Huawei could pose a challenge for Australia in Papua New Guinea

The presence of Chinese telecommunications giant Huawei has not been challenged in Papua New Guinea as it has been in Australia, the United States, the United Kingdom and other countries.

Despite a recent embarrassing setback, reported on by the Australian Financial Review, Huawei has positioned itself well to benefit from the likely full or partial privatisation by the PNG government of a number of underperforming state-owned enterprises.

With a loan from Exim Bank of China, PNG commissioned Huawei to build a national data centre in Port Moresby at a total cost of around A$75 million.

PNG Communications Minister Timothy Masiu told the AFR that his government should not have to repay the loan because the data centre is a failed investment, barely works and may have to be shut down.

That will not have gone down well in Huawei's headquarters, or in the very large and influential Chinese embassy in Port Moresby.

It's a setback for Huawei, but it remains to been seen whether it will have an impact in PNG beyond one unhappy minister.

The company is well entrenched in the communications sector of Australia's closest neighbour. It works closely with the state-owned Telikom PNG, an underperforming operation that will probably be first in line for full or partial sale if the cash-strapped government proceeds down that path. Huawei also provides mobile phones and other equipment to operators in the rapidly growing PNG marketplace.

Two years ago, Huawei had another setback in PNG when the Australian government stepped in to block a plan, initiated by Solomon Islands, for the company to build a submarine cable connecting the Solomons, PNG and Australia.

Australia funded the cable's construction at a cost of around $150 million-a wise investment given the access such a project might provide.

But Huawei was not prevented from building the domestic cable network delivering internet and other telecommunications services to provincial centres around PNG.

That involved another Chinese loan that will have to be repaid. PNG Telikom is believed to have incurred massive debts to China and its capacity to repay them in a very difficult economic environment is just about zero.

In fact, the debt-trap diplomacy strategy pursued by China in developing countries is going to hit PNG hard at a time when its ability to repay Exim Bank of China and other lenders is severely restricted.