China Eximbank provides supplementary $55 million loan for Pacific Marine Industrial Zone (PMIZ) Project (Linked to Record ID#39343)

Project narrative

On July 18, 2008, the Department of Commerce and Industry of the Government of Papua New Guinea and Shenyang International Economic and Technical Cooperation Company (CSYIC) signed a Memorandum of Understanding (MOU) regarding the Pacific Marine Industrial Zone (PMIZ) Project. Then, in November 2009, China Eximbank and the Government of Papua New Guinea signed a $95 million preferential loan framework agreement for Phase 1 of the Pacific Marine Industrial Zone (PMIZ) Project. On September 29, 2010, China Eximbank and the Government of Papua New Guinea (represented by its Ministry of Treasury and Finance) signed an RMB 678,571,429 ($95 million) government concessional loan (GCL) agreement for Phase 1 of the Pacific Marine Industrial Zone (PMIZ) Project. The GCL reportedly carried the following terms: 20-year maturity. 5-year grace period, 2% interest rate. The proceeds of the GCL were to be used by the borrower to finance a commercial contract with CSYIC. The purpose of the project was to construct a Pacific Marine Industrial Zone (PMIZ) in Portions 1349 and 1350 of Vidar Plantation within Madang Province. The project involved the construction of a fish port (with a cannery/tuna processing plant) and refrigeration plant), a fuel farm, a container terminal, a power plant, water and wastewater facilities, and an export processing zone. Upon completion, the project was expected to encourage onshore processing of tuna resources and create economies of scale, which would reduce post harvest losses through the construction of an integrated modern port complex. The Department of Commerce and Industry of the Government of Papua New Guinea claimed at the time that the country was losing $808 million a year because it did not process fish caught in its waters. At the design/appraisal stage, an economic evaluation of the project suggested that it would achieve an economic internal rate of return (EIRR) about the Government of Papua New Guinea’s 12% hurdle rate. CSYIC was the contractor responsible for implementation. Project implementation was delayed for years due to legal, land ownership, and environmental issues and China Eximbank reportedly withