Australia must go big and bold to strengthen its role in the South Pacific

If Australia's relationship with China continues to deteriorate, part of Beijing's response could be to put more effort into challenging our strategic interests in our immediate region - the South Pacific.

This is happening already in Papua New Guinea, Solomon Islands, Vanuatu and Fiji - our closest and most strategically important neighbours.

However, Australia's approach to countering China's activities in the region needs an urgent rethink.

Our aid programs, generous though they are, as well as the Pacific step-up initiative, on their own are just not capable of successfully challenging and reducing China's regional influence. The time has come for Australia to go big and be bold when it comes to our strategic role in our region, and in PNG in particular.

Our $600-million-a-year PNG aid program needs a major restructure. It's important, and it does good work in PNG, but it is simply not doing anything to minimise China's role right across PNG, in infrastructure, education, agriculture and communications.

Recently, Australian mining magnate Andrew Forrest visited PNG and signed a memorandum of understanding with the PNG prime minister to undertake feasibility work on the Purari hydro-power proposal. This project, in the Gulf Province close to Australia, has long been talked about.

Origin Energy devoted some resources to the proposal a decade ago, but sadly it ended up going nowhere. The Queensland government at the time was interested, as were a number of mining companies, but it didn't progress. The PNG government has rekindled interest in the project through its state enterprises holding company, Kumul Consolidated Holdings.

It may well be that Forrest's interest lies in a cheap, reliable energy source as the foundation for a possible smelter in the neighbouring Western Province, which is even closer to Australia.

But the Australian government should not be relying on Forrest alone to advance the proposal. It ought to be a big-picture project to enhance our role in PNG in a way that really helps our neighbour deliver affordable electricity for its people and its businesses, and open up real opportunities for downstream processing, including processing of iron ore and bauxite from Australia.

If Australia embraces this project, in conjunction with banks, construction companies and the minerals sector, it won't be open to the Chinese to potentially invest in.

The other advantage of seriously looking at Purari is that it will reduce the case for another hydro-electric project China is pushing relentlessly with the PNG government - the Ramu 2 hydro-power station.

Initial approval for this project was given in 2015 to a China construction consortium, with China Exim Bank financing. Ramu 2 would probably bankrupt the national power entity, PNG Power, given limited energy demand and the estimated construction cost of around US$2 billion.