Commodities collapse magnifies Papua New Guinea's misfortune

Commodities collapse magnifies Papua New Guinea's misfortune

By James Regan

SYDNEY (Reuters): Papua New Guinea was in trouble even before
Asia's financial mess knocked the wind out of world commodities
markets.

Drought, political scandals and a long-running secessionist
movement had already taken a toll on life in the poverty-stricken
Pacific island nation, whose abundant mineral wealth lies largely
untapped.

Forecasters expect it to be years before world market prices
recover, meaning commodity export-dependent countries such as
Papua New Guinea face a tough road ahead.

"There must be an emphasis on downstream processing (of
commodities) and the creation of jobs," says Papua New Guinea's
minister for petroleum and energy, Rabbie Namaliu.

Asia's economic problems are another headache for Papua New
Guinea's leaders, already wrestling with urban crime, inadequate
rural services, illiteracy and a terrifying outbreak of AIDS.

Mining executives said it was not surprising that no one has
discovered a mother lode in Papua New Guinea since gold was found
in the remote province of New Ireland seven years ago.

"In exploration, Papua New Guinea is truly elephant hunting
ground," Russell Barwick, managing director of gold miner Placer
Niguini Ltd told a mining conference organized recently to
stimulate investment in the country's resources.

But a global drop in metals prices has taken much of the shine
off prospecting, Barwick said.

Said consultant John Fallon of Economic Insights Pty Ltd:
"There is a general feeling of a political policy weakness in
Papua New Guinea."

International mining companies have not abandoned Papua New
Guinea in the wake of its troubles, but neither have they jumped
in with both feet.

Poor infrastructure, few skilled workers, unresolved land
ownership issues and vandalism are part of daily life at jungle
mining camps.

And experts have said Papua New Guinea runs the risk of biting
the hand that feeds it unless the business climate improves.
About 75 percent of total export earnings -- 2.6 billion kina
(US$1.2 billion) out of 3.5 billion kina -- will come from the
local mining and petroleum industry this year, the government
estimates.

But only a fraction of the $258 million in total exploration
spending by mining companies in the South Pacific in 1997 found
its way to Papua New Guinea.

If exploration dries up, exports will surely dwindle.
"With PNG's geological endowment, the list of exploration
companies should be longer," said Barwick

"Papua New Guinea is not only competing with its neighbors, it
is competing with countries worldwide for exploration dollars,"
Cyprus Amax Australia Corp vice-president Robert Handfield said.

Foreign investors are particularly concerned over political
instability and the mood turned decidedly sour last year when
video tapes of Prime Minister Bill Skate showed the leader
boasting that he was the nation's "godfather" of crime. Skate has
said the tapes were edited to incriminate him.

The trade journal Australian Mining Monthly rates Papua New
Guinea as the riskiest country to mine.

The latest problem is a four percent royalty tax on the
resources industry introduced without warning by parliament last
month to help beef up next year's national budget.

The levy will cost big miners such as Placer and The Broken
Hill Pty Co Ltd millions of dollars in lost revenues.

The government has said only that it is willing to review the
royalty to make sure it is pegged at a fair level.

The world's biggest mining house, Britain's Rio Tinto Plc/Ltd
is still smarting from the government's inability to re-capture
the giant Panguna copper mine it had operated until Bougainville
Island rebels overran it nearly 10 years ago in a bloody
secessionist movement.

Skate, who was unable to open the conference due to industrial
strife at home, further irking mine executives, acknowledged
through a stand-in that mining was the most significant of Papua
New Guinea's export industries.

But the miners were left scratching their heads in disbelief
when he said Papua New Guinea's long-term future would be linked
more to agricultural and other "renewable" resources than to
minerals.

Papua New Guinea's agricultural exports are limited largely to
coffee and palm oil, neither of which is in short supply around
the world.
(1 kina = US$0.47)