How changes to Western financial aid strategies will affect Papua New Guinea


The creation of a one-stop shop US development bank will see a doubling of available infrastructure funding for Asia-Pacific projects, and is expected to boost the PNG Electrification Partnership. It comes as the US, Australia and Japan have unveiled the Blue Dot Network, an initiative designed to compete with China’s Belt and Road Initiative in the Pacific region. 


The merger of the Overseas Private Investment Corporation (OPIC) with USAID’s Development Credit Authority to form the Development Finance Corporation (DFC) has increased the likelihood that the US will contribute a substantial amount to the Papua New Guinea Electrification Partnership, according to Douglas Midland, Director, Structured Finance & Insurance Overseas Private Investment Corporation (OPIC).

The PNG Electrification Partnership is a joint venture between the US, Australia, Japan and New Zealand. The cost of the project is estimated at US$1.7 billion. Australia announced it will contribute $A260 million (K597 million) into the program, and NZ will spend NZ$60 million (K132 million) on the project. Japan and the US are yet to announce how much they will contribute.

The partnership was announced last year in Port Moresby, during the APEC Leaders Summit. Australia, New Zealand, Japan and the US pledged to help PNG meet its target of connecting 70 per cent of the population to electricity by 2030 (it is estimated that only 13 per cent of PNG’s population has access to electricity).

‘The Pacific is becoming a contested sphere of influence for the world’s largest economies.’

Carolyn Blacklock, who was PNG Power’s acting Managing Director until August this year, said at the time: ‘This Electrification Partnership stops PNG Power from having to borrow money. We can’t afford the K3.6 billion price tag to electrify our country.’

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DFC will have access to US$60 billion, doubling OPIC’s present debt finance portfolio. Its mission, according to Midland, will be similar to that of the International Finance Corporation (IFC).

The merged entity will be able to provide technical assistance and conduct feasibility studies to its development finance projects. And besides loans, loan guarantees, investment funds and political risk insurance, the DFC will also have equity authority, meaning it will have the ability to make limited equity investments, Midland told delegates at the recent 2019 PNG Investment Conference in Sydney.

Regional politics

Meanwhile, OPIC (now the DFC), Australia’s Department of Foreign Affairs and Trade (DFAT), and Japan’s Bank for International Cooperation (JBIC) have announced the formation of the Blue Dot Network to compete with China’s Belt and Road Initiative.

The alliance will evaluate and certify nominated infrastructure programs in the Indo-Pacific.

It is another important move in the Pacific, which is becoming a contested sphere of influence for the world’s largest economies.

Robert O’Brien, National Security Adviser in the USA, said the Blue Dot initiative would counter the trend toward what he claimed were projects that were not of ‘high quality’ and had led countries into debt traps – alluding to Washington’s complaints about Belt and Road-funded projects which it believes are undermining the sovereignty and financial stability of recipient countries.

For the past decade, China and other BRIC (Brazil, Russia, India and China) nations have increasingly occupied the infrastructure space in the Pacific, largely to the exclusion of the US public and private sectors.

It is estimated that China spends US$40 billion per year through its development finance institutions, which include the Export-Import Bank of China, China Development Bank, Asia Infrastructure Investment Fund, the Shanghai-based New Development Bank BRICS and the Silk Road Fund.

Midland said that, since its inception 42 years ago, OPIC has ‘consistently returned profits to US taxpayers’. He said 70 per cent of the current fund allocations are loans for periods of up to 25 years, to cover capital costs such as design and engineering services, facility construction or leasehold improvements and equipment.

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