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Economic update: major projects will be crucial for Papua New Guinea’s economy

Image: The Highlands Highway. Credit: BAI

The fate of some major projects will be critical for the future of the Papua New Guinea economy over the next decade. In the second of a two-part series, Andrew Wilkins discusses the implications.

Several major projects are being watched keenly because they look likely to provide new impetus to Papua new Guinea’s economy for the rest of the decade, and beyond. Many of these are likely to deliver much-needed stimulus in regional areas outside the capital, Port Moresby.

First among these is PNG’s second LNG project, led by France’s super major, Total SA.

The Papua LNG project, based on the Elk/Antelope gas fields in Gulf Province, which is currently in its ‘pre-FEED’ (front end engineering and design) stage, is proceeding doggedly towards contractual negotiations, expected in 2018.

‘Frieda River looks set to be a development project.’

While a final investment decision will probably not be made until at least 2019, there is a general mood of optimism. Positives are the comparatively low development cost of the project, the involvement of two major, experienced players in PNG’s LNG sector (ExxonMobil and Oil Search) and a growing global market for LNG.

Copper and gold

With the copper price rising, and the gold price stable, two potentially major copper-gold mining projects: the Newcrest Mining/Harmony Gold Wafi Golpu and Chinese-owned PanAust’s Frieda River, look set to provide major economic fillips to Morobe Province and the Sepik/Sandaun provinces respectively.

Frieda River looks set to be a development project, as much as a mining project, with Chinese-owned PanAust looking to develop energy, port and road infrastructure to support not only the mine, but the province as a whole.

‘The government’s budget projections over the next few years do not take into account potential revenue and growth occasioned by these major projects.’

This significant change of scope could be viewed in the context of the PNG Government’s November 2017 signing up to China’s ‘One Belt, One Road’ initiative: a move that was accompanied by announcements of about US$4 billion in infrastructure investment.

It is worth noting that the government’s budget projections over the next few years do not take into account potential revenue and growth occasioned by these major projects. Should they occur, therefore, PNG’s growth would be significantly higher than the 2-to-3 per cent band upon which the national budget strategy is based.


Meanwhile, the growth corridor to the northwest of Port Moresby, which is based around the new port at Motukea Island and the PNG LNG plant, continues to expand, supported by improved arterial road building.

China isn’t the only entity stepping up to invest in badly-needed infrastructure in PNG. The Asian Development Bank (ADB) has an investment pipeline of well over US$1 billion for the rest of the decade across roads (including a transformative project for the major inland arterial, the Highlands Highway), aviation (including an upgrade of Jacksons International Airport), and renewable energy.

PNG Forest Products’ power plant in Morobe Province. Credit: PNGFP

One area where PNG is already making significant progress is in the area of power generation.

Private investment in the sector has been unlocked, with a 57 MW gas-fired power station currently under construction in Port Moresby and set to open in 2019. There are several power projects elsewhere, including Oil Search’s 30MW PNG Biomass project outside Lae.


Also encouraging, for a country that is just starting to experience widespread internet connectivity on the back of an almost-complete National Transmission Network and rising smartphone ownership, is that the Australian and PNG Government announced a partnership at the end of 2017 to deliver a new undersea fibre-optic cable between the two countries.

In addition to this, there is a rapid investment in LTE or 4G mobile services from the country’s telcos.

Market leader Digicel also announced a US$50 million investment in its network, already the country’s most extensive.

Green shoots

Unable to obtain enough foreign currency to pay for imports, retailers and manufacturers have started to seek out domestic supplies. They have been encouraged by a government keen to foster greater food security.

‘The emergence of new agribusiness will hopefully make up for a disappointing coffee crop in 2017.’

Fresh milk, which was once an imported luxury, is now being produced at Innovative Agro-Industry’s Ilimo Dairy Farm in Central Province at the rate of 12,000 litres a day. In Morobe Province, Trukai’s plans to develop 2000 hectares of land for rice cultivation are underway. Until recently, almost all rice sold in PNG was imported.

The country’s largest brewer, Heineken-owned SP Brewery, is scheduled to start using starch derived from PNG-grown cassava by mid-2018, according to the company’s Chief Executive Officer Stan Joyce.

While the emergence of new agribusiness will hopefully make up for a disappointing coffee crop in 2017—it was about 30 per cent down on 2016—there are good signs for PNG’s number one agricultural commodity, palm oil, with yields up recently.

This article first appeared in the Business Advantage Papua New Guinea 2018 business and investment guide, which was published in February. You can read the first part here.

Copyright © 2018 Business Advantage International.

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