Comments

It is extraordinary that this report has not referenced the work of the g7+ group of conflict affected countries which developed the Dili Consenus as a broad consensus on how the specific development challenges faced by fragile and conflict-affected states should shape the post-2015 global development framework, as laid out in the New Deal for Engagement in Fragile States and the follow up Dili Consensus (www.regionalcommissions.org/dilli.pdf) The important message from this was that the conflict-affected countries called on new approaches which were country led and country owned, thus in charge of their own development destiny. Greater South-to-South cooperation would contribute to learning from lessons about what does and does not work in the pathway towards sustainable peace. Strong partnerships based on dialogue is important, but the report's failing to incorporate a recognition the g7+ strategy does not appear to be getting off the the right start.

Bill - completely agree. Only so much that can be said in a blog post. Clearly the role of citizens and the government - citizen accountability relationship is critical. Perhaps something to address in the next blog post. Thanks for reading! Ben

While the point about policy implementation failure is very important and well made, the solutions seem to involve a narrowly technocratic take on the problem. They do not go far enough. To suggest, as this blog seems to, that governments, especially those in 'fragile settings' will solve this problem by the means proposed, without reference to citizens, is not taking the intrinsically political processes entailed in satisfactorily implementing policy seriously.

Hi Adam. I think McGillivray was arguing with (or at least dismissing) the conclusions when he states "its (the JA report) findings must be taken with a pinch of salt." Fortunately, there does seem to be agreement that any new projects should be on better fiscal terms - the report has helped clarify why that is necessary. Since the report, Treasurer Abel has also indicated (on 8 June) "Low Tax Revenue from PNG LNG 'Being Addressed'". However, there is less agreement on the need to reverse the "resource curse" policies discussed in the report. There is a wealth of 'lessons from experience' from other countries, and PNG's own history, that could be better tapped into - PNG's current economic performance indicates mistakes are still being made.

I don't think McGillivray was arguing with your policy conclusions - and neither was Abel supporting your modelling. McGillivray's critique was of your methodology - which I agree with - and Abel's comments related to the need to negotiate things differently to create better policy outcomes - something that everyone, including the Prime Minister, agrees with. The latter are lessons you only learn from experience, and those lessons were learnt long before this report was released.

The Pacific as indigenous people's heritage is the core. It all begins with treating people with respect and dignity. If people are relegated to the status of subhumans, it's easier to inflict all sorts of indignities on them, including colonise them and steal from them. In the past the 'greater' powers treated the Pacific as chattels. In some respects, they still do it today.

I should have added the following lines to the end of the comment: 'Doing so also can create unrealistic expectations of local benefits that can also have destabilising implications. Going well beyond models and their limitations, the Jubilee Australia analysis also indicates the crucial importance of policy responses to any major project. PNG should learn the lessons that poor policy responses induced by major resource projects can undermine promised benefits. More broadly, the report raises important questions about PNG’s development path and its experiences with a repeat of the resource curse. Pretty valuable lessons from that “dead sheep”.'

Thank you Paul F for your comments. I must apologise for being rather too brief in my comment and I hope these additional comments prove helpful. The first Acil report (Gas to Australia) faced quite simple modelling tasks for a dry (specification) gas supply to a Townsville baseload and a potential expansion into a then immature Australian hubbing system. The second Acil report (LNG Project) faced much more complicated issues and found its answers from somewhere beyond the planet Mars. In mitigation it must be said that this second report was prepared at a time when ‘excessive optimism’ seemed normal, i.e. just before the GFC. As a report commissioned to meet a PNG legislative requirement it was, of course, a public document. It should also be noted that ExxonMobil have since the 1990s emphatically insisted that the returns from a gas project will be small, very small. As far as PNG is concerned the die was cast more than 20 years ago following the realization that PNG had little oil but abundant supplies of stranded gas. The ‘going for gas’ scenario was progressively developed over several decades as a scheme for the rational development of a PNG petroleum industry. The PNG government expended quite large sums of money in developing this scenario involving geotechnical surveys, legislative development and institutional strengthening and training schemes. Insofar as GoPNG and developer fiscal arrangements are concerned about 97% of the content of these terms can be found in the Oil and Gas Act and a number of other Acts, including, of course, the arrangements for taxation. This means that most of the negotiations of relevance for future resource development contracts arise in the context of the bankability studies. Apart from the staging of equity calls and GoPNG assurances that these will be met the most important item is likely to be the fiscal stability contract. For more insight into the LNG Project you need to fully comprehend the core substance of the unincorporated joint venture agreement. Under this scheme GoPNG as licence equity holder and co-venturer participates pro rata in the debt, risk, costs and income streams of the LNG Project as do other concession holder co-venturers and the operator ExxonMobil. As operator ExxonMobil must justify all operational costs to the co-venturers and, of course, acquit all sales income to the respective licence shares. It should also be emphasised that PNG has now accumulated many years of experience as a joint venture participant. Detailed scrutiny is made of all aspects of the LNG Project at the time of bankability studies. Independent studies are commissioned for this purpose. Lender party scrutiny is intense so as to eliminate ‘optimism bias’. Country risk analysis is also added at this point. Risk is assessed as a number, 0-6. Nigeria and Yemen rate 6, PNG 5, Indonesia 4, Quatar 3. This number plays into the financial calculations and any lender counter-party lay-offs. The ‘jewel in the crown’ of the LNG Project is that it will pay a cash benefit to many thousands of entitled landowner beneficiaries over many years. If these payments are made down to household level we can confidently expect an improvement in the welfare of women and children. Instead these very deserving people face the barriers erected by anthropological consultants in the form of ‘zone ILGs’, ‘umbrella sharing groups’, metaphors of Huli land tenure as a hotel and the benefit sharing process as the ‘cutting of the pig’. Fantasies all guaranteed to produce prebendarism. Unanticipated by the Acil report are the post 2011 development of the US shale gas play, the impact of this on Henry Hub prices and the rise of POP contracts, etc. These developments have in turn impacted on Asian gas prices and given rise to developments such as Asian price hubbing and a marked fall in LNG prices since 2014. There is a likelihood that there will be a long term trend of further downward pressure on LNG prices. Did the Acil report cause PNG’s current budget crisis? Or is it just another budget episode? Vailala For more information on how the PNG LNG Project sits within the global context see - Sophia Ruester “Financing LNG Projects and the Role of Long-Term Sales-and-Purchase Agreements”, Deutsches Institut für Wirtschaftsforschung, Berlin 2015.

Good. There is nothing on commercializing the most important and biggest sector of production (the subsistence sector). This is a resilient component of our production system that if harnessed and brought into the commercial section can change the lives of our people. Another issue is market accessibility for produce to the main towns and cold chain management. In this respect its meeting the local demand which is huge in cities like Port Moresby and then looking for opportunities within the region to export. Thirdly for the above to work ,some emphazises and resourcing of the biosecurity agencies and effective collaboration with main stakeholder agencies is required. I like the point on ag data collection and management but this should involve all stakeholders so that each others requirements are included in the survey/template.

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