The ratings agency Standard and Poor’s is adopting a ‘wait and see’ attitude towards the O’Neill government’s nationalisation of the Ok Tedi mine and its owner, the PNG Sustainable Development Program (PNGSDP).

The town of Tabubil in Western Province, adjacent to the Ok Tedi Mine (Credit: OTML)

Prime Minister Peter O’Neill has sacked Sir Mekere Morauta as chairman of Ok Tedi Mining Limited and installed four new directors on the board, after passing legislation transferring all the shares in the Ok Tedi mine to the state.

Parliament also passed legislation making the former owner, BHP Billiton, liable for environmental damage caused by the Ok Tedi mine. O’Neill has also instigated an inquiry into the way in which the SDP was established.

A one-off case

Standard & Poors’ Craig Michaels

‘Ok Tedi appears to be a one-off, isolated case in some respects,’ according to Craig Michaels, Standard & Poor’s sovereign credit analyst for PNG.

‘But we’d expect that mining companies are watching closely. The decision to remove BHP Billiton’s immunity from prosecution for environmental damage, in particular, may have surprised miners a bit.

‘The key question for us is whether this raises miners’ perception of sovereign risk in PNG, and whether this has a material effect on future mining investment. If that happened, it would be quite damaging for PNG’s economy.

‘Because of PNG’s law and order problems, there’s virtually no foreign investment outside of mining, and government revenues are heavily skewed to mining.

‘Recent developments look fairly positive, though. The economy is being dominated by the ExxonMobil LNG project, which is absolutely huge in comparison with the rest of PNG’s economy. This project is nearly finished and due to start production in 2014. But the company, as late as September, is talking about wanting to double production through further investment.

‘So that’s a very good sign that, if the returns are high enough, investors in the mining and gas sectors are still willing to work in PNG.’

Growing opposition

Opposition to the O’Neill government’s nationalisation of the Ok Tedi mine appears to be growing, with the Catholic Bishops adding their disapproval.

Landowners said they would take legal action against the government, telling Radio Australia: ‘They’re stealing from us…It’s unconstitutional and it’s been very greedy and selfish.’

The Catholic Bishops of PNG said in a statement they wanted to express their profound  disappointment ‘with what our leaders in government have done by appropriating OTML (Ok Tedi), which could result in the cancellation of PNG Sustainable Development Program’.

‘PNGSDP is one of the premier development organisations in PNG,’ the bishops wrote.

‘It has done so much good. It would be foolish to terminate it. The people at PNG Sustainable Development Program should fight to continue their good work and we should support them.’