12 October 2015
by John Garnaut
PNG chiefs talk of civil unrest over unpopular Australian bank deal
A 2009 meeting of the PNG landowners before the deal was struck.
Until now, the tribal chiefs in Papua New Guinea have been happy to host a hugely profitable natural gas project on the slopes of their mountainous land.
It might have disrupted hunting grounds, ruined waterways and uprooted fruit and vegetables, but the money flowing from it also promised progress and development for the people.
So they stuck with a 2009 agreement to provide access and security to a $US19 billion ExxonMobil PNG liquid natural gas project, which has given Australia's nearest neighbour one of the highest GDP growth rates on earth.
All that, though, could change. They are threatening to "turn off the taps" after the PNG government barred their Australian lawyers from entering the country.
It was the final straw for the deal that has turned increasingly sour for local tribesmen in the mountainous Hela province, where the majority of the gas is sourced.
ExxonMobil, Australian company Oil Search, and the PNG governments have all received profits ahead of schedule, but the local people say they are missing out.
Under the deal struck in 2009 to allow the gas project to go ahead, the tribesmen and women are entitled to exercise an option to buy a 4.2 per cent equity share, which could deliver upwards of US$6 billion over the project lifespan.
But a Fairfax Media investigation can now reveal that a complex and unlikely deal inked in March last year between Australian bankers at Swiss firm UBS and close advisers of Prime Minister Peter O'Neill has unnerved tribal leaders.
They say the deal effectively "mortgaged" their equity to plug a widening fiscal hole in the government's own finances. It's clear that trust between these land owners, the PNG government and the bank has been obliterated.
Prime Minister O'Neill has moved quickly to attack the "politicised" leak of documents, as a Fairfax report on Friday dominated social media in the country over the weekend.
He pointed blame at the previous Somare government, skirted revelations that the PNG government had "surrendered" most of the potential upside to UBS, and promised that ongoing court proceedings would provide clarity.
Fairfax can now reveal that tribal chiefs are seeking a court injunction to prevent Mr O'Neill and UBS from having further dealings with their promised equity without their full consent.
And they are incensed that the PNG government has obstructed those court processes by banning their Queensland lawyer, Greg Egan, from entering the country.
Last week Australian diplomats dismissed the blacklisting of Mr Egan as a "private" matter. But matters such as this have a history in PNG of blowing up into much more than that.
The landowners cite the precedent of the civil war in Bougainville, which followed the failure of mining company Rio Tinto and governments in PNG and Australia to adequately negotiate with local people.
"We fear that when the government runs out of money, they may touch our money and spend it elsewhere," says Dickson Ango, a chief of the Buta people, who own much of the land beneath the Hapono Block near Hides gas field in the Southern Highlands Province.
"If they are stopping us from expressing our rights to the courts of the land, then our own people will ask the government to come and talk to us by way of other means, like sit-in protests.
"It may cost the project."
ONE DAY A WHITE-LEGGED MAN WILL COME
Dickson Ango is old enough to remember how his elders used to carry around the bones of their ancestors before the missionaries came. They decorated those bones, and spoke with them. These days, bones are buried in the ground and traditional animist beliefs have been supplanted by Christianity.
But there are astonishing continuities between the old world and new.
"When the white-legged man came to this mountain, Gigira, they found one of the world's highest quality natural gas fields – enough to bring light to hundreds of thousands of people," says Ango, recalling the "prophesy" of his forefathers.
"We can see now that everything is happening according to that prophesy," Ango says. "So I want to tell the future generation that we must live in appreciation of what God has done."
Ango believes his people have been "chosen" to be custodians.
"God in his divine plan put all those resources on our land, where our forefathers lived, because he knew that we – these people of Hela – we are people who are able to share, people who can laugh with others, and able to share those benefits with the rest of PNG and are able to agree with the government and welcome the developers."
But such agreements are not without cost.
PYTHONS ARE GOOD PROTEIN
Wandigo Kau is a clan leader from the area known as PDL 1, which supplies 57 per cent of the gas to the PNG LNG project. When he was born in 1982 there were no schools, no shops and certainly no doctors to help a mother giving birth.
Life was short. Like most of his contemporaries, chronic malaria had given him a hugely swollen spleen. His own baby child, however, has been born into a world of previously unimaginable possibilities.
"My child will have a modern standard," Kau says. "Not like my life. My life was too hard."
For all that's been gained, though, much has also been lost. Kau can no longer go on long hunting treks through lush jungle, crossing the tumbling streams of Mount Gigira with bow and arrows strapped across his shoulder.
Now the cassowaries, hornbills and protein-laden pythons that Wandigo Kau used to hunt have been chased away by three well-pads, three quarries, a waste dump, a huge gas conditioning plant, nine kilometres of pipeline and a main road.
Kau's home in Tugu Tapira is the most intensely impacted in the PDL-1 area, where the majority of gas is sourced. But all his neighbours have similar stories.
"We have given up our land, our water, our hunting grounds, our food gardens, we have given everything," says Hamule Ngiame.
THE BIG MEETING
Ngiame, like Wandigo Kau and Dickson Ango, was one of the tribal leaders who travelled to Kokopo, in far-away East New Britain, to negotiate the 2009 agreement that got the project off the ground.
