Corruption link to PNG project

THE economic benefit of Papua New Guinea's biggest natural resources project has been questioned, a report warning that ordinary citizens risk missing out because of corruption and contracts that favour the lead proponent, Exxon Mobil.

A report by anti-poverty group Jubilee Australia, released on Wednesday, examines the predicted economic benefit of Papua New Guinea's liquefied natural gas project and the Australian government's provision of $500 million towards it.

The report highlights endemic corruption in Papua New Guinea and warns that a government sovereign wealth fund and other official bodies established to handle billions of dollars in revenue could be defrauded.

"The governance and public life of PNG are to this day beset by political intrigue, self interest of politicians and gross misuse of public funds," the report warns.

Scheduled to begin production in 2014, the LNG project is valued at $22 billion and predicted to double Papua New Guinea's gross domestic product. Australian companies Santos and Oil Search are part of the joint-venture project.

The report by Jubilee Australia - whose supporters include World Vision - includes allegations the Papua New Guinean government was "pressured into the signing" of agreements by the joint-venture companies.

Former Papua New Guinean attorney-general Allan Marat is quoted in the report as saying he and his office had less than 24 hours to analyse a 200-page agreement before determining whether it was in the best interests of his country.

"This gas agreement was drawn up overseas. It was taken away from our government negotiating team and structured overseas," he said.

Exxon Mobil refuted the claims and argued the fast negotiations could be explained by the fact the Papua New Guinean government relied upon many of the same fiscal terms as previously agreed to in a 2006 proposal.

The report found mixed economic benefits among the population as a result of the massive investments already being made for the project.

It stated that although Papua New Guinean citizens fortunate enough to have been directly employed by the project had reported that their livelihoods had improved, there was a strong view that "an educated and well-connected elite" had captured most of the benefits.

The report also highlighted an increase in "destructive social practices" and the influx of temporary workers and money, leading to more gambling, prostitution, drug and alcohol abuse problems.

Increasing environmental incidents have also been noted. The most recent was a January mudslide at a quarry that killed at least 26 people, mainly migrant workers.

The Australian government's decision to contribute a $500 million loan to help the financing of the project has also been criticised in the report.

The loan by Australia's Export Finance and Insurance Corporation was made on the basis that Australian equity in the project was about 43 per cent and there was $1.5 billion worth of procurement contracts available to Australian firms.