PNG's LNG debut; mines in spotlight; digging deep on Freeport deal. By Hamish McDonald.

Obama not feeling the love of his usual allies

Tony Abbott and Canadian Prime Minister Stephen Harper walk the Hall of Honour in Ottawa this week.
Tony Abbott and Canadian Prime Minister Stephen Harper walk the Hall of Honour in Ottawa this week.
Credit: AFP
Barack Obama’s presidency is being kicked in the guts by leaders of countries normally supportive of the United States.

As this column has previously noted, it was bad enough having allied countries led by people unsympathetic to Obama’s philosophy of trying to solve security crises with diplomacy ahead of force, softening the inequalities of modern capitalism with better welfare, and taking a lead in tackling climate change. Think Australia’s Tony Abbott, Canada’s Stephen Harper, Japan’s Shinzo Abe and Israel’s Benjamin Netanyahu. 

But now they’re teaming up against him. Abbott virtually announced an axis with Harper in Ottawa last week to shoot down Obama’s new efforts to take the US into the lead on curbing carbon emissions, which will involve carbon pricing in one form or another, whatever Abbott says. Abbott’s session with Obama and Vice-President Joe Biden at the White House came after our deadline, but frostiness can only be imagined, unless Abbott has flip-flopped again. 

We can’t imagine it will help Harper either. He’s been lobbying to overcome Obama’s reluctance to approve the new Keystone XL pipeline to bring bitumen from Alberta’s tar sands down to Gulf refineries. The gluggy stuff, which requires a lot of energy and dilution with other petrochemicals to get it to flow and leaves piles of black carbon powder when refined, is much opposed by US environmentalists. 

Adding to the Obama administration’s irritation with Canberra has been Attorney-General George Brandis’s elaboration of a new policy of not referring to Jewish settlements in East Jerusalem as “illegal”, diverging Australia from a longstanding alignment with US policy (and moderate Israeli opinion). With US Secretary of State John Kerry’s push to advance an Israeli-Palestinian settlement already foundering, it won’t warm Abbott’s reception.

When Malcolm Fraser urged Canberra to act more independently of Washington, this is hardly what he had in mind. And it’s a nasty new Canada. “As always, Australia and Canada seem to be marching to the same tune,” notes one Canadian analyst of Asian affairs, Japan-based Andrew Horvat. “I have to say I much preferred the older tunes: multiculturalism, liberal attitudes toward refugees, environmental awareness, social justice, modesty and tolerance.” 

As the late Australian writer Cyril Pearl used to exclaim, quoting the satirist Samuel Butler, on finding another example of antipodean crassness: “Oh God! Oh Montreal!”

1 . PNG’s LNG debut

Petroleum has, meanwhile, undergone a big transformation in Papua New Guinea. Noted only in the financial pages, the Southern Highlands liquefied natural gas complex built
by ExxonMobil and partners shipped its first tanker load to Japan at the end of May. 

The $US19 billion project, centred in one of the wildest parts of the country, has been a technical marvel, with truck convoys rumbling up the potholed and bandit-infested highland roads for years, and the final pieces of machinery, too big for the roads, flown in to a specially built 3200-metre airfield (as long as most international airports) in the mountains on giant Antonov 124 freight aircraft. 

By the time it racks up a full year of production next year, the project will add about one-third to Papua New Guinea’s gross national product. Two more LNG projects are also planned or have started in the steamy Gulf of Papua region. The big question is whether large new flows into government revenues will translate into improved living standards for the country’s seven million people, outside the small modern sector of the economy.

More grassroots improvement in recent years has come from taking power out of the government’s hands than the opposite. Deregulation of telecoms out of the state-owned monopoly, for example, has seen three operating companies grow mobile phone subscriptions to 1.8 million and cut call prices by 60 per cent. But the rising flow of oil revenue will inevitably reduce the influence of foreign aid donors, including Australia, which point out this kind of thing. 

Canberra’s reliance on PNG co-operation for its Pacific “solution” to the asylum seeker political problem also weakens its leverage.

2 . Mines in spotlight

Peter O’Neill, the prime minister of Papua New Guinea, is already showing a greater toughness, having barred the Australian economist Ross Garnaut from acting as chairman of the Sustainable Development Program trust that had run the Ok Tedi copper and gold mine since BHP bailed out 12 years ago, then effectively expropriating the mine for the government last September.

Now there’s movement around the derelict Rio Tinto copper mine on Bougainville Island. Recently, John Momis, president of the Bougainville autonomous region set up to end the civil war that closed the mine in 1989, claimed that O’Neill had suggested in February that Port Moresby should expropriate Rio Tinto’s 53.6 per cent share. 

With demand for copper running hot from China, Rio Tinto and other business consortiums are pushing the reopening of the mine. O’Neill this month denied making any expropriation proposal, and Momis says it’s agreed the mine’s future is a decision for the Bougainville government. But with a referendum promised between next year and 2020, under the 1997 peace accord, on whether Bougainville should stay in PNG or go independent, the mine’s future is part of the equation.

What is little appreciated is that the referendum may not be the final say for the Bougainvilleans, ethnically related more to the Solomon Islands than the PNG mainland. The peace agreement retains a veto power for Port Moresby. 

3 . Digging deep on Freeport deal 

Copper and Melanesia go together, it seems.

One of the big issues for the next president of Indonesia will be the renegotiation of Freeport-McMoRan’s operating contract for its giant gold and copper mine in Papua. This is another high-altitude engineering marvel that has been contentious ever since the operators wrote their own contract for the new Suharto government in 1967.

This contract expires in 2021, after 50 years of production, and Freeport is seeking certainty of tenure to invest more billions opening nearby gold and copper reserves. Its CEO, Richard Adkerson, has been in Jakarta trying to clinch agreements with the lame-duck Susilo Bambang Yudhoyono government on future royalties and local processing requirements. 

Both the candidates to replace SBY, Joko Widodo and Prabowo Subianto, are likely to be under popular pressure to squeeze more out of the mine for the central and provincial governments. As a long-time friend of the colourful Freeport chairman, Elvis-impersonating Jim Bob Moffett, Prabowo will be under scrutiny from the economic nationalists.

This article was first published in the print edition of The Saturday Paper on June 14, 2014 as "Obama not feeling the love of his usual allies".

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Hamish McDonald is a Walkley Award-winning foreign correspondent.

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