That meeting was an anthropological and logistical feat to rival the engineering that has followed. Thousands of clan leaders were flown to Kokopo and stayed for months of rolling talks, camping in Oil Search-issued tents, arm wrestling government leaders to work out how compensation should be apportioned and spoils divided.
Oil Search managing director Peter Botton says the scale of the discussion was unprecedented. "Where else would you get 5000 people to sit down and discuss the size of the pie, and thousands more to talk about how to divide it?"
The negotiating motto of the tribal chiefs was straightforward: "No equity, no gas."
Many wanted a 10 per cent share. In the end, they were happy to settle for 7 per cent, plus royalties and grants – 2.8 per cent would be paid up front and the remaining 4.2 per cent when the gas was flowing.
"It was a huge task to mobilise all the people because most of the people were illiterate," says Andy Hamaga, a leader of the Jula and Aya clans. "It took us six solid weeks to negotiate."
The corporations had already conducted a complex social mapping exercise to work out the entitlements of 60,000 people. They had to do it an area where traditional land ownership is relatively fluid, and partly contingent upon continual occupation. Meanwhile tens of thousands of migrants were arriving in search of work.
In the end: "We were satisfied."
Hamaga says his people trusted then prime minister Sir Michael Somare, often referred to as the founding father of the nation, his son Arthur, then a cabinet minister, and the provincial governor, Anderson Agiru.
"They asked us to provide security to the project, which we did."
Adding political intrigue, the land owner claims are being supported by Arthur Somare, who led the 2009 negotiations, and who is the son of Sir Michael Somare, who recently referred Mr O'Neill to a leadership misconduct tribunal.
TURNING ON THE TAPS
Every three or four days a tanker leaves the Gulf of Papua for terminals in Japan, China and Taiwan, filled with tens of millions of dollars worth of gas, condensed at temperatures of minus-160 degrees into liquid form. Already, the $US19 billion investment in the highlands has expanded the GDP of Australia's closest neighbour by a staggering 25 per cent in just two years.
ExxonMobil, the US oil giant, delivered the project ahead of schedule. It has buoyed the share prices of Australian gas majors Oil Search and Santos, and it has poured hundreds of millions of dollars into PNG government coffers.
Port Moresby's Grand Papua hotel is filled to bursting and the rents on expatriate apartments have gone through the roof.
But for the country's 8 million citizens, the boom times never came. A World Bank report released last week declares that welfare standards might actually be going backwards.
The report also said PNG had breached its legislated debt level of 35 per cent of GDP by a considerable margin. More worrying, a mid-year Treasury update said the budget deficit for this year could blow out to 9 per cent of GDP without corrective action. Government services are not being delivered and bills are going unpaid.
Partly, PNG is suffering from a king-sized version of the resources bust also affecting Australia. But mismanagement and cronyism are also to blame.
On the figures, the government might want to extract every kina of profit that it can from the "benefits-sharing" arrangement to give land owners their 4.2 per cent equity stake, which they are due to receive in the first half of next year.
And this is where Hela landowners, Australian investment bankers, and Australian and PNG politicians could all find themselves in the kind of serious conflict that, in the past, has led to civil war.
WE'LL TURN OFF THE TAPS
The fight is over the honouring of the old "gas for equity" deal.
Last May, the money started flowing. Exxon Mobil got its share, Australian company Oil Search got another, as did the PNG government. But what should have been a stream of revenue from royalties and grants to the local landowners has been nothing more than a trickle.
The PNG government says it has not yet finished the "vetting" process to ascertain who is entitled to a share of the money.
Landowners, however, say the government is deliberately dragging its feet. Exxon Mobil, with an eye to its biggest risk, cannot afford any further delay.
It recently offered 7 million kina ($3.5 million) worth of Land Rovers, hotel rooms and helicopter rides to make the journey of officials from Port Moresby to Hela easier.
A respected judge has been called in to accelerate the vetting process.
Some tribal chiefs are still showing patience. Last week the court intervened by overturning the ban on lawyer Mr Egan from entering the country.
But those who are taking the court action say time is running out for a negotiated solution. And the first thing they want is their own choice of financier and a chance to negotiate a reasonable price for their 4.2 per cent equity option.
"We don't trust UBS … because they failed us in the first place," says tribal leader Andy Hamaga. The government, he says, has "mortgaged our equity to get the UBS loan".
And if they don't get their way? "We will turn the tap off," says Hamaga. "No choice."
On Sunday, a UBS spokeswoman said the land owner's 4.2 per cent equity option had been "carved out" of last year's loan security terms, and that the bank was not doing the ongoing financing work that land owners feared. "We have not been mandated by anyone in PNG to raise the finance for the landowner call option," said the spokeswoman.
The tribespeople have tried to talk to the politicians. Then they tried the courts. Options are running out.
Another leader, Hamule Ngiame, whose Pii and Komen clans live on the PDL-1 land, responsible for more than half of the PNG LNG's gas supplies, says "Coming to the media is the second [last] option."
"The last option is to disturb the project. We know that in 1989 we had the Bougainville crisis, over a similar issue of government failure in meeting its part to deliver landowner benefits.
"We will do the same."