China’s ‘debt-trap diplomacy’ is about to challenge Papua New Guinea - and Australia

And construction of the signature national court complex is running well behind schedule. It's another project being built by a Chinese company and will cost at least K480 million (A$186 million).

Reports on the quality of the roadwork and other infrastructure projects undertaken by Chinese companies across PNG indicate that the quality of construction is variable.

But it doesn't stop there.

Some years ago, the Shenzhen Energy Group and Sinohydro were selected by PNG Power-another government-owned entity in poor financial shape-to construct the massive Ramu 2 hydro power project.

The project, which will cost at least K8 billion (A$3.1 billion), has had to be guaranteed by the PNG government under a loan from China.

Such a loan would almost certainly be beyond the capacity of PNG Power to repay and the project has been stalled for at least the last year, resulting in threats from the selected tenderers to cancel it.

The Australian government has been lobbying heavily against the project, and has put forward as an alternative a series of smaller power projects funded by a group of countries led by Australia.

But the Ramu 2 project is not dead. It has powerful backing within the PNG cabinet-and the Chinese ambassador continues to lobby strongly for it.

Late last year, Australia gave the PNG government a loan of around K1 billion (A$388 million), basically to finance the budget shortfall. It has already agreed to delay repayment. And more recently it allowed around K50 million (A$19 million) to be drawn down in cash from the aid budget to help the PNG government out.

If China applies pressure on PNG to make significant repayment on loans running into billions of dollars, the fiscal position will be even worse than it already is.

Australia has rightly been working with the International Monetary Fund, the World Bank and other donor countries and agencies on a package that would essentially provide 'structural adjustment support' for PNG. But any such package would have tough conditions that might be unpalatable to PNG Prime Minister James Marape and his government ahead of an election in less than two years.

The Australian government is likely to be watching the deteriorating economic and fiscal outlook in PNG with growing alarm.

It also has to watch closely when Beijing starts calling in its extensive loans to the government and government-owned corporations, and pre-empt the kinds of concessions China may try to extract from PNG in return for further extensions or loan forgiveness.

Australia's own budget deficit and national debt in light of the response to Covid-19 are eye-watering, making any decision to help PNG further very difficult politically, at least for the foreseeable future.