Australia must focus on the people of PNG, not the government of PNG!

For the first time in a long time Papua New Guinea has been in the news in Australia, and especially in the finance pages and platforms.

While any coverage on PNG is to be welcomed, the news is a mixture of good and bad – in this contribution I want to focus on the "bad": in the hope it can be stopped!

The "good news" relates principally to the proposal for Telstra, financially backed by the Australian Government, to buy the largest telco in Papua New Guinea and the South Pacific – Digicel. The purchase is far from certain and the critics are really lining up..

I first suggested Australia needed to encourage the Australian telco sector to seriously look at Digicel, and do so with government support. While blocking China buy it was my initial reason for doing so I have come to the conclusion there is a far more potent reason for the proposal to be advanced positively, though of course consistent with shareholder concerns.

Digicel has 90 per cent mobile phone and related modern communications such as internet access in Papua New Guinea, and upwards of 60 per cent coverage in Vanuatu, Tonga, Nauru, and Solomon Islands. Coverage in Fiji is more diverse, but it remains a player.

If Telstra acquires Digicel, it should do so with a view to strengthening Australia's people-to-people and business-to-business links with PNG and the South Pacific. That would mean upgrading the ageing technology Digicel uses, offering competitive rates to domestic and business customers, and generally modernising mobile and other technology in a region where it is critical.

The second potential "good news" story relates to the proposal by the Australian giant, Santos, to merge with (or takeover) PNG's largest company, Oil Search. This proposal has a long way to go and other potential buyers such as Woodside and Exxon may seek to intervene.

But if a major Australian company acquired a controlling interest in Oil Search it would mark a welcome reversal of the recent retreat from PNG of major Australian entities such as the ANZ Bank and Westpac Bank. It is a proposal that is worth keeping an eye on in the coming weeks.

Bow to the bad news. This week, The Australian's Ben Packham has an interview with the Minister for the Pacific, Senator Zed Seselja, following his recent short visit to Papua New Guinea. The Minister clearly indicates that Australia is considering providing more "budget support" for Papua New Guinea – in other words more cash!

It has been my hope that this "cash payment" nonsense had ended. In the last two years Australia has given PNG over $450 million in budget support. It is supposedly a loan, but the first two loans have been rolled over, and are unlikely ever to be repaid.

I assume the cash handout is partly designed to win Australia "favour" over China within the PNG Government. If that is the case then it has been an utter failure!

If Australia were to give another $250 million this year it would equate to PNG Kina 650 million. The projected PNG fiscal deficit for calendar year is at least K7.5 billion, yes billion!