Comments

In response to Vailala, thank you so much for this additional information. I was not aware of these formal requirements, so I appreciate the information. Two broad comments. First, you mention the earlier Gas to Australia analysis down by ACIL-Tasman (which was done in 2002) as well as the 2008 ACIL-Tasman analysis on the PNG LNG project. The differences in these forms of analysis are remarkable. The first analysis did not include the complex modelling projections of the 2008 analysis – it focused on direct benefit flows as well as expected flow-over effects. There was much less spruiking of unrealistic macro-economic claims we found in the second report. This is in fact an important reason why examining the claims of the 2008 ACIL-Tasman report are so important. PNG is entering into important contract negotiations of some major potential future projects. The key lesson is do not trust reports from commercial project proponents. Prepare your own independent analysis. Bring in outside experts. PNG should not once again be mis-led again by such unrealistic claims.

In response to Mark, the "Double or Nothing" report did a sensitivity analysis along the lines he suggests. It is summarised on page 17 of the report. The results of two other growth trend paths were considered (in addition to the 4.8% growth path assumed for GDP). The first was a 3% growth trend path (which should be the minimum basis for a country with a 3% population growth rate ie no growth per capita). This indicated there was still a 71 percentage point overestimate of GDP growth in the ACIL-Tasman modelling. This supported the robustness of the report's conclusions of a massive over-estimation of the benefits from the project. The second trend path examined was what would have been required to generate the extraordinary ACIL-Tasman prediction of a 97% benefit gain relative to 2016 actual GDP. The answer was around minus 3% for every year - so the ACIL-Tasman model would have needed to assume PNG would otherwise have been in a very serious recession every year for over 8 years. This is clearly absurd. So the report did contain the key results of the sensitivity which was done on the underlying trends. Actually, the sensitivity analysis modeled -3%, 0%, 3%, 4%, 5%,6%,7%, 8% and 9% underlying growth assumptions. During the peer review process in early April (such reports go through an extensive peer review process prior to publication, including with PNG contacts and other economists), the view was formed that such analysis was too detailed both for reasons of length and excessive technical detail. Figures above 4.8% simply made the ACIL-Tasman report even more unrealistic and did not need to be included to support the report’s numerical conclusions. The 3% and negative 3% were considered the most relevant points for a policy discussion. So the sensitivity analysis was summarised and still included on page 17 of the report. This still provided enough information to confirm the robustness of the report's conclusions - that within any reasonable assumptions of an underlying growth path, the ACIL-Tasman report was hopelessly optimistic and inaccurate. The original detailed analysis will be placed on the pngeconomics.org website shortly. With the key results of a sensitivity analysis included, I’m not sure what issues Mark has with the report. Any more detailed modelling of potential project impacts inevitably relies on assumptions – the underlying hard data for PNG has not been updated for decades. Predictions are about assumptions – and one needs to be transparent about these, provide a basis for these (a credible trend analysis providing official sources and time periods for this and reasons why the trend analysis could not cover a longer period reliably), and include a sensitivity analysis. The Jubilee Australia report did this while the ACIL-Tasman report did not. So the column on the left is from a black box with all the numbers assuming a negative growth path of on-going recessions over 8 or 9 years to be accurate. The column on the right comes from a transparent report including a summarised sensitivity analysis and based on reasonable projections for most developing economies of a sustainable growth path somewhere between 3 and 7%. The figures on the right are unquestionably much more credible than those on the left. I’m surprised that Mark does not acknowledge this. The issue is not about whether they are perfectly accurate – economics is not that exact a science. However, surely the Jubilee Australia figures are much, much more credible? The "Double or Nothing"report conclusions are robust, certainly much more so that the ACIL-Tasman figures.

Thanks to Vailala for an incisive and useful set of comments. Vailala makes a very good point, that to now attack the ACIL-Tasman report on the basis of its shortcomings seems to be like "savaging a long dead sheep". I fully agree, and alluded to this in my original post, when I referred to many being skeptical of the ACIL-Tasman modelling when it was originally released. To conclude some 12 years later that its projections were wrong doesn't add much, I respectfully suggest. What we should be focussing on is how to better model the PNG economy and the impacts of projects and policy stance within it, the LNG project in particular. This was the most fundamental point of my post, and let me again state that here is to hoping that this happen. Mark

