Economist Saul Eslake

‘Papua New Guinea occupies a very strategically important location in the increasingly contested “Indo-Pacific” region …

‘Foreign investors from China and the West are likely to be keenly interested in many of PNG’s strategic resources and it’s therefore incredibly important that PNG develops a clear sense of where its own strategic interests lie.

‘Given how rich Papua New Guinea is in resources, it shouldn’t be one of the poorest countries in the Asia-Pacific region.’

— Economist Saul Eslake, during his keynote address to the 2021 Business Advantage Papua New Guinea Investment Conference

Last week, PNG’s Pandemic Controller David Manning removed the requirement that international visitors quarantine on arrival, provided they are COVID-free, fully vaccinated and don’t come from ‘high risk’ countries.

It’s a significant development if it lasts, making it easier for international business people and skilled workers to come to PNG.

The world is moving inexorably away from lockdowns and travel restrictions as a way of managing COVID-19, and is leaning more heavily on vaccination and testing to mitigate its health impact.

‘There’s no bigger indicator that the next 20 years will be a period of challenge for hydrocarbons than Oil Search’s decision to merge with the larger Santos.’

With vaccination also a condition of travel to ‘high risk’ provinces domestically, PNG has a major challenge ahead to encourage wider acceptance of vaccines. Fiji recently announced its intention to re-open to tourists in November, when it expects 80 per cent of its population to be vaccinated.

PNG’s struggling tourism industry would love to see such uptake – some estimates suggest the country will reach just 17 per cent vaccinated by the end of this year and there is no news yet on when tourist visas will return.

The Four Horsemen

The pandemic was just one of four major business challenges that permeated this year’s Business Advantage Papua New Guinea Investment Conference, which I hosted recently.

Let’s call them the Four Horsemen, to be dramatic:

1. Post-COVID reconstruction
2. Climate change mitigation
3. Global geopolitical tensions, and
4. PNG government reforms

They are likely to be increasingly intertwined.

The state of the world economy as we emerge from the pandemic was touched on by several speakers, including economist Saul Eslake (see above), the ADB’s Ed Faber, the IFC’s top man in Asia-Pacific, Alfonso Garcia Mora, and US Ambassador Erin McKee.

‘Building back better’ was a theme, with billions of kina in subsidised loans and grants likely to be directed towards the adoption of clean, green technology and sustainable business.

There is an urgency about this in the lead-up to the next United Nations Conference on Climate Change (‘COP 26’), which starts in Glasgow at the end of October. As Garcia Mora noted, we have nine years – less than two business cycles – to stop irreversible climate change.

Those with bankable renewable energy and climate mitigation projects in PNG and the Pacific are likely to have their pick of low-cost funding sources.

LNG challenges

International moves towards a low carbon economy are coinciding with seismic developments in PNG’s high carbon petroleum sector.

The Papua LNG and P’nyang projects are moving forward, possibly with onshore fabrication, while Wood Mackenzie’s Daniel Toleman made a convincing case for LNG’s viability to 2040 and beyond at the conference.

However, there’s no bigger indicator that the next 20 years will be a period of challenge for hydrocarbons than Oil Search’s decision to merge with the larger Santos. If the merger goes ahead, it will have impacts not just in PNG’s petroleum sector but across the economy, including the country’s capital markets.

Geopolitics

Arguably, PNG is already the beneficiary of the geopolitical tensions between China and the major English-speaking economies in the Pacific region. The Coral Sea Cable and the Kumul Submarine Cable are already improving the cost and reliability of its telecommunications, while Manus is set to receive significant Australian defence spending in coming years.

Both the US and Australia were offering infrastructure finance at the investment conference, while we learned this week that China has kicked K80 million seed funding into the Ihu Special Economic Zone in Gulf Province. And then, of course, Australia’s Telstra is still kicking the tyres of Digicel, lured to PNG by the offer of Australian government support.

If PNG plays its cards right, further benefits from these tensions seem likely, potentially starting with additional Australian support for the 2022 National Budget.

Reforms

Which brings me neatly onto reforms, for the Marape government has several up its sleeve. The question is: how and when will they occur?

While politically popular, the proposed regulatory reforms of the oil and gas sector have been postponed until after next year’s National Elections, according to Kumul Petroleum’s Wapu Sonk. Reform of the electricity sector appears to have been slowed by recent managerial changes at state utility PNG Power, while long-signalled revisions to the country’s foreign investment laws are yet to receive public scrutiny.

As the Prime Minister told the PNG Investment Conference, his primary goal is to create an ‘enabling environment for business to thrive’. At same time, his government will need to be agile enough to align its reforms to the new emerging global realities. Quite a challenge.

If you missed the conference livestream, all the conference presentations are now available ‘on demand’ for a limited period here.

Andrew Wilkins is Publishing Director at Business Advantage International.