The Faustian Contract between BHP and PNG

Why does the PM say he wants BHP out of Ok Tedi?

Nancy Sullivan | Nineteen Years and Counting 

 Is BHP still in control of PNGSDP? It seems to be. Follow out logic here. For those of us familiar with running the paper trails and company searches for RH subsidiaries, this is a pretty transparent chain of command, and it leads right to BHP Billiton’s Board room.

Remember the BHP settlement in 2001, following those long Ok Tedi cases against the company?  BHP gave USD $500 million worth of shares in the mine to the PNG Government, when Sir Mekere Morauta was Prime Minister. That was all the shares it had in Ok Tedi, and it was their compensation for the gross and unprecedented level of damage the had caused the Western Province people. That was their bail-out, and the means by which they would step away from the mine.

Or so we thought. The idea at the time was that the PNG Sustainable Development Program, would own and control all of the PNG Government’s shares in Ok Tedi for the purpose of implementing development in the deeply scarred Western Province, and the country at large.

Papua New Guinea was unclaimed by any European powers in 1876 when a speck of gold was found at  the highest point of D’Albertis’ exploration  on the Ok Tedi River. By 1884, at the express recommendation of Australian miners, Britain had established a protectorate over Papua.

One hundred years later, in 1984, the Australian mining company BHP had secured the mining lease for Ok Tedi mine.

Twenty years later it acknowledged responsibility for the single largest environmental disaster in the global history of mining. In compensation, they promised establish a trust for the impacted communities, and to leave this trust in the hands of Papua New Guinea. Ten years since, we find it has not.

So why did Peter O’Neill say on Radio Australia that BHP Billiton needs to give back control of PNGSDP to PNG?

How does the PNG Government NOT control PNGSDP and OK Tedi? BHP’s continued control is the largest con in PNG history.

After killing one of the world’s most important rivers and subjecting hundreds of thousands of Western Province peoples to continuing environmental impacts, the company pledged to give back its shares in a form of penance. But with the cynicism of an older, colonial age, they never did this, and instead kept control of those ‘development’ funds for its own ends.

They never left Ok Tedi. The biggest con in PNG history has been effected by BHP.

In 2001, BHP Billiton did gift all its shares to the PNG Government.  It also “suggested” to the PNG Government through then-PM, Sir Mekere Morauta, that the PNG Sustainable Development Program Ltd be set up, so that it:

  • As a corporate entity, could hold and control all the
  • shares in OK Tedi
  • Would receive 75% of the dividends from OK Tedi
  • Would be registered in Singapore and the dividends invested in Singapore, allowing the  PNGSDP would bring back the interest for development programs for Western Province and PNG.
  • And PNG would thereby right the wrongs left by BHP Billiton.

So BHP and its lawyers went about setting up the structures and drafting the relevant agreements.  BHP then told the PNG Government that to start up the fund in Singapore – so that interest is readily available and PNGSDP can sustain itself from the beginning–  there would be no need for any start-up capital from PNG itself.  BHP LOANED PNGSDP USD$120 Million for the fund in Singapore.

And when someone gives a loan – they give terms to secure that loan. The terms BHP gave were that UNTIL the loan was 100% paid back, BHP would nominate 4 of the 7 directors on the PNGSDP Board.  BHP would retain a majority on the PNGSDP Board.

Since its inception 12 years ago, PNGSDP has been controlled by BHP through its Board, with Ross Garnaut at the helm. And as PNGSDP is in control of the OK Tedi shares – the OK Tedi Board is made up of 4 Australians and 1 Papua New Guinean, BHP also controls OK Tedi.

BHP has never left PNG.

There is now USD$1 Billion in the fund in Singapore BUT still the loan hasn’t been paid back – and won’t be for many years yet DESPITE the fact PNGSDP could repay the loan tomorrow in full and not even blink.

Why doesn’t PNGSDP pay it back ? Because the BHP controlled Board wants BHP to remain in control for as long as OK Tedi operates, and as long as the other mines near Ok Tedi operate.  Highlands Pacific, for example, has new gold and copper mine 25km away from OK Tedi: at Frieda River.

Ross Garnaut has been appointed to the Board of Highlands Pacific?  Why? Because PNGSDP has bought a huge chunk of shares in Highlands Pacific which entitles them to a Board seat.

Consider the obvious advantages to Frieda if Highlands Pacific could strike a deal with OTML to send all its tailings down the Fly River rather than the Frieda and Sepik Rivers? They could sell them to OTML whereby acquiring the legal indemnity OTML now enjoys from the 2001 agreement: the freedom from any possible litigation by OTML CMCA signatories.

