Australian taxpayer funds Chinese construction companies in PNG

While Canberra ponders a very expensive cancellation of the China-controlled Darwin Port, it has an opportunity to slow, if not halt, the absolute monopoly Chinese construction companies have over infrastructure projects in Papua New Guinea.

The facts, and they are facts, I reveal here, demand not only an answer from the Australian Government, they demand action!

The question is whether or not the government has the will to do so?

Australia was a founding member of the Asian Development Bank. As such it enjoys a privileged status at the ADB. The Federal Treasurer is a Vice President, and a senior Australian official holds a privileged position at the ADB Headquarters in Manila.

You would think this would entitle, no require, Australia, to ensure that when the ADB awards contracts for major infrastructure projects in Papua New Guinea, and the South Pacific, both Australian and Papua New Guinea construction companies get a "fair go" in the tendering process.

Membership of the ADB is determined by the percentage of shares held, Australia holds just over 4 per cent, while China has just over 5 per cent. Australia subscribes around $450m a year as part of the process. That means China contributes a similar amount.

Since Australia joined the ADB it has contributed $8.8 billion in capital commitments and $2.8 billion in special payments.

Since we joined the ADB, Australian companies and contractors have received just $1.7 billion worth of ADB contracts!

Even looking at ADB contracts in Papua New Guinea alone, Chinese companies have been awarded much more, especially in recent years. As I write, China is pushing PNG to sign up to at least $2 billion in road projects, mainly funded by the ADB.

The question really is – are we getting a fair deal, and are PNG companies getting a fair deal? And are our tenderers totally disadvantaged when it comes to ADB funded projects? And is Papua New Guinea getting high quality infrastructure from the effective monopoly Chinese companies hold over major infrastructure work?

The answer is No! No! No!

You don't have to take my word for that.

To its considerable credit the ADB has subjected one of its major PNG projects to a comprehensive review. And the outcome contained in the attached ADB "Validation Report" could hardly be more negative!

The re-development of the Lae Port is one of the major infrastructure projects in PNG funded by the ADB and undertaken by a Chinese construction company - China Harbour Engineering Company.

The project was initially expected to cost around $US150 million. The final cost ended up at over $US300 million!

The ADBs own validation report confirms what was well known in the Lae business community, and the PNG and Australian construction sectors, at the time – the project construction was deeply flawed.

Most of the key performance indicators reviewed by the ADB's own team were described as "less than satisfactory".

The second and final "Validation Report" (I have them both) commissioned by the ADB was completed in December 2017.

The question surely is – what has Australia, as a senior ADB member, done about such a negative report on a major infrastructure project undertaken by a PRC company?

When you consider the virtual monopoly PRC companies have had over ADB projects in Papua New Guinea ever since the answer has to be – not much!

When the original tender went to the PNG Cabinet for approval it was made clear that ADB funding was conditional on the project being awarded to a nominated PRC company!

Was Australia's representative then, or since, aware of that condition? And what was done about it?

The Lae port today is operating just as the validation report said it would – less than efficiently!

The second major ADB project I have written about elsewhere is the major upgrading program for PNG's major regional airports – 20 airport projects worth at least K20 million kina each.

If ever any ADB project needed to be subjected to the ADB's own rigorous validation then this one is it!

Surprise! Surprise! The contracts for all 20 airport projects went to PRC companies. Australian and PNG companies did not even get a look in. Local suppliers got a small amount of work – but in several cases I know of, have not been paid, even though the ADB has fully paid its PRC contractors.

In the case of three major regional airports I have been briefed on the quality of the work which was "less than satisfactory". That is a description the ADB will be familiar with!

Australia's response to the aggressive strategy the PRC has employed in PNG and the South Pacific when it comes to infrastructure projects has been the establishment of the Australian Infrastructure Financing Facility – set up in 2018.

Last week the AIFF proudly trumpeted a loan, and part grant, of around K190 million for road projects in Papua New Guinea.

I am advised that around the same time the PNG Cabinet approved road projects to be undertaken by PRC companies worth around K500 million!!!

That surely puts it all in perspective.

The AIFF is a good idea, long overdue. But it is simply not bold enough, and resourced enough, to go even close to countering China's influence!

Before Canberra better funds and resources the AIFF it needs to ensure the ADB loans and funding processes for PNG and the South Pacific are make fully transparent, and open to competitive tender.

It also needs to bring together leaders of the PNG and Australian construction industries and undertake to ensure both get a fair go when it comes to ADB tenders, and PNG Government tenders.

Australia has "clout" when it comes to the Asian Development Bank. The ADB is a worthy entity - but its approval processes, and its apparent favouring of PRC contractors simply must be rigorously reviewed….and urgently.

Sadly both Papua New Guinean and Australian companies have just about given up tendering for ADB related projects in Papua New Guinea.

At a time when the PNG economy, and especially the construction sector, is in absolutely desperate straits, Australia needs to insist on an end of favouring PRC construction companies.

PRC companies must be prepared to compete on a fair basis, not a privileged one. If they win contracts fairly and transparently then fine.

But the position that has developed over the last decade or so surely must require the Australian Department of Foreign Affairs and Trade explain what it has done to ensure a fair go for our contractors and PNG contractors!

The Australian Government must also insist that major projects, such as the airport upgrades and Highlands Highway rehabilitation, be subjected to the same rigorous review that the ADB carried out with regard to the Lae port project.

It is difficult for Australia to insist on transparency when it comes to PNG Government funded projects – though it is worth a try.

But when it comes to the multi-million dollar ADB funded infrastructure program Australia has clout – it just needs to start using it!