The Dragon’s in the Detail with ‘Chinese Kina’ – Part 1

There has been a lot of talk recently in Papua New Guinea about the K6 billion EXIM bank concessional loan which Prime Minister Peter O’Neill has headhunted to address what he repeatedly highlights as being the country’s failing infrastructure needs.

The manner in which these infrastructure needs should be addressed – via a complete yet flexible approach over the current parliamentary term, with the objective of rehabilitating or building from scratch a comprehensive number of infrastructure projects prioritized as being of national significance – has been O’Neill’s catch-phrase to justify the drawing down of such a loan with the underlying goal of boosting the economy.

There is no shirking away from the obvious that PNG’s national infrastructure is indeed in dire straights, and it is imperative that something must be done to address what has been an eternal migraine for consecutive governments – particularly at this juncture of PNG’s economic growth.

Peter O’Neill has opted to strike early, citing the country’s best ever economical, financial and political position in our history to undertake the burden of such a loan and its ramifications.

It must be pointed out that Minister for Works Francis Awesa actually led the first delegation to China to discuss the EXIM loan prior to Election 2012 – so the planning for securing the finance has been in the pipeline for some time.

It’s a very bold decision – and it has drawn its fair share of critics.

The Opposition in particular has jumped on the naysayer’s bandwagon and created considerable noise regarding the K6 billion EXIM loan. Its first press release on the issue was titled “K6 billion loan sinister“, and then the alternative government followed this up with two more which were far more focused on relevant details than scaremongering.

The Opposition’s key point of leverage – and one which I agree with wholeheartedly – is that Peter O’Neill must make public the terms and conditions surrounding the EXIM loan, and the fiscal strategies it will use to manage the loan over the coming parliamentary term – and beyond.

These basic details and conditions of the loan structure need to be made transparent. The size of the drawn loan, and its importance to PNG – the same argument the O’Dion Government uses to justify it – demands this.

But as the rhetoric from both sides has settled down, some interesting bits of information have emerged – and observations made which have gone unnoticed and unquestioned.

Firstly, Peter O’Neill has made it abundantly clear that the K6 billion has primarily been earmarked to fix the country’s economic life line – the deteriorating Highlands Highway.

Treasurer Don Polye has hinted that the total reconstruction of the Highway from Lae to Mt Hagen, and then Mt Hagen to Kopiago, and Mt Hagen to Porgera, will cost somewhere between K2-3 billion.

Polye has also stated that another K2 billion will go toward Phase 2 and 3 of the Yonki Hydro Project to address the country’s energy needs. In addition, Works Minister Francis Awesa has also highlighted that portions of the K6 billion have been marked for the total rehabilitation of Lae City’s roads, including a four-lane highway from Lae to Nadzab Airport.

Secondly, it has been reported that although Peter O’Neill is looking at borrowing up to K6 billion from EXIM, it appears that in fact the total credit package which China is considering making available to PNG is somewhere in the vicinity of $US5 billion (K10 billion).

Thirdly, Minister for Public Enterprises and State Investments Ben Micah, while being questioned on the future of SOE’s Telekom and IPBC yesterday, let slip that a portion of the K6 billion would be assigned to upgrade the condition of SOEs in PNG.

With reports suggesting that the infrastructure needs of NCD have also been factored into the EXIM bank loan – a bill Governor Powes Parkop optimistically estimates to be around K900 million and to be used to solve the capital’s traffic congestion woes; and Peter O’Neill adamant that a financing facility be made available which will not run out of money when contractors are engaged, it seems that the initially quoted K6 billion will be surpassed, and quite easily too.

It is clear from the above that the K6 billion EXIM loan is not simply just for infrastructure. It is a comprehensive credit package which will address infrastructure, energy, and capacity-building and investment needs for the O’Dion Government.

Collectively, it will be the single biggest individual loan the country has ever draw down.

It is likely that we will see the figure K6 billion increase over the course of O’Dion’s parliamentary term – hinged heavily on the immediate to medium-term success of the PNG LNG Project, the long-term success of the establishment of the $US7 billion second LNG project (InterOil) due in 2015 and Harmony Gold’s $US9.8 billion Wafi-Golpu Gold and Copper mine in Morobe Province due in 2019.

Part 2 of ‘The Dragon’s in the Detail with ‘Chinese Kina'” can be read here.

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~ by Tavurvur on October 12, 2012.

8 Responses to “The Dragon’s in the Detail with ‘Chinese Kina’ – Part 1”

  1. Its a well established fact that donor nations don’t just provide aid funding without any consideration about fovourable returns and hence such considerations do bring about conditions for such donor funding either through tied aid or loan. It is as result of the need for the people of PNG to be fully informed about what these conditions may be that I say that the PM and NEC do have an obligation (moral and constitutional) to publish the conditions of the Chinnesse loan.

    • ‘Chris Siriosi’ – Keep your eyes open for Part 2 of this post which will be up on The Garamut tomorrow. I will explore more of these details in the second piece. Rgds, Tavurvur.

  2. I’m very scared reading this because I don’t feel comfortable with these type of deals with Asians. I don’t really trust them. We need to really know what and why are they willing to allow up to K10 billion. PNG can be rich in resources but if we are not caeful in making Decisions with huge loans, we can become slaves in our own land. Just my opinion.

    • ‘Stern Cootes’ – It is important to remember that the provision of any loan agreement is a two-way street. So both the Chinese and the PNG governments have reasons as to why they are willing to enter into such an agreement. The details are what is important – and this is where we need greater clarity from O’Neill about the loan structure of the loan. Rgds, Tavurvur.

  3. Looking forward to reading Part 2 of your piece Tavurvur. Cheers.

  4. Its great to hear that the money is going to be put to good use in PNG, but the question is whether or not it will actually reach the proposed destinations? We need transparency and accountablility.

  5. Despite, the massive amount that will be borrowed, the proactive step taken by this Government is commenable instead of a reactive one as it used to be the case in past government. the injection of new capital over the five year period, which in my view is manageable, and is sure to open up the markets and ensure that services and business are done at minimum costs possible. If all of us were in trucking business and using the highlands highway, we will surely want this government to move fast than later in bringing in that money. Coupled with many problems along the Okuk Highway, theft of feul and opening of containers full of cargoes with the use of bolt cutters and axes whilst these massive trucks are negotiating the pot holes are a case in point. Stuck in traffic in NCD and wasting thousands of labour hours by every worker in NCD is a case in point that we desperately need that money. the benefits are immeasurable.

    • ‘Christopher Kup-Ogut’ – Fair points. Particularly surrounding the loss of labour hours. It’s a bold decision, and it will either make or break Peter O’Neill’s government. Rgds, Tavurvur.

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