The federal government must back Australian companies and investors operating in the South Pacific

It has never been easy for Australian companies, and investors, to operate in our immediate region of the South Pacific.

Operating in the region can be very profitable, but there are also risks associated with it, especially when it comes to developing major resource projects, such as minerals and gas.

Papua New Guinea remains the major destination of our investment and business activity. The fact we were the colonial power probably just increases the challenges.

In recent years the challenges in PNG and the region have increased massively as a result of the heavy-handed intervention of China across the region.

Australia's response generally has been to increase development assistance, also known as aid and quite frankly, in terms of slowing China's growth and influence, it's a failed response.

It has especially failed because China has switched its priorities in the region. It has reduced untied aid simply because it is achieving the outcomes it seeks without aid.

China exerts it's influence through a mixture of trade, tied loans, the lobbying of politicians and senior officials, as well as direct engagement with the boards of government-owned corporations.

The key feature of China's tied loans is its insistence that all work, such as roads and communications, be undertaken by Chinese companies, and using Chinese skilled and unskilled workers.

The requirements on Australian companies, especially operating in PNG, to train Papua New Guineans, acquire local partners and meet reasonably onerous visa and work permit requirements are considerable. Almost without exception Chinese companies can get around these requirements, and not only in PNG.

That brings me to how Australia can support our companies, and investors and shareholders, in our region.

The history is far from encouraging.

The worst example occurred in the Solomon Islands a few years ago.

A Brisbane-based mining company had a licence to develop a mine in the Solomon Islands. The Solomons Mining Minister, without proper justification, suddenly cancelled the licence. No compensation was offered.

The licence was subsequently given to a Chinese company.

The Australian Government protested, lashing the decision and the SI Government with a wet lettuce!

It had absolutely zero effect .and that was even before China massively extended its influence over the SI Government.

The next major project in the region is unquestionably the Wafi-Golpu mine in PNG's Morobe Province.

The negotiation process for the mine's development has been long and complex. There are a number of significant environmental issues, landowner disputes and differences between the national and provincial governments.

It would seem most have been resolved, but the joint venture will pay a heavy price for getting its way on tailings disposal. It insists on deep sea disposal. The provincial government was opposed to that. It seems to have given way but has extracted a high price.

The Marape Government wants a 30 per cent equity in the project.

The question is how will the National Government pay for its equity.

There are reports China is prepared to lend the PNG Government the funds to finance its equity.

The mine developers are Newcrest, an Australian company with an excellent record in PNG, and Harmony, which has South African Origin, but it is also a mining investor in Australia.

The Australian Government needs to focus on ensuring the mine gets developed and does so without Chinese involvement.

If China funded the PNG Government equity there would be conditions attached. One would almost certainly be that the mine would have to take its electricity from the Ramu Two hydro scheme being funded by a large Chinese loan with construction contracts already awarded to a major Chinese state-owned construction company.

The Australian Government needs to urgently discuss with the PNG Government, and the mine JV partners, how to best finance the PNG Government equity.

The capacity of the government to borrow on its own is questionable.

The mine will employ a significant number of Australian workers and contractors.

It will enhance the stability and growth of the PNG economy at a time when it is desperately needed.

Canberra needs to get a move on and work with the parties to get the project under way.

It also needs to consider how best to keep China out of it.

This is a very good project. It is large, it's capacity to provide long term benefits to Papua New Guinea is beyond question.

It demands Canberra's urgent attention to strengthen the economic base of our neighbour and protect the Australian national interest.