Billion Kina Chinese Dragon Whispers On The Highlands Highway

by Tanya Lahies & Jaive

The Oneil – Dion (‘ODion’)National Government pursuit of a K6 billion loan from China to repair and develop the nation’s poor state of infrastructure continues to be a most debated topic in Papua New Guinea.

While critics argue that the proposed loan is too large and the ODion Government must be transparent on the terms of the loan agreement, the Government continues to remain tight lipped, only stating that this soft loan from the EXIM Bank of China is meant to be a rescue package for PNG’s poor state of infrastructure, especially the Highlands highway and other major infrastructure that have fallen apart over the last 37 years of this country’s independence.

Treasury Minister Don Pomb Polyed has stated that the total reconstruction of the Highlands Highway from Lae (Morobe) to Mt Hagen (WHP) and Mt Hagen to Kopiago (SHP) and Mt Hagen to Porgera (Enga) will cost around K3 billion, which this loan will make possible.

Also new works will become possible under this funding. These include building road links that will connect the whole country to the nations capital, Port Moresby.

In Port Moresby, the NCD Governor Governor Powes Parkop is an early and vocal political supporter of the EXIM Bank deal. He has plans to add significant road infrastructure in the next five years to meet the growing demands of the ever expanding city.

These plans will include a fly-pass over the Kookabara Street from Central Waigani to Jacksons International Airport  and new roads from Gerehu to 9mile road, 9mile to Dogura and a Tokarara to Hanuabada by-pass. Also major rehabilitation work will be carried out at 6mile to the old Jackson’s Airport terminal, the Erima to 9mile road will be expanded and the Erima-Wildlife to Morata road developed further.

However this work requires a budget of around K900 million which NCDC Government would need to raise. Hence he views the Chinese deal important to his plans.

In Lae, PNG’s investment hub, the EXIM loan will be used to improve roads there as well.

There is no denying the truth, that Papua New Guinea needs a major intervention of some sort to fix our major economical roads and also connect the vast majority of our prime agricultural lands to the major resource projects and to the commercial and industrial hubs of Port Moresby and Lae.

This K6 billion loan will no doubt help to assist all this.

But there are some issues that the Government needs to deal with.

Firstly, transparency issues.

Everyone wants to know what will be the terms of the loan agreement from the EXIM Bank of China.

This bank is not new to Papua New Guinea. In 2010, the EXIM Bank came to the aid of the US$300 million Pacific Marine Industrial Zone (PMIZ) in Madang, where the bank provided a US$71million concessional loan for its construction. Under the terms of the loan, a Chinese contractor was awarded the infrastructure contract to develop the site. This company was China Shenyang International, an unknown company. Also under this agreement, 70 percent of the project was to go exclusively to a Chinese developer using Chinese technology, labour equipment and equipment- while restricting PNG firms to 30 percent of the project. This has caused a lot of problems and a court case this month in Madang may test the validity of the agreement.

So is the EXIM Bank’s PMIZ financing model in Madang a preview of the larger proposed loan from EXIM? Will the contracts for the infrastructure work including the Highlands Highway go to the Chinese companies using Chinese technology, labour and equipment? These questions need to be answered.

Secondly, the Government needs to tell us how will we pay back the loan. Speculation is rife on how this will be done. The blogger Tavurvur in this excellent article on the Chinese Loan speculates that EXIM Bank is a creature of habit, and will use its model in Africa for Papua New Guinea.

The model is generally termed the ‘Angolan Model.’

Tarvuvu explains that in African states such as Angola, Nigera, Gabon Democratic Republic Of Congo and Guinea, the EXIM Bank has given very large concessional loans in return for commodity off-take agreements, which means (in very simplified terms) that these various countries pay of the loan by supplying daily quotas of Oil, Iron Ore, Copper, Cobalt, Bauxite and whatever commodities that are stated in the agreement.

 As Tarvuvur states, “What The Opposition and it seems everybody has missed, and what I strongly suspect to be the case, is that EXIM’s K6 billion loan will not be paid back via the regular financial instalments dictated in the standard terms and conditions of a loan and disbursed through the budget process under the Department of Treasury’s watch, but instead, it will be accommodated for through a concessional commodity-for-finance agreement where the State will provide China with a minimum daily supply of oil and/or LNG in exchange for the financing of its expenditure objectives.”

Papua New Guinea is a very attractive commodity resource for China. With the PNG LNG project, the InterOil LNG project, the Wafi-Golpu Copper and Gold Project all expected to be online in the next ten years, it would be in China’s development interest to secure its presence here.

However if such a commodity-for-finance loan agreement is mapped out, then the lawyers of Papua New Guinea will need to be very smart in drafting the agreement as it will exist outside the current laws and processes for international financial assistance and loans as managed by the Department of Treasury. It could be challenged in court.

This loan agreement will also affect the public tendering processes of Papua New Guinea, the role and function of the Department of Works and Transport, and poses major sovereignty issues as it stipulates an active discrimination of Papua New Guinean companies, and will affect the PNG Labour Department, the Immigration Department, the IPA and IRC offices as well as others.

As well as these legal and sovereign issues, there are also other domestic issues that cause concern.

One can say that this proposed loan would be an even larger band-aid solution to devastating internal problems that are still unaddressed.

Papua New Guinea governments, past and present, have yet to deal with the major issue of contractor rorting in the maintenance/upgrading and development of infrastructure in PNG.

A major reasons for our roads being so bad is because politicians have hijacked what is an effective process for awarding tenders and monitoring contracts for road and infrastructure works, preferring to award contracts to cronies, friends and to themselves through the use of proxies. While Department of Works engineers and the rest of PNG shake their heads in disgust, these shoddy contractors and consultants chew through millions and millions of Kina every month without doing work of the quality and consistency required.

If the loans agreement is not exclusively for Chinese contractors, will the politicians award the same contractors, firms and consultants that have hijacked road works in PNG with these major jobs? And if they do, will they finish these tasks? The biggest threat may not be the Chinese cutting us out, but our own cheating us.

And then there is corruption. The Parliament Public Affairs committee has estimated that up to K2  billion in Government expenditure has ‘vanished’ from the system with no accountability or records. PNG’s corruption will effect this Loan agreement and its application. We can only hope it will not be to the extent that it is at now.

The loan may also have some positive affects on PNG, apart from infrastructure works.

It could be used to force MVIL to pay directly to the loan facility the millions it makes from all the charges drivers and vehicle owners have to pay every year.

Also the National Roads Authority will be forced to be more entrepreneurial as a state agency, so we should see more user –pay initiatives on the roads and cities such as weigh-in stations, toll bridges, parking meters and other ideas.

Furthermore, the O’Dion Government has mentioned that the proposed loan will also help develop other infrastructure in PNG, like capital works for the Yonki Hydro Project, and Telikom PNG and other SOE’s.

Whatever happens, we wait to see whether the Government will negotiate terms, and if so, that will no doubt will be the next stage of development and debate.