So…instead of paying BHP back the loan and allowing 100% control back to PNG and its people – PNGSDP under Ross Garnaut has bought Highlands Pacific shares.

The Faustian contract PNG was forced to sign back in 2001, by continuing the mine destruction for the economic well-being of the country, is not just a tragedy. It is an expanding tragedy.

What does investing in Highlands Pacific have to do with providing sustainable development programs for the Western Province and the rest of PNG? That US 1$ Billion still sits in Singapore, and Western Province has recently been declared to have the worst human development indices in PNG. It’s ‘compensation’ for loss of a birthright and a stable, healthy future has been expanded investment in more mines.

IN 2010 PNGSDP brought $40 million of the Singapore fund back to PNG to fulfil its program mandate. But they spent $10 million on their own administration, and a further $1.5 million on Board fees. Where do these monies wind up? Back in Australia, with BHP Billiton-appointed Board Members, their colleagues and families.

Instead of working toward real development goals for Western province people by building schools, hospitals, roads, water supplies, better sanitation and small business opportunities, PNGSDP has now committed USD$400 Million from the fund to a project in Daru.

They are building a deep sea port and copper smelter in Daru.

According to affidavit material filed by PNGSDP recently, US $40 million has ALREADY been spent on the FEASIBILITY STUDY for this project. A feasibility study costing US$40 million. How many aid posts, college degrees, roads, small business loans could have resulted from $40 million dollars? How many PNG consultants would have liked to have conducted the study? We can only imagine.

The rest of the money will be spent on $178 Million worth of DREDGING for the port – as it needs to be much deeper to permit access to large ships for transporting the copper from the smelter.

But why build a copper smelter in Daru? Is this a sound investment for the PNG people? If you had an investment advisor managing your multi-million dollar investment portfolio—would this be the best possible investment?

Copper smelters are both financially and environmentally expensive. As a Daru villager, and one of the most negatively impacted groups by OTML’s devastation of the Fly River, would you choose to build a copper smelter? Daru is desperately in need if basic infrastructure, basic sanitation and water supply; it needs locally owned fisheries projects, schools, and most of all state of the art health care for children and adults still presenting illnesses from the polluted river.

But BHP knows the cost of copper smelters all too well. They own the Olympic Dam Copper Smelter in Roxby Downs, South Australia. It has been so expensive and environmentally destructive that business reports say BHP needs to build another one, elsewhere. The Olympic Dam mine uses 35 million litres of Great Artesian Basin water each day, making it the largest industrial user of underground water in the southern hemisphere. Contaminated water is passed through a series of sealed ponds where it evaporates. Reports tell us, however, that this is having a major negative effect on rare and endangered flora and fauna of nearby mound springs, which are drying out as a result of the water draw-down rate. The mound springs are the only permanent source of water in the arid interior of South Australia and a delicate yet intricate ecological balance has been established. They are a refuge for rare and endemic species including plants, fish, hydrobiids, isopods, amphipods and ostracods, many of which are now threatened by mining operations.

But more importantly, poor market returns for the refined copper, uranium oxide and gold and silver co-products of Olympic Dam have now forced BHP to shut it down.  In August of last year it was reported that BHP had to sack up to 140 staff from its Olympic Dam expansion team. BHP Chief Executive Marius Kloppers said this was due to the slowdown in China and the fall in mineral prices. The decision was announced on the same day the company announced a full-year net profit of $14.7 billion, a 34.8 per cent drop on last year.

To justify expenditures for the Dam expansion of around $30 billion, Olympic Dam can’t be just left to the whims of the market. The giant Anglo Group has already shied away from investment in the Mine because of fears that uranium would remain in the copper concentrates, and the acid leaching of these would be too hard to manage if the concentrate were transported.

Others say that BHP needs to erect another smelter, as the Olympic Dam is too expensive. BHP must devise a solution. If Olympic Dam is deferred then it is likely BHP has not found a solution somewhere. Like Daru.

For whom is the Copper Smelter and Deep Sea Port being constructed in Daru? BHP Billiton.

Now that Ok Tedi plans to continue mining for another 7 years, and now that it has invested in the new Highlands Pacific mine at Frieda; now that Ross Garnaut has left the Chair of PNGSDP for the Chair of Highlands Pacific; now that BHP has installed Sir Mekere Morauta in Garnaut’s place, as a golden retirement package in exchange for Morauta’s support in passing the Bill that allowed BHP to ‘step back’ from PNG—- the control BHP has over these monies is even more entrenched.  At this point, there has been only one Papua New Guinean on the PNGSDP Board, Rex Paki. His power if nullified by the On the Board of PNGSDP, there is one Papua New Guinean, Rex Paki, who cannot do anything in the face of BHP’s 4 appointed Directors, including Morauta now.

