China Reaches For PNG's Nickel

Oil drilling...in Papua New Guineas.

Papua New Guinea has been won over by a massive Chinese charm offensive that will see China build and operate there its first overseas mine, a $US650 million nickel project.

Prime Minister Sir Michael Somare recently led to Beijing PNG's biggest ever international delegation of 80 businesspeople and top bureaucrats, including six cabinet ministers.

They returned excited by the prospects of Chinese capital and expertise offering fresh impetus to accelerate the country's so far tentative return to economic growth after four years of decline.

And China in return gains not only access to substantial mineral, oil and gas, timber and fish resources, but also the firm allegiance in its constant struggle with Taiwan, of the biggest state among the scattered Pacific islands.

Within PNG it is being claimed that the impetus for the new thrust by China came when Somare stimulated the interest of China's President Hu Jintao in a discussion at the Asia Pacific Economic Cooperation leaders’ summit in Bangkok last October.

Highlands Pacific Ltd, the developer of the Ramu nickel project, which involves a 140 km pipeline to slurry the ore from mountains south of Madang in the country's north-east to a coastal refinery with deep-water access, is based in Brisbane, Australia, but has focused its activities in PNG.

It and its PNG government-owned partner Mineral Resources Development Corp had been puzzling for years as to where it can find a major company to supply the funding.

Now, China's insatiable appetite for nickel‹a crucial component in stainless steel, one of its biggest manufacturing inputs‹has joined up the dots.

The state-owned China Metallurgical Construction Corp will not only build and operate the mine, receiving an initial 85 percent of the shares, but will also buy the entire output, 33,000 tonnes a year. Recently, Chinese demand for nickel has been growing at 25 percent a year.

Exciting times: This provides a vital boost for PNG's mining sector, which in 2003 produced 52 percent of the country's revenues but was facing a rapid decline, with only the Lihir gold mine of its major producers scheduled to remain open beyond 2010. "It's really exciting news," said Greg Anderson, executive director of the PNG Chamber of Mines and Petroleum. "We've still got a long way to go before we're back to where we were a dozen years ago. But the industry has bottomed out and it's on the way back."

It has proven hard, he said, to attract Australian investment "because of the country's bad image there" as unstable and lawless. Australian resources giants such as BHP Billiton, which formerly operated the massive Ok Tedi copper mine, the source of considerable ecological controversy, have divested from PNG.

Some more positive attention is being drawn to PNG, though, inside Australia, with a joint ministerial forum agreeing that 300 Australian police and 200 professional people and administrators would be deployed there. And new opposition leader Mark Latham, whose Labour party has taken the lead from Prime Minister John Howard's conservative coalition in polling, has decided to make PNG the target for his first foreign visit as leader.

Malaysia's then prime minister Mohammad Mahathir led a large delegation to PNG recently on his final overseas visit as national leader. But there has been no substantial investment from Malaysia or elsewhere in South-East Asia since. The biggest logging company in the country, however, remains Rimbunan Hijau, based in Sibu, Malaysia‹recently the subject of a lengthy critical report by Greenpeace.

Environmentalist network forests.org has claimed that while the timber from PNG, home of what the World Bank, has described as the second largest untouched tropical rainforest in the world after Brazil, is being harvested largely by Malaysian companies, it is destined substantially for China's frenetic construction industry.

"Most of PNG's logs are going to fuel China' s insatiable appetite for ancient forests" ‹with most of its own surviving forests now declared out of bound by Beijing.

Chinese fishing corporation, Rainbow International, told the PNG delegation in Beijing that it would invest US$28 million in plant in the Gulf province, just west of Port Moresby, to enable it to export live fish and crustaceans to China.

The Gulf governor, Chris Haiveta, described this as "the most exciting ever" deal for the province. InterOil is now looking to China's export-import bank to build a four-lane highway from its Napa Napa refinery to Port Moresby city.

And China National Petroleum has been approached by PNG to take a stake in the ExxonMobil operated $US 5 billion gas pipeline project from PNG's Southern Highlands across the Coral Sea to Australia and down to Brisbane, if it finally signs up enough corporate customers to get the go-ahead.

Two-way trade between China and PNG grew 56 percent in 2003, to US$278 million‹two thirds of the total trade between China and the whole Pacific islands region. China chiefly imports crude oil and timber from PNG.

Yu Ping, the vice chairman of China's Council for the Promotion of International Trade, told the PNG delegation during a business seminar: "China is going global. We call on PNG entrepreneurs to make full use of this opportunity."

In return for this apparent breakthrough, PNG went further than virtually any country in the Asia-Pacific region in its backing for Beijing against Taipei. It said in a joint communiqué signed during the Beijing visit that it "opposes any unilateral action or move, including referendum on the part of the Taiwan authorities, to seek Taiwan independence."

Clear cut position: The PNG side reassured the government of China that all contacts between PNG and Taiwan will be strictly confined to the economic area, and that PNG will not have any contact of any form with Taiwan that would contravene the One China position.

The communiqué added: "The Chinese side highly appreciates PNG's clear cut position on the question of Taiwan." That's for sure. Because in the past, its position has often been far from clear cut. In 1999, the then prime minister Bill Skate, who is the Speaker of Parliament today, signed an agreement in Taipei to grant diplomatic recognition, in the hope of gaining substantial grants and loans the government desperately needed.

Critics at home claimed the government was selling the country's sovereignty, and soon Skate was replaced by Sir Mekere Morauta, who restored the country's support for Beijing‹to some relief in Canberra‹which is widely presumed, somewhat unrealistically, to retain massive diplomatic influence in its former colony, and which feared being blamed by China for its "losing" PNG.

Somare himself has enjoyed warm relations with Taipei in the past, including during his previous term in government from 1988-92.

Taiwanese sources during this period lent several million dollars to Damai, the business arm of Pangu, the party Somare had founded but which he later quit, to build a 12-storey office building in Port Moresby's administrative centre of Waigani, in Somare's honour.

Somare Haus as it was named, is now owned by the Somare Foundation, and is located near the traditionally designed Chinese embassy.

The new high of the China relationship comes just a month after PNG appeared to undermine it by banning all Chinese from entering the country, in the wake of waves of illegal migrants.

The ban, made by a PNG foreign affairs official without consulting Foreign Minister Sir Rabbie Namaliu, forced Xuda Kun, the president of the China National Petroleum Company (CNPC), to cancel a visit, and PNG's Petroleum and Energy Minister Sir Moi Avei to respond: by bemoaning that "the country desperately needs foreign investment."