PNG LNG: What could Papua New Guinea’s new pipeline project bring?

Pomaleu sees this clearly. “The doubling of GDP is almost a frightening prospect for us when you think about the possible implications,” he says. “Everyone is quite aware of the Dutch disease [the sense that an influx of wealth from natural resources can actually be bad for a country]. Our challenge as a country is to have the structures in place to be able to absorb the growth: the challenges it will have on our existing capacity, and its demands on government services, infrastructure, everything we have.” He mentions wharves, roads, housing, airports, customs and immigration services. “The numbers that are being quoted we are excited about: we could use a few more million dollars in our budget. But we have to have the capacity to absorb the growth.”

And it could get bigger still. Towards the end of last year InterOil, a company with petroleum licences covering about 8.7 million acres of land, started to talk about strong finds in its Antelope natural gas field. In March, it went further: it announced a flow of 382 million cubic feet of natural gas per day with 5,000 barrels of condensate per day – a flow test that set a new record for Papua New Guinea, and a figure that InterOil believes to be a world record. It also believes the well to contain the largest vertical hydrocarbon column head in any single onshore field of its type. Now InterOil wants to build an LNG plant next to its refinery and start talking with potential stakeholders about taking equity or setting offtake contracts.

Consequently, as Pomaleu puts it, “prior to December I thought we had one project. Now we have two.” Development here is in a much earlier stage, and Tosali speaks of it with some caution. “It’s being negotiated,” he says. “We want them to prove their research.” But already build costs of $5 billion are being quoted and there is a real chance of PNG’s sudden windfall – and the associated drain on resources and infrastructure – being magnified still further.

All this is happening in a country that, for various reasons, has not had the best reputation as a place to come and do business. There are clearly still big problems to be addressed and they start with security. Port Moresby regularly turns up in surveys from groups like the Economist Intelligence Unit as one of the world’s least liveable, and most dangerous, cities. Local opinions on the true level of lawlessness vary: some feel aggrieved that this is the only impression foreigners have of Port Moresby; others feel that, despite a recent improvement, the problem is intense, with gangs of what are known locally as raskols robbing and sometimes kidnapping with apparent impunity. The consensus seems to be that it’s a place to be careful rather than to live in fear. But whatever one’s opinion of the scale of the problem, there is no question that the costs of arranging security are a necessary consideration for any foreign enterprise seeking to do business here.

Bureaucracy is a frequent complaint of foreigners too: not corruption necessarily but a certain stodginess of process that impedes efficient business. Another complaint, reminiscent of Manila about 10 years ago, is power failures. “Everyone has to get a generator set up to back up the main power,” one foreign businessman says. “It’s not such a big deal, you get used to it, but it becomes another cost.”

Enforceability of contracts also gets mentioned, with the court system slow. “They say whenever you go to court there is a 51/49 rule,” says one businessman. “There is never more than a 51% chance that you will win. But there is never less than a 49% chance that you will lose. It is not the most predictable of systems.” Here, development banks are involved in trying to improve the process.

There are, though, some major positives that should be put on the credit side of the ledger. First among them is relative political stability. When Sir Michael Somare’s government lasted an entire electoral term from 2002 to 2007 and then got re-elected it was the first time ever – in the country’s entire independent history – that a term had been served without the government being ousted or the prime minister damned in a vote of no confidence. Few would bemoan a robust democracy but it is only with a sense of political continuity and predictability that foreigners have begun to show more interest in getting involved.