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The Bougainville Horror

Mine shutdown, etc, sends the PNG economy crashing

By Robin Bromby

IT has been another month of drama in the Papua New Guinea economy, with the Kina being devalued, ten per cent, government spending cut, credit frozen and the government seeking con trols on wage rises. This followed the

decision by Bougainville Copper Ltd to

make the inevitable announcement that it was putting its Panguna mine in moth balls. But there was trouble on other fronts with trouble stirring around the Mt Kare and Misima gold projects.

Now an economist has warned that the 1990 s will be a difficult time for Papua New Guinea, with rising unemployment posing a “serious threat to both society and the economy”. Dr Nimal Fernando of the Institute of Applied Social and Economic Research in Port Moresby wrote, in a recently published article, that the present state of the economy showed the weaknesses arising from a high level of dependence on a few activi

ties for foreign exchange earnings and

employment generation.

The devaluation of the Kina was essentially an attempt to help the export crop producers, who have faced collaps ing prices on the world market for cocoa, coffee, copra and palm oil. With the stabilisation funds running out of money, devaluation was one way to in crease overnight the income in Kina terms of payments for their crops.

The Kina was devalued by 10 per cent, and further depreciations cannot be ruled out as the economic situation worsens.

In his announcement, Finance Minis ter Paul Pora said the devaluation was part of an integrated package of mea sures designed to help the Papua New Guinea economy adjust to both the clo sure of the Bougainville mine and the falls in world prices for the country’s main agricultural commodities.

The change of policy was an embar rassment for the government, which just two months earlier had released its 1990 budget predicated on the early re

opening of the copper mine, which con tributed 17 per cent of the budget re venue and earned 40 per cent of Papua

New Guinea’s foreign exchange.

The devaluation will also take its toll internally, with the cost of imported food and other products rising. With the government wanting public servants and others in the formal wage system to accept a cap on wage rises, the potential for trouble clearly grows.

The government was left with no alternative to fiscal action once the mine’s reopening in 1990 was shown to

be extremely unlikely,

Bougainville Copper Ltd (BCL) execu tives announced just after Christmas that 2000 workers at the Panguna copper mine were to be retrenched, with only a skeleton staff being retained about 300 people to provide a nucleus for rebuilding the organisation once produc tion becomes possible again. Although company chiefs have denied they are “mothballing” the mine, it is hard to see what other word can be used to describe the decision.

The announcement came just a few days after militants sabotaged another power pylon on Bougainville Island,

once again cutting off electricity supplies

to the mine site.

The major shareholders in BCL, Con

Bougainville copper mine: 2000 workers laid off.

zinc Riotinto Australia Ltd (CRA Ltd) and the Papua New Guinea government, have signed an agreement to inject R 45 million for up to two years as a financing facility for the company. CRA will put up R 33.2 million, the government Rll.B million. Most of this money is likely to be used to settle retrenchment payouts, and to maintain the mine during the indefi nite period of closure.

BCL chairman Don Carruthers said the mine, which has been closed since May last year, could not reopen while there were persistant militant activities.

“Recent events have not improved the security outlook on Bougainville and the board of BCL believes that it will be some time before conditions are likely to permit a resumption of production,” he said.

He later told a Melbourne news con ference that the company will report a loss for the year to December 31, 1989, and might reach the stage of a complete pull-out from Papua New Guinea. “We have not reached that stage yet and we’re taking it one step at a time,” Car ruthers said.

One-off costs associated with the re trenchment are expected to run to R2O million, while the monthly maintenance costs have been estimated at R 2 million

under the mothballing well down on the R 6.5 mil lion spent to keep the mine in a state of readiness since it was closed last May, BCL has lost about R3OO million since it stopped production last May, or ab out RlO million a week.

The mine closure announcement came after the Bougainville landown ers signalled they were pre pared to try and end the crisis. Both the Panguna Landowners Association

Association and its business arm, the Road Mining Tailings and Leases Trus tees Ltd, said there would be leadership changes. The rebel movement led by Francis Ona grew out of disagreement about the way these bodies distributed the royalties from the copper mine.

About 400 copra and cocoa plantation workers are reported to have fled Bougainville out of fears for their own safety. In early December militants attacked mainland plantation workers with guns and axes, killing one Highland man. Bougainville’s economy has also been struck another blow: retrenched workers reportedly set fire to a big ex port sawmill at Tolonei, which has been

destroyed.

A recent survey of business activity in the North Solomons province on Bougainville showed that the local eco-

nomy is slowly grinding to a halt. Cash flow is now down to less than 80 per cent of previous levels with small trade stores, trucking and other local com panies all suffering. Even the big con struction and engineering companies are either closing down branches or cutting down on their staff.

A local businessman, James Rutana, who operates several trade stores and a trucking business in North Solomons province, said another contributing

i factor was that local villa gers who owned cocoa or coconut plantations, espe cially those in the Arawa, Rieta and Buin areas, no longer wanted to look after their crops. He told a re porter that ripe cocoa pods were rotting on trees while coconuts were being left to

grow wild. Many people

did not want to travel to Rieta to sell their cocoa and copra for fear of being attacked by the rebels or members of the security

forces.

Companies who relied on the BCL mine are the hardest hit. Bishop Brothers, an engineering firm, has trans ferred its plant from Arawa to Lae, while Hastings Deering Pty Ltd (which

supplied earthmoving equipment and

spare parts to the Panguna mine) has laid off three-quarters of its staff. Even

Capable Constructions, just newly

established to carry out maintenance and construction work at the mine, has pul led out of the North Solomons province entirely, while CIG (supplier of oxy acetylene gas is contemplating a similar move).

