Illustration by Daniel Garcia
© Daniel Garcia

A small island has found itself caught up in the escalating battle for influence in the South Pacific.

On both economic and diplomatic fronts, Papua New Guinea’s autonomous region of Bougainville has become a piece in the game between Beijing on one side and the US and its allies on the other.

With Bougainville holding one of the world’s largest untapped deposits of copper, Chinese and western companies are weighing the prospects of reopening its Panguna mine — closed since a vicious civil war broke out in 1989. The island is also set to hold an independence referendum on June 15, potentially creating a country that could vote in international forums such as the UN.

John Momis, president of the Autonomous Bougainville Government (ABG), told the Nikkei Asian Review that Chinese businesspeople had raised the matter of investing in the mine on a visit to PNG ahead of last month’s Asia-Pacific Economic Co-operation summit in the capital, Port Moresby.

Mr Momis said he told them, “Panguna is not an easy issue, and as far as ABG’s concerned we have decided to put it on the back burner until the referendum.”

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The peace agreement signed by the PNG government and island leaders in 2001 created the ABG and set the stage for the referendum. Chinese involvement with the mine would give Beijing a direct role in the economic future of a newly independent nation as it seeks to secure resources and expand its strategic network. It would also boost China’s sway in its power game against the US and regional rivals such as Australia.

But given its potential resources, the government in Port Moresby would be loath to lose the island, especially Panguna . And while the referendum is not binding, blocking a secession backed by most of the local population might be a recipe for renewed unrest in the volatile country.

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Diplomatic sources said 99 per cent of residents would support independence. Ted Wolfers, a professor at Australia’s University of Wollongong, said the consensus is that an “overwhelming majority” would vote that way. But he also suggested PNG would not let the island go easily.

“PNG’s government might talk the autonomous government into settling for greater autonomy that falls short of independence,” said Takehiro Kurosaki, a junior associate professor at Japan’s Tokai University.

The island, and particularly the mine, have a tangled present shadowed by a brutal past. The decade-long civil war that killed more than 20,000 people — about 10 per cent of Bougainville’s population — was triggered by resentment over pollution and revenue distribution from mining. Bougainville was also a battlefield when Japan invaded the island during World War II in an attempt to cut off a sea lane between the US and Australia.

Chinese President Xi Jinping (L) and Papua New Guinea's Prime Minister Peter O'Neill shake hands after unveiling a plaque during the opening ceremony of the China-Aid PNG Independence Boulevard Project ahead of the APEC summit in Port Moresby, Papua New Guinea, 16 November 2018. Mast Irham/Pool via REUTERS
Chinese President Xi Jinping, left, and Papua New Guinea’s prime minister Peter O'Neill shake hands after unveiling a plaque during the opening ceremony of the China-Aid PNG Independence Boulevard Project in Port Moresby in November © Reuters

PNG desperately needs foreign currency. In September, the government issued its first dollar bonds and managed to raise $500m — crucial funds as the country attempts to manage $2.5bn in foreign debt, almost $590m of which is owed to China, according to Reuters.

“Beijing’s trade and investment in the region is focused mostly on Papua New Guinea, the region’s largest economy and home to rich gold and nickel mines, liquefied natural gas, and timber forests,” the US-China Economic and Security Review Commission noted in a report in June.

The report notes that state-owned China Metallurgical Group manages development of a $1.4bn nickel and cobalt mine in PNG, with funding from the Export-Import Bank of China. This, according to the report, is China’s largest single investment in the region and its biggest foreign greenfield mining project. About 40 Chinese companies operate in PNG, according to China’s state-run Xinhua News Agency.

Indeed, Beijing offered PNG about $60m in aid to host the recent Apec forum, according to a diplomatic source. This included road repairs and a supply of bulletproof vehicles.

China is recognised by eight South Pacific countries, including PNG, while Taiwan has the recognition of six, such as the Solomon Islands. Xi Jinping, China’s president, has made little secret of his desire to deepen Taiwan’s isolation. There is talk of the Solomons, where China has also opened up its cheque book, switching allegiances.

Papua New Guineans, including some wearing Chinese flag T-shirts, gather to welcome Chinese President Xi Jinping in Port Moresby on Nov. 16. The road was constructed with funds from Beijing
Papua New Guineans, including some wearing Chinese flag T-shirts, gather to welcome Chinese President Xi Jinping in Port Moresby in November. The road was constructed with funds from Beijing © Fumi Matsumoto

China’s outreach to the South Pacific has spurred western allies, belatedly, to push back.

In the run-up to the Apec meeting, Australia and New Zealand — long the main benefactors for South Pacific nations — joined the US and Japan in announcing a plan to build up PNG’s electricity infrastructure.

Mike Pence, US vice-president, in a speech at the Apec summit, announced a plan for US co-operation in bolstering a naval base on PNG’s Manus Island. In remarks clearly directed at China, Mr Pence referred to recent naval exercises with India and Japan, and said: “We will work with these nations to protect sovereignty and maritime rights of the Pacific islands as well.”

For now, the island states find themselves in the enviable position of being courted by China, the US and its allies all at once.

PNG has accepted a Chinese proposal to build an internet network using loans from the Chinese Ex-Im Bank and technological support from Huawei Technologies. PNG picked the Chinese proposal over one from the US and Australia.

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A similar story is being told across the South Pacific.

Vanuatu signed an agreement with China to take part in Beijing’s Belt and Road Initiative. In return, China agreed to a moratorium on nearly $3m worth of debt, according to a local newspaper. In April, reports surfaced that China was planning to build a military base in Vanuatu. Alarmed by this, the US and Australia swiftly moved to start talks with the island state on a bilateral security treaty.

The increased attention from partners, both old and new, means that Pacific nations “now have more leverage”, said Jonathan Pryke of the Lowy Institute, an Australian think-tank.

Bougainville in the spotlight

The issues of the mine and the referendum put Bougainville firmly in the spotlight. While the situation on the island is replete with risks, Panguna’s reserves are very attractive to China, the world’s largest copper consumer.

The deserted mine contains more than 1bn tons of ore, according to a study conducted in 2009 — more than the 675m tons extracted over the 18 years it was open. These deposits look even more valuable given global concerns over copper supplies, due to emerging market demand, depletion of known resources, rising mining costs and limited new discoveries.

A number of companies are circling. A Lowy report said there had also been corporate interest in the mine from Australia, the US, Canada and Brazil.

Whoever wins out will be able to cement a foothold in the region, but it will come at a financial cost.

Mr Wolfers said interested parties would have to consider the start-up costs of reopening the mine, which he sees reaching as much as $8bn.

Bougainville’s President Momis said the island’s government was taking a cautious stance on the investment interest.

“We don’t believe anybody who comes and talks about these issues until we see things in concrete and on paper,” he said.

Nikkei staff writer Sarah Hilton in Tokyo and researcher Jennifer Walpole in Sydney contributed to this report.

A version of this article was first published by the Nikkei Asian Review on December 11, 2018. ©2018 Nikkei Inc. All rights reserved.

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