‘The Broken Economic Promises of PNG LNG’

A new report on the economy of Papua New Guinea illustrates that despite predictions of a widespread economic boost from the ExxonMobil PNG LNG project, on most economic indicators the economy has actually gone backwards relative to predictions.

This is stated in the Jubilee Australia’s report ‘Double or Nothing: The Broken Economic Promises of PNG LNG’; this report is co-authored by Paul Flanagan, director of think tank PNG Economics.

Flanagan stated in part of the report that in 2008, Australian economics consultants ACIL-Tasman provided inflated projections of growth in employment, essential services, household income and the broader economy if the PNG LNG project went ahead. This new analysis proves just how misleading these promises were and how PNG has slipped back into the poor policies associated with previous experiences of PNG’s resource curse.

“Currently, on almost all economic indicators, the people of PNG would have been better off had the project not happened at all,” said Flanagan.

A study conducted aimed to compare the projected benefits for the early years of the PNG LNG project with the actual outcomes.

By building an ‘underlying growth path’ based on how the economy would likely have performed without the PNG LNG project, this study made the following findings:

  • Despite predictions of a doubling in the size of the economy, the outcome was a gain of only 10 percent and all of this focused on the largely foreign-owned resource sector itself;
  • Despite predictions of an 84 percent increase in household incomes, the outcome was a fall of 6 percent;
  • Despite predictions of a 42 percent increase in employment, the outcome was a fall of 27 percent;
  • Despite predictions of an 85 percent increase in government expenditure to support better education, health, law and order, and infrastructure, the outcome was a fall of 32 percent; and
  • Despite predictions of a 58 percent increase in imports, the outcome was a fall of 73 percent.

These findings are even more extraordinary given that PNG’s exports (due to PNG LNG) have actually exceeded projections (106 percent relative to the higher figure of 114 percent).

The PNG LNG pipeline is an Exxon-led project which supplies about 8 million tons of LNG a year to Japan, South Korea and China from the gas fields of the Hela region. It is projected to run for 30 years. The project’s partners are Exxon, Oil Search, Santos and the Government of PNG. The Australian government lent AU$500 million of taxpayers’ money to the project.

Dr Luke Fletcher, Executive Director of Jubilee Australia and co-author of the report, said: “Over the next 9-12 months, a final investment decision is expected to be made about whether or
not Total, in partnership with ExxonMobil and Oil Search, will start work on the development of the new Elk Antelope gas field in PNG.

"The new project, known as Papua LNG, has been projected to produce as much as 8.8 million tons per year for around 15 years.

“The economic findings of this report are crucial to understanding the difficulties that large resources project can pose to a small economy like PNG. A decision on new gas projects should be informed by an accurate assessment of the impacts of PNG LNG. 

"Exxon and Oil Search should be paying half a billion dollars (AUD) to the PNG government every year, since the gas started to flow in 2014. Instead, they are paying a fraction of this amount, partly because of their use of tax havens in the Netherlands and the Bahamas.

“The fact that the revenues are not flowing at the levels that was predicted is a key reason why ordinary people in PNG are not seeing the sort of economic benefits that were promised to them when this project was first proposed.”

The report also demonstrates the dangers of relying on economic projections based on dodgy economic models that are paid for by the companies.

‘Double or Nothing: The Broken Economic Problems of PNG LNG’ is the first of two papers on the PNG-LNG pipeline that has been commissioned by Jubilee Australia. The second paper will discuss the unpaid royalties and development benefits and the escalating violence as a result of the PNG LNG project.

Press release