“Naturally, with such an accumulation of wealth in a poor country, it’s very tempting for political figures to think of better ways of using it right now rather than putting it into long-term development,” Professor Garnaut said recently. We assume ‘political figures’ refers to the democratically elected representatives of PNG. We assume he is saying no government of PNG (a “poor country”) will ever know how to invest these funds in its own behalf.

During grievance time in Parliament 2 November 2012, PM Peter O’Neill read the above quote aloud to great alarm from the MPs present. Some called out for Garnaut to be deported.

We have to ask again: What has PNGSDP done in 12 years?  Has the river been cleaned? Have Western Province people been ‘developed’? Garnaut tells us now, with no irony whatsoever, “I think Ok Tedi is the main single reason why PNG has in the last five years had some fiscal freedom.”

This is either the most cynical of statements or the most oblique admission of Garnaut’s own fiscal freedom in the last five years.  Perpetuating the myth that all Papua New Guineans are corrupt and all Australians are ethical, sneering at critics by asserting disastrous professional experience over genuine concerns, BHP is hiding in clear sight. Shape shifting Board Members, installing expensive mechanisms and six-figure salaries, and lavishly publicizing the Program’s comparatively meagre investments in the people of Western Province.

BHP has constructed in PNGSDP the biggest pyramid scheme PNG has ever seen. Forget the small scams run by church and cult leaders around PNG; forget the dubious investment schemes thrown up every day in towns across PNG. We have a winner of the biggest scam in PNG history: the illusion created by BHP that PNG benefits directly from and will forever need PNGSDP.



Filed under Environmental impact, Financial returns, Papua New Guinea

7 responses to “The Faustian Contract between BHP and PNG

  1. Steve Zorn

    As someone involved in the early days of Ok Tedi – throwing Kennecott out of the country, bringing in BHP and negotiating the original agreement, I bear a share of the guilt for what ultimately transpired. Though meaningful environmental enforcement by subsequent PNG governments would have made the situation far less disastrous.

    Thanks for your thorough report on BHP’s ulterior motives. It makes the O’Neill government’s actions much more understandable.

    Steve Zorn

  2. Pingback: The Faustian Contract between BHP and PNG | Papua New Guinea ... | ThisRightNow

  3. Dr. Johannes Bauer

    This article, together with the 4-corners documentary from 23.September 2013 by Kerry O’Brian gives a glimpse behind the veil of the mining industry and the people in control of those as they move between board rooms and shape our and nations destinies. Names such as Ross Garnaut crop up, neither good nor evil as they find no conflicts of interest, let alone conscience, whether they write climate change strategies for Australia or preside over the destruction of one of the worlds greatest river systems, never mind the people. After all, one has to make a living and one is an objective scientist, just stating facts-economical ones usually. Whether such industries dispose of Australian Prime Ministers who want to tax them, or destroy any aspirations of a future a country such as PNG might ever have, does not even come into all that. Politicians here or there either join in or are disposed of, all for the big picture in mind. As long as there is money to be made, quicker and faster. How these truly disgusting plays around Ok Tedi now shape the deals around Asylum seekers between the two countries shows a contempt for any principle of ethics, people or democracy which is deeply frightening. Is this really the way the world works now. God help us all if these are the people who shape our future.

    Johannes Bauer, 4Hills 24.September 2013

  4. Dilu Muguwa

    Nice comment. That is a detailed flipside of the saga that PNGSDP Board and BHP have been hiding. Stephen Howes, the director of the ANU institute of Public Policy pointed out the dangers of the PNG governments move to nationalize OK Tedi and PNGSDP while this article details the rationale behind the government’s move. After all, looks like PNGSDP is a scam and though the move by the government is contrary to the concept of sustainability, it seems to be like another channel to serve BHPs’ interest. All along Ross Garnaut and BHP have been fooling PNGeans under the guise of sustainable development and it seems that Stephen Howes was not aware of it. He should be asking critical questions like who benefits the most whether PNG or BHP under this scam.

  5. Bradley

    Good point Dilu. But I am not sure Howes’ Development Policy Centre would be awash with AusAid money – about K1.3 million in 2012 – if its Director began asking critical questions that threatened Australian interests or policy orthodoxy.

  6. Pingback: BHP Billiton in trouble again in Papua New Guinea | London Mining Network

  7. David Beatty

    Steve – best wishes for 2017

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