PNG was lulled with wildly unrealistic modelling. It would be dangerous to conclude that this couldn’t happen to Australia
Scott Ludlam | The Guardian | 2 May 2018
The OED defines a parasite as “an organism that lives in or on an organism of another species (its host) and benefits by deriving nutrients at the other’s expense.” Parasitic relationships exist throughout the natural world and are defined by their one-sided nature. Ticks, mites, tapeworms: they all get something for nothing, and in all cases you’re better off without them.
Exxon’s Liquefied Natural Gas (LNG) project in the highlands of Papua New Guinea provides a distressing case study of large-scale economic parasitism. A new economic analysis of the project by Jubilee Australia quantifies the ways in which the resource industry can drain the life out of an economy while providing less than nothing in return. That it was pulled off with Australian taxpayers’ assistance is even more damning.
There have been any number of warning signs. Last year in a budget estimates session, I was keen to understand how Australian officials representing our export credit agency Efic could justify lending half a billion dollars to the project. After all, ExxonMobil advertises itself as “the world’s largest publicly traded international oil and gas company”, declaring revenues of nearly a quarter of a trillion US dollars in 2017. Why they would need Australian taxpayer assistance to get a gas project off the ground seemed highly suspect. At the time, the company was celebrating the 300th shipment of LNG from the project’s export terminal, and yet the landowners in Hela hadn’t been paid any royalties. Predictably, this was raising tensions in the area and there were – and are – very real fears that the project could end up triggering an armed insurgency.
The resource industry spends a fortune downplaying the negative social and environmental consequences of its presence. Their arguments generally gravitate to the simple appeal that the economic benefits more than compensate for the costs to country and culture.
The Jubilee report craters this line of argument, demonstrating that the economy of PNG would have been better off without the project. It was co-written by executive director of the Jubilee Australia Research Centre Dr Luke Fletcher and economist Paul Flanagan, who has held senior roles within treasury departments in both Australia and PNG. It puts hard numbers to the economic case against the project, demonstrating that since it started up, household incomes have fallen, employment has fallen, government expenditure has fallen, and imports have fallen. It shows how a combination of project economics and policy decisions made by the PNG government combine to act as a net drag on the economy. Buoyed by wildly unrealistic predictions of the flood of tax revenues that the project would unleash, the PNG government went on a debt-fuelled spending spree, sending the budget sharply into deficit. The Jubilee report details how in 2012, PNG prime minister Peter O’Neill told a mining and petroleum conference in Sydney “… we are borrowing now certain in the knowledge the revenue inflows from mining and LNG projects will make repayment manageable.”
We know how this story ends. ExxonMobil paid about “one-thousandth of its expected share of LNG sales from the project” in 2016. The company’s aggressive use of tax havens and clever drafting of the deal between the parasite company and the host government are all it takes for the revenues to vanish into a thicket of holding companies and a PO box in the Bahamas.
The Jubilee report was instantly dismissed as “fake news” by O’Neill, lending a Trumpian flavour to the unrepentant gouging of the people and landscape of PNG by a foreign oil and gas multinational. O’Neill has since admitted he hasn’t read the report.
Professor of economics Michael Hudson has some words of warning for people trying to rid themselves of economic parasites. “In nature, parasites don’t simply attach themselves to a host and suck out blood, or take the surplus in an economy. In order to do that, they have to numb the host. They need an anesthetic so that the host doesn’t realize it’s being bitten.”
The anesthetic comes in the form of economic modelling used by project backers and beneficiaries to lend an aroma of scientific legitimacy to their cause. In this instance, wildly unrealistic Acil Tasman (now Acil Allen) modelling commissioned by ExxonMobil in 2008 provides a textbook case of why these documents should be treated with utmost suspicion. The Jubilee report demonstrates how Exxon’s economists-for-hire were about as wrong as it is possible to be in their hallucinations of employment, tax revenues and a doubling of the size of the host economy.
The PNG LNG project has it all. Dispossession of traditional landholders and non-payment of royalties. 7.9 million tonnes of fossil gas exported and then discharged into the atmosphere every year. Aggressive tax avoidance by Exxon and its commercial partners. Outstanding returns for Exxon shareholders , and a half-billion dollar soft-loan by Australian taxpayers to make the whole venture stack up.
We’d be dangerously wrong to conclude that this kind of parasitic resource-curse afflicts only our less fortunate neighbours: ExxonMobil pays no tax in Australia, either. While we do what we can to help the people of PNG wring some kind of redress from this debacle, we also need an honest diagnosis of the amount of anesthetic being applied here at home.