It may be worthwhile to add a little background to the discussion of the ‘Double or Nothing’ report. The 2006/7 Acil report is a revised version of a report prepared for the Gas to Australia project. This earlier report and the report under discussion were prepared to meet legislative requirements for reports of this character. The Organic Law on Provincial Governments and Local-level Governments has relevant provisions for a ‘cost and benefit analysis’. S 115 deals with the control of natural resources and S 116 Specifies the Resource Development Process and the responsibility of the National Economic and Fiscal Commission - S 116 (2) The National Economic and Fiscal Commission shall carry out a cost and benefit analysis for and in relation to the development of natural resources. The Oil and Gas Act S 174. refers to this Organic Law provision - (1) The total benefits granted in accordance with this Act to project area landowners and affected Local-level Governments and affected Provincial Governments and any other persons or organizations shall not, when added to other costs incurred by the State in the course of the development or operation of a petroleum project, exceed 20% of the total net benefit to the State from that petroleum project as determined in a cost-benefit analysis under Section 116 of the Organic Law on Provincial Governments and Local-level Governments. (2) No commitment shall be made by the State pursuant to Section 171 or 173 unless the Minister is satisfied that, following the provision of any benefits or grants which might be agreed under those sections, Subsection (1) is complied with. The PNG National Economic and Fiscal Commission has a general power to make use of documents prepared by other persons. In common with many others I attached little significance to the Acil report for a number of reasons. These included the estimation of oil price futures over an unsustainably long time, the incorporation of the 3 price case scenarios within the broader economic analysis, the very ‘rubbery’ modelling of the PNG economy and a susceptibility to the common CBA problem of ‘optimism bias’. It may well be that the main purpose for having the Acil study done was to put a tick into the box on the ‘to do list’. To expect that the Acil report could have aptly modelled the changes in the LNG markets for wet gas between 2006 and 2018 is, I think, unrealistic. To now attack the report on the basis of its shortcomings seems to me to be like savaging a long dead sheep. Vailala

This is a quick response to the comments of Paul and Terrence. I have read the entire report, in particular page 17, footnote 22 and the appendices. My fundamental point remains. It needs to be made very clear to the reader, especially those without modelling expertise, that if the report’s assumed growth path is wrong then the results it reports will be wrong. This includes the results in Table 1. Related to this, it also needs to be made clearer that the baseline referred to in the third column of Table 1 is not an actual baseline, but the assumed growth path. Many readers would not be aware of this, I would suggest. On the growth path itself, what ideally needs to be done is to credibly model the growth path that would prevailed in the absence of the LNG project, and not rely on an assumed path. But I acknowledge that this is no easy task, and data availability might rule it out. In these situations, what is often done (and needs to be done), is to provide a number of growth paths, such as high, low and expected on the basis of available evidence, and report results that correspond to each. This is not, as Terrence might suggest, a case of needing more data. It is simply a matter of spending more time with existing data, and being very clear about the caveats that apply to results that are reported. Such an approach is consistent with the report’s call (on page 40), for a code of conduct for modellers, which I fully support.

Lending a vote of support to Paul here. He did a valuable job, in a context that is hardly data rich. As he says, there's also the appendices if you want more details. It would be great if there was more detail again still, but at some point that task has to fall to governments, who have the information and resources. Thanks Paul

A quick initial response as I hope that I'll be allowed to give a more detailed response in a future blog. First, we are in furious agreement that there is need for better modelling of the PNG economy - it was in fact a recommendation of the Jubilee Australia report. Second, it is not clear that Mark has read the full report. The issue of underlying growth trends was recognised as the most challenging issue in the report - see lead question in Appendix 2. The report did include key outcomes from a sensitivity analysis of alternative trend assumptions (page 17) indicating alternative realistic figures of underlying growth would not change the report’s conclusions. A blog will go into more details why the conclusions of the JA report should not be treated with a "pinch of salt" - there are fundamental issues about PNG's future path of development. Cheers. Paul

Thanks Tess!

Samuel Ray, your comments are shallow. See the publication via http://cadmus.eui.eu/handle/1814/5972. and confirm the authenticity of his PHD Paper. Indeed the law is weak in PNG. Its very embarrassing.

Thanks for your thoughtful comment Stephen. I'm aware of the per capita calculation but preferred to highlight the low regional share of ODA received by the Pacific, as the region is also the ocean space, the ecosystems and many other aspects which are critical for sustainable development. One of the objectives of my post is to highlight the fact that there is more to the Pacific than the traditional "per capita vision" allows for and to underscore some of the reasons why the Pacific matters and should, in my view, be given greater global consideration.

Many thanks for commenting Mere. I agree with your thoughts on the rich heritage of Pacific peoples.

Thanks for your feedback Nancy. Glad you enjoyed the post.