creating a monopoly for a foreign entity…what type of leaders would do this to their own people to demean them and diminish their opportunities whether present or future?”
Mr Juffa said the Government stop the project and stand by the interests of the people rather then facilitate the project. He said authorities must convene necessary discussions to develop policies to develop a rice industry for Papua New Guineans.
“Leaders are elected to serve, promote and protect the interests of their people, those who elected them into parliament for that purpose,” he said. “Having studied the documents and details regarding this project, I am concerned that this effort is harsh and oppressive towards our citizens becoming self sufficient in this regards – growing and selling of rice.”
Mr Juffa said our people who will be affected do not know of this sinister project.
Papua New Guinea Mine Watch
The Chinese Metallurgical Construction Company (MCC) Ltd, majority owner of the controversial Ramu nickel mine in PNG, has been barred from doing any projects or works involving the World Bank, Asian Development Bank, European Bank for Reconstruction and Development, and the Inter-American Development Bank.
This is because its sister companies, China First Metallurgical Construction Company and China First Metallurgical Group, have been found guilty of fraud and corruption in a World Bank investigation into the construction of a bridge in Bangladesh as part of the Dhaka Urban Transport Project. The investigation found the bridge was so poorly constructed it was condemned before it was opened for fear it would have collapsed when people started using it – potentially killing hundreds of people.
The Ramu nickel mine has been heavily criticized for stealing land from indigenous people, poor construction, use of imported convict labour, appalling health and safety standards, the planned dumping of toxic mine waste into the sea and the highly favorable tax holidays that it secured from the heavily pro-Chinese government of Michael Somare.
MCC was introduced into PNG by Australian based mining company Highlands Pacific, a junior partner in the Ramu mine.
Malum Nalu, the former journalist, now paid public relations apologist for Rimbunan Hijau, really can’t see beyond the end of this own hypocritical nose.
Last month Nalu faced a storm of criticism after Rimbunan Hijau flew him to Pomio to write articles defending its illegal logging operation in the face of a storm of criticism from local people. RH, which owns the Daily Log [aka The National] also flew police officers into the area to attack local people. In evidence to the SABL Commission of Inquiry it was revealed the names of children as young as four appear on the logging agreements RH say authorise its operations (but Nalu writes about none of this – only how great his employer is and how unfair the criticism).
Now we have this latest outburst from Nalu on the social media site Facebook:
Malum NaluThe National has grown strongly over the years and are now selling a whole lot more than the Post Courier. It should not surprise any of us that Post-Courier, dried up of ideas, has been trying to discredit us. Let them blow their trumpets about “scoops”, so-called “journalist of the year” and etc. The PNG Media Awards no longer hold any credibility except for those who have their own agenda. The Media Council has also lost sight of its objectives and is more preoccupied with “bonding nights”.Like · · about an hour ago ·
The Post Courier trying to discredit The National? Come on Nalu, you do that yourself with your biased reporting and confusion about what is journalism and what is simply the promotion of RH’s business interests!
ANTI-CHINESE sentiment is flaring in Papua New Guinea during a week of political turmoil, with widely circulated text messages calling for the public to ”forcefully evict” Chinese from the country if former leader Sir Michael Somare returns to power, says the Sydney Morning Herald.
”The Somare regime existed through Asian mafia’s fundings … PNGians will be slaves of Somare family and Asians. Declare war against Asian influx,” the messages read in part. They are spreading virally ahead of today’s Supreme Court decision on whether the current government, led by Peter O’Neill, took power legitimately after 75-year-old Sir Michael stood aside while undergoing medical treatment in June.
Some observers are tipping the return of the former government, dominated by the wily leader from the Sepik River region, which could trigger a backlash from Highlanders who support the new Highlander-led regime under Mr O’Neill.
The anti-Chinese messages are the latest in a series of flash protests triggered by widespread uptake of mobile phones in PNG, ranging from ethnic clashes to street marches against corruption.
Police have brought in extra officers from across the nation and set up roadblocks near Parliament and the courts.
”We will be out in full force. We expect something will happen in anything to do with politics,” said a police spokesman.
A series of anti-Chinese riots have taken place across PNG since 1999, driven by resentment of new migrants. At least six Chinese migrants have been killed in the last decade.
Chinese-owned stores were looted across the country in May 2009, sparked by an anti-Chinese march led by activist Noel Anjo.
Mr Anjo denied involvement in the text messages and said he now condemned anti-Chinese violence.
”Our people have seen Asians flooding into the country over the last 10 years without proper documentation,” he said. ”But looting Asian shops is the work of opportunists and won’t solve the problem.”
Thousands of poor mainland Chinese have obtained work permits illegally over the past decade, according to a 2008 report by Monash University’s Professor James Chin.
Outspoken Port Moresby blogger Martyn Namorong says PNG has become a tinderbox, with the proceeds of the current resource boom failing to reach people on the ground. ”The kids just need to strike the match,” Mr Namorong said.
By Racheal Shisei
“Developers are here to put coins into your pocket and mine so don’t upset them.“ That’s from the Madang Provincial Administrator, Bernard Lange who chaired the meeting between the Transgogol Landowners of Madang and the Rimbunan Hijau (RH) Timber Logging Company. Lange told the Land Owners that Asian companies like RH, have contributed to a lot of development in the country, like building roads and bridges.
This meeting held at the Madang Provincial Government Conference room was to discuss why RH is trespassing on the Gogol road and paying royalties to Jant, the previous Logging Company in the area instead of the Land Owners, why RH is dumping wastes into the rivers, why it hasn’t constructed any proper bridges and improve the roads and why it started logging down trees in the area without consulting any of the Land Owners.
