US–China rivalry is likely to have a major impact on how future resources projects are funded, according to the ANZ’s Jonathan Bloch. He outlines some of the steps Papua New Guinea’s government can take to make such projects ready for investment.

ANZ’s Jonathan Bloch Credit: CWC

Speaking at the 3rd Papua New Guinea Petroleum & Energy Summit in Port Moresby, Bloch , who is Executive Director/Head of Strategic Banking at ANZ’s Resources, Energy & Infrastructure Division, said PNG is in the centre of ‘a pretty big competitive struggle’ which can work to the country’s advantage.

‘Right now, PNG’s strategic location—its resources, energy and agricultural potential—has certainly drawn the attention of the Chinese.’

Bloch said PNG’s signing up to China’s One Belt One Road initiative has triggered a competitive response from the Western trilateral alliance (the United States, Japan and Australia).

‘The Trump (US) administration is obviously wary of the extent of China’s economic and political influence across the region.

‘To some degree, PNG is the beneficiary of this.’

BUILD Act

The United States is clearly ramping up its development funding for the Indo-Pacific region.

Bloch said in 2018, the US Congress passed the Better Utilization of Investments Leading to Development (BUILD) Act.

‘That approves $60 billion funding to facilitate a new body called the International Development Finance Corporation (IDFC).

‘There is going to be big scope for countries such as PNG to attract this capital in addition to the work they are doing with the trilateral alliance.’

‘That will replace the Overseas Private Investment Corporation (OPIC) in October.

‘This entity will be used to provide funding to support commercial projects, it will be able to take up minority equity.

‘It seeks to fill funding gaps which to date have been a problem. It is real competition, thanks to China.’

Bloch anticipates the IDFC will be less bureaucratic and more ‘agile’ in the way it distributes funds.

‘There is going to be big scope for countries such as PNG to attract this capital in addition to the work they are doing with the trilateral alliance.’

Export Credit Agencies —which include the IDFC, the Japan Bank for International Corporation (JBIC) and Australia’s Export Finance and Insurance Corporation (EFIC)—provide two-thirds of the overall debt for ‘mega projects’ in oil and gas, according to the ANZ’s PNG Economic Outlook.

‘In terms of liquidity, we believe the growing market will attract banks to greenfield LNG projects, increasing the pool of funding,’ the Outlook says.

Preparing for a major resources project

Bloch said the host government ‘needs to be objective in its assessment of the sponsors commitment of capital to these projects and the risk-return dynamics when they make their decisions.’

He said the PNG government should:

• When the Front End Engineering Design (FEED), try to make sure that the equity partners are ‘aligned’ so as to assist a timely FID.
• Facilitate visa approvals.
• Pre-qualify local content where companies have the right skills.
• Ensure port clearances are effective ‘so equipment doesn’t sit on the ports and nothing happens.’
• Help contractors, especially with their financial arrangements. ‘Supporting contractors with really good PNG experience is not just about efficiency and risk, it is about bankability.’

Capital Expenditure in global LNG markets. Credit: Wood Mackenzie