Meanwhile, in Milne Bay province on the mainland, landowners are threaten ing to cause trouble at the Misima gold mine if the national government does not meet a log of claims which has been

outstanding since last June when the mine began production. The local peo ple have threatened to completely close the mine. Included in the claims is a demand for profit-generating contracts for building and construction. The land owners are being supported by the Milne Bay provincial government, whose mines and finance ministers went to Port Moresby with a delegation to meet Prime Minister Rabbie Namaliu.

And, as if CRA does not have enough problems on Bougainville, it has now come under attack from the Enga pro vincial government, with Premier Ned Laina accusing the company of doing a secret deal over the Mt Rare behind the backs of his government and the land owners. It must have been a surprise for CRA: the company had just received

some excellent publicity by striking a

deal with local people to share the Mt

Rare alluvial gold deposits.

But Laina said it was an insult that CRA was offering landowners a 49 per cent share of their own gold, adding that

the mining project involved only some

earthmoving which the people could manage for themselves. The premier is now urging the national government not to issue the licence which the joint ven ture company, Mt Rare Alluvial Mining, needs before it can start work.

“CRA will rip the gold out of this cor ner of the province and go, leaving be hind them the sort of political and social disaster they have created on Bougainvil le,” Laina said. “The Enga Provincial government will never accept this deal we want these people out of our pro vince.”

He said CRA had resources to win its objectives which could never be matched by local authorities. “They use their big money to fly selected landowners’ repre sentatives to Port Moresby, Madang and now Daru, for secret meetings while the real traditional leaders are left behind and kept in the dark as to what is really

going on.”

On the troubled crop front, the gov ernment has now announced help for the ailing copra and palm oil industries.

Prime Minister Rabbie Namaliu said R 4 million would be made available to copra growers as the current stabilisation fund was almost exhausted, enabling the cop ra price to be maintained at R2OO a ton ne at the main depots. The smallholder palm oil stabilisation fund will get R 2.5 million to help keep the price to produc ers at present levels. Working parties will also be set up to study both industries.

But the two main agricultural exports cocoa and coffee look set for a tough year in 1990. The latest Westpac tropical products survey said that cocoa prices are predicted to fall further as Cote d’lvoire continues to release large quantities of stockpiled cocoa on world

Carruthers: one step at a time.

markets. Other potents of trouble in clude the news that both Malaysia and Indonesia are expanding their produc tion, and Asian cocoa output should in crease by almost 20 per cent this year with world stocks continuing to rise. “An unprecedented low price makes it difi cult to predict how much lower prices will fall,” Westpac concludes.

As for coffee, the bank sees a further price fall this year with marginal recov ery in 1991. Prices were unlikely to bot tom with large stocks to be cleared in the short term.

Not all the news is bad. Resource com pany interest continues to be high, and the latest development is that the United States conglomerates Du Pont and Ex xon are entering the Papua New Guinea oil search they have farmed in to PPL 106 and PPL 117 held by the Australian companies First Australian Resources NL, Victoria Petroleum NL and the Tri dent Petroleum. The first wells to be drilled are near the Ok Tedi mine in the Papua Basin. Meanwhile, Oil Search Ltd reported that recent drilling activity in PPL 100 in the Southern Highlands had confirmed the discovery of a new oil pool in the Toro Sandstone, and may be linked to the Hedinia field.

While these issues continued to rumble around the Papua New Guinea land scape, the article in the Port Moresby Post-Courier by Dr Nimal Fernando, who teaches at the Institute of Applied Social and Economic Research in Port Moresby, drew attention to more deep seated problems for the country.

In the years 1973-80, there was negative per capita in come growth that growth

becoming posi

tive only after the surge of mine explora tion and pro duction. By contrast, growth in agri cultural earn ings decline

significantly

largely due to poor export prices for cof fee and cocoa.

The food crop sector the “shock absor ber” of the economy had not per formed well either, with per capita food production

ta food production actually falling since

independence. Dr Fernando said this, was reflected in cereal imports, which rose from 71,000 tonnes in 1974 to 184,000 in 1987.

He warned that the cash crop sector may have expanded at the expense of subsistence crops and so increased the vulnerability of the economy to world market forces on both exports and im ports.

Dr Fernando said falling export crop prices and the closure of the BCL mine would further weaken Papua New

Guinea’s foreign reserve position during

1990 but the loss of copper mine re venues would also have an impact on government expenditure, both in the loss of revenue and the additional ex penses keeping security forces on

Bougainville.

But he saw the major problem as

being the growth of uemployment the

labour force growing at the rate of 50,000 people a year with formal em ployment absorbing fewer than 10,000 of those. Unemployment is found in urban areas and among young people, with the worsening law and order situa tion being partly a reflection of unfulfil led expectations of the young living in towns. But even those left in the rural areas are in for hard times as depressed coffee prices will have severely adverse affects on those provinces where coffee is a major part of the economic acitivity.

Dr Fernando urged economic reforms,

including:

• Changing current wage determina

tion methods, which are in appropriate for Papua New Guinea, to allow greater labour flexibil ity to increase employment and foreign in vestment. • Removal of subsidies to the rural sector to remove dis tortions. • More financial liber alisation, allow ing for higher interest rates much of the savings in the rural sector re in a i n s un mobilised and unavailable for investment purposes. □