Most questions from the Land Owners were fired across the room to the Provincial Forest Officer, Eileen Kolokol who never attempted an answer, instead letting Administrator Lange speak for her all throughout. For a moment it seems the Administrator was covering for her before she could have a chance to speak, but her facial expression clearly showed she wasn’t going to like it was all planned. RH had a representative present to which, the Administrator was answering questions on their behalf like he did for Eileen the Forest Officer. In doing so the Administrator was in most cases only instructing one of his assistant officer to write down the direct questions which required straight forward answers from RH and the Forestry officer there and then.
One of the Land Owners fired back at the Administrator, the Forest Officer and the RH rep, asking what development they’re referring to in terms of roads, bridges, schools and hospitals. He pointed out that since the previous Taiwanese logging company Jant left the area with most of their kwila trees, no one hospital or school was constructed as promised and the roads built were only leading into areas where the company can access to cut down their trees. These roads are the dustiest and men, women and children often take cover when the big logging trucks speed by. He went on to ask if RH can be trusted from the way it has began operations without consulting them.
The meeting, controlled by the Administrator went for one and a half hour, ending with the Administrator promising the Land Owners that he will to seek ‘technical advise’ before he gets back to them with answers. In the meantime he says, companies like RH can continue to log and the Land Owners shouldn’t be setting up road blocks because they will only cause inconveniences to the mothers and children who want to travel to town, hospitals and schools.
More than a hundred people living within the area identified for the Pacific Marine Industrial Zone in Madang are now homeless after their houses were burnt to the ground yesterday by police and members of a security company.
More than 50 houses were torched with the assistance of members of the Madang based Savolon Security company. The policemen arrived in three 10-seater Landcruisers and began physically and verbally assaulting the men, women and children.
“My two girls were scared and tried to run away but the police swore at them and forced them to go into the house and pack our things,” one women said.
Another elderly woman fell when police hurried her into the house to remove her possessions. Several people also said police and security company people initially tried to force them to burn their own houses but they refused. The eviction party also brought with them a front loader to demolish the houses. The driver had his face covered with a shirt to hide his identity.
Those who had their houses destroyed were brought in by the Filipino owned fish cannery, RD Tuna, several years ago to work on RD owned plantations. They were laid off without any repatriation plans or promise of work. Later, when RD Tuna sold 200 hectares of land to the government for the controversial PMIZ project, the people were ordered to leave the area.
Former workers and their families say they’ve been unfairly treated.
“RD didn’t make it clear to us that we were not needed anymore,” said one former worker. “We were told to stand by and wait.”
RD Tuna’s record is less than impressive. In 2010, the company refused to pay its workers the minimum wage set by the government. It was only after a strike that the labor department stepped in to order the company to pay the wages.
The people are now caught between a former employer that doesn’t want them, landowners who want them gone and a new government project that has no place for them. Earlier this year, government representatives paid each family between K200 and K1000 and told them to leave the PMIZ area. Many can’t go home because the cost of airfares and ship tickets exceed the amount of money they were given.
Papua New Guinea’s ruling National Alliance party wants to make the Province of Madang into a Philippines style industrial zone using a combination of corporate tax exemptions and Chinese investment and labour.
The plan, which is championed by the Attorney General, and ex Madang governor, Arnold Amet, and current governor James Gau, was the focus of a recent trip to the Philippine’s by a delegation of bureaucrats and local leaders to the Subic Bay Freeport, established in 1992.
The National Alliance plan will see Madang become the mining capital of PNG with both the huge Ramu nickel and Yandera gold and copper mines pumping their toxic tailings in to the sea. Both mines are being developed by Chinese companies..
In addition the government wants to see up to 10 tuna canneries operating as part of the Pacific Marine Industrial Zone. The PMIZ is to be built by another Chinese company using funds loaned to PNG by the Chinese Export-Import bank.
The PMIZ will be designated by the government as a Special Economic Zone which means it will offer generous tax exemptions to foreign companies and operate as a fenced enclosure with private security to prevent unauthorized access. With the Zone normal migration, labour, health and safety and environmental laws will not apply.
The plan for the industrialization of Madang by the Chinese is also backed by former National Alliance minister and local businessman Peter Barter, owner of the Madang Resort hotel and a passionate supporter of Chinese investment. Barter features photos of the Chinese owned Ramu nickel mine on the menu’s in his restaurants.
The delegation to the Philippines, the second to visit in the last two year, was headed by Provincial Administrator, Bernard Lange.
Also on the trip was Stotick Kamya, chairman of Commerce and Industry and former ‘community relations’ officer at RD Tuna; Nalon Derr, from Siar village, who ran for election in 2007 and is first secretary at the Governor’s Office; Emil Gamog, a ‘community representative’ who works closely with disgraced former governor James Yali and was involved in the hijacking of the plaintiffs in the Ramu nickel mine marine dumping case last year; Babob Gatedai, senior planner and Riwo village resident; Maryanne Uraiwa, project partner representative and manager, National Development Bank; Paul Martin, Industry and Investment coordinator; Mario Berom Angurru, Fisheries Advisor, Madang provincial government; and Clarence Hoot, director, Investment Promotions Authority.
After a similar trip to the Philippines in 2009, one local leader, Framcis Gem told his people that he had not been impressed with what he saw. He described the Freeport as a zoo which had displaced local people and polluted the sea. Gemn recently challenged Environment Minister, Benny Allan, and other Ministers at a public forum on PMIZ saying of PMIZ
“It’s con job! And all of you sitting on this grandstand are con people!”
“…Starting from our regional member [Sir Arnold Amet] right down… Benny Allan [Environment minister], you are a conman… Gabriel Kapris [Commerce & Industry Minister] you are a conman.”
“You talk about managing [environmental] impacts and waste from the PMIZ… you look at Ramu Nickel… You haven’t managed Ramu Nickel! How can you manage the PMIZ?”