I can’t believe this story has not been given more coverage in Australia. And all investors in PNG, including Australians, should feel afraid as the sovereign risk of operating in that country increases by several notches.
And where is the official response of the Australian government? Surely, we need to express our extreme disapproval of the PNG government expropriating assets in this way.
And to think that this is a country to which we donate hundreds of millions of dollars of foreign aid?
Does this silence have anything to do with our bodgy asylum seeker deal with PNG and the fear that they could pull out if their dodgy PM feels in any way ‘offended’.
(By the way, I am told that BHP is essentially off the hook (their lawyers were on to all possible scenarios); that the assets are held in Singapore which will mean that the PNG government will find it hard to secure title; that waving indemnities will have very little impact because plaintiffs will be effectively suing the PNG government; and in the meantime, all funds available for social and economic development projects in the Western Province are effectively frozen.)
Here is a short precis of the story from the Fin:
The most surprising and damning thing about the decision of PNG Prime Minister Peter O’Neill to expropriate the controversy-tarnished Ok Tedi copper and gold mine, is that the move has generated so little international attention outside of Papua New Guinea.
I mean, the plan confirmed last week by O’Neill involves expropriation on a scale probably not seen since the 1970s. He has decided to assume ownership of the 64 per cent of Ok Tedi owned by a trust set up in 2001, in the name of the people of the Western Province of PNG, by the mine’s founding force and former owner, BHP Billiton.
The expropriation O’Neill has announced amplifies the sovereign risk of investment in PNG on three distinct fronts. Each breach of past government guarantees is appalling in its own right.And collectively they must have other major investors in PNG deeply concerned over the standing of any and all of the agreements they have with government.
O’Neill is first moving to repossess an asset that was delivered to a Singapore registered trust with the full endorsement of a previous PNG government, a trust that is currently chaired by a former PM in the form of Sir Mekere Morauta and that is recognised throughout PNG for the quality of its achievements and its resistance of corruption.
O’Neill is also attempting to overturn the constitution of the PNG Sustainable Development Program and to seize control of the $1.5 billion at sites within its command. Those funds are the retained earnings from Ok Tedi since 2001 and are supposed to be held for short and long-term benefit of the people most affected by mining in the Star Mountains of the Western Highlands.
The trust has two functions: the management of short-term community based programs and investment in regional development once the mine closes. And a veto over that long-term deployment is one of the few rights BHP Billiton retains in the wake of its formal retreat from board of trust last year.
O’Neill’s third and final breach of commitments past is to say he will remove the indemnity from liability guaranteed to BHP in the wake of the transfer of ownership of Ok Tedi.
The significance of these indemnities requires no explanation. But an understanding of why they were offered is informative. You see, BHP’s preference back in 2000 was that Ok Tedi should close. But the mine then represented about 25 per cent of PNG’s GDP. The government begged for alternatives. BHP acquiesced, placing the mine into a trust structure on the basis that it would not be liable for any future environmental damage and that profits could be directed to the benefit of local communities.
And guess what? The whole program has proven a paradigm of community engagement and corporate philanthropy. Until now.
For proof of that, we need look no further than the Catholic Bishops of PNG who on Monday expressed “profound disappointment with what our leaders in government have done by appropriating OTML (Ok Tedi), which could result in the cancellation of PNG Sustainable Development Program”.
“PNGSDP is one of the premier development organizations in PNG,” the bishops wrote. “It has done so much good. It would be foolish to terminate it. The people at PNG Sustainable Development Program should fight to continue their good work and we should support them.”