SYDNEY, Australia — When U.S. Secretary of State Hillary Clinton canceled plans to visit Papua New Guinea's ramshackle, crime-ridden capital Port Moresby last week, many locals will have experienced deja vu.
An isolated country of 6.5 million sandwiched between Australia and Indonesia, it is normally well down diplomats' list of concerns. Most of its territory was first brought into contact with the modern world in the 1930s. Locals are only a few generations away from a near-stone age existence, and bloody inter-tribal feuds are still an everyday part of life.
With a population the size of Arizona, its economy is only as productive as that of Charlottesville, Va., and its chronic internal instability has never seriously spread beyond its borders.
The only other time a U.S. secretary of state had scheduled a visit was in 1998. Then, Madeleine Albright dropped in for a whirlwind afternoon of talks, in part thanks to the relief effort for a tsunami that had killed more than 2,000 people on Papua New Guinea’s remote north coast.
This time, Clinton canceled her trip at the last minute to deal with the aftermath of the Haiti earthquake. The implication was clear: in the hierarchy of diplomatic attention, a major natural disaster will always trump the slow-motion crisis of a country’s faltering development.
Hopes of national transformation brought by Albright’s visit, in which the then U.S. secretary of state not only made promises of short-term relief aid but also discussed investment in Papua New Guinea's most-treasured resource — a complex of oil and gas fields under its rugged Southern Highlands province — proved largely illusory.
Chevron, the U.S. oil company that opened up the highlands fields, found its dream of a pipeline to export natural gas to the state of Queensland in Australia scuttled by objections and demands from an array of local landowners and doubts about whether the Australian market could absorb the gas. Having spent more than $1 billion on development and built much of the infrastructure in the local area, it pulled out of Papua New Guinea in 2003 after profits from the facility declined and the Southern Highlands descended into a drawn-out tribal war over the allocation of the proceeds.
However, the country may finally be on the brink of a second chance as a major energy exporter — a fact of which Clinton, despite her decision to postpone, would be well aware.
In December, an ExxonMobil-led consortium agreed a $15 billion, 20-year deal to liquefy the Southern Highlands' natural gas and export it to China, Taiwan and Japan. The project will produce 6.6 million tons of liquefied natural gas each year, equivalent to nearly a quarter of Australia's entire production, and is tipped to double the size of Papua New Guinea's economy.
Within days of the announcement, Canada's InterOil reported that a separate gas field being explored in the neighboring Gulf Province had broken all records for the rate of flow from its wellhead. That project is predicted to add a further 20 percent to the local economy.
Richard Quin, an analyst with oil and gas consultancy Wood Mackenzie in Perth, Australia, argues that the country is now well-placed to take advantage of rapidly growing energy demand from China and the other fast-growing east Asian economies. "The gas resources in PNG are considerable but they have in effect been stranded up to December. This is another source of energy into a growing global market," he says.
Whether this second boom will be squandered, as the first one was, is open to question.
International oil and gas companies are used to difficult political terrain: they have been exporting from Nigeria's conflict-ravaged Niger Delta for decades and are actively bidding for rights to develop Iraq's oil fields. But for many locals the balance of risk and reward has been less beneficial.
The coming of oil wealth in the Southern Highlands in the 1990s was accompanied with a sharp rise in inter-clan violence, as groups jostled for their share of the pie. Revenue-sharing agreements mean that between a fifth and a quarter of proceeds from Papua New Guinea's oil and gas fields are handed over to national, provincial and local leaders, offering handsome opportunities for expropriation in a country considered one of the world's 30 most corrupt.
Hundreds have died in the myriad conflicts sparked by these renewed rivalries, and despite a state of emergency imposed across Southern Highlands province for much of the past decade, the rule of law has been shaky at best. At the village level, a large slice of the money has been spent on the estimated 2,500 illegal guns which have found their way into private hands, selling for well above the global market price.
"The wealth that has been able to be generated in the highlands has been used more or less as a means of fighting each other," said Kevin Pamba, an academic expert on the country and former newspaper editor.
Richard Quin argues that the difficulties of working in Papua New Guinea are "overplayed" — particularly as many oil companies have worked hard to revamp their community contacts in recent years to minimize the risk of disputes. "[Instability] is a risk of developing in PNG, but not as much as people perceive."
However, resentment of international investors frequently runs just below the surface in Papua New Guinea: anti-Chinese riots spread through more than half a dozen cities last May, after a dispute between local and Chinese workers at a nickel mine being developed by the state-owned China Metallurgical Construction Group spilled over into wider unrest.
That event set off "alarm bells," said Hayward-Jones: "Neither Australia nor the U.S. are totally sanguine about Chinese influence."
If China and other developing powers are not sensitive to local concerns as they move into the country, the more circumspect approach now being taken by Western companies risks being undermined. That could damage the climate for investment, and the country's hoped-for development, as a whole.
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