Australia offers $US500 million loan to PNG LNG

Australia has offered a $US500 million loan facility if its needed in the development of Papua New Guinea's LNG project, which has now been given the go-ahead.

In exchange, Canberra has insisted on conditions for the management of the massive revenue expected from the project.

The Australian loan is one of a package of international loans needed to get the project over the line. It is in Canberra's interests because Australian tenderers are in the running for a $1.2 billion slice of contracts from the project.

Australia's Trade minister, Simon Crean, signed the joint agreement with Port Moresby. He's told our Canberra correspondent Linda Mottram that while the project carries risks for PNG, its an important chance to help secure the country's future.

Presenter: Linda Mottram, Canberra Correspondent
Speaker: Simon Crean, Australia's Trade minister

CREAN: We hope that the revenues that come from this will mean going into the future, they won't require the same dependence on aid from Australia to keep going. It's also important that Australia encourages cleaner energy sources. LNG energy is one of those clean energy sources. Australia is a huge participant in that area. It's in our interests to develop the region as a reliable energy supplier to the world.

MOTTRAM: Can you outline exactly how the loan that Australia is offering will work?
CREAN: Well, it's a loan from our credit agency and other credit agencies around the world, the US, Japan, Italy, China. They are all part of it. It will be a loan facility that will be drawn down if needed and it will enable the partners to be able to go to production, to actually commence the operations. Banks are in this, credit agencies are in it, the equity partners in it.

It's a partnership, but the sheer size of it requires a mixed approach to the way in which this is financed. Because of the location, because it is the biggest project that PNG has ever undertaken, there is a requirement for the credit agencies to step up to the plate. The market itself has not been able to finance completely the operation.

The credit agencies have come in to fill the gap. But it is in our interests to see this project go ahead. Papua New Guinea is our nearest neighbour. We've talked forever about the need for developing economic sustainability within the Pacific. This is a huge opportunity to help us secure that.

MOTTRAM: The big question of the project of this size of course is can it deliver in terms of results on the ground for Papua New Guineans, many of whom still only live on a dollar a day. What sort of sense do you have that the Papua New Guinea authorities will deliver for ordinary Papua New Guineans as a result of this project?

CREAN: We have had very lengthy discussions with the PNG Government and its ministers about this. We're as part of the condition of making the loan entered with them a joint understanding. The joint understanding requires them to establish a future fund modelled on the Australian future fund into which the proceeds, the revenues if you like to the government go.

So there will be transparency as to where the monies go. The PNG Government have convinced us that they are committed to putting it back into economic development and we will be closely monitoring that. It was an important condition of us making the loan.

MOTTRAM: The potential inflationary affects of the massive injection of funds to Papua New Guinea is going to produce. Are you concerned that Papua New Guinea may be doesn't have the skills to manage the overall economy, given that this massive shock to the system it's about to get?

CREAN: Well, that's why as part of the capacity-building that we have put into PNG to date, it has been about training their officials in as to how to manage that. We will be keeping in close touch with and involved with the Papua New Guinea Government as this goes forward.

These are all challenges going forward, but I must say, I'd prefer to be facing up to the challenge, because this is an exciting opportunity to secure the economic future of the country. It's not without its risks, but we do understand the risks and we've had great and lengthy discussions with the PNG Government about it. We want to work with them, to manage those risks, but most importantly, to secure their economic future.


*** Among the many helpful hands that Australia offers PNG, this probably the biggest ever that Australia wants PNG to truely stand on it's two feet for her own progress. When it's purpose and mission are accomplished, probably PNG might depend less on Australian aid. Only time would tell but for now it's a great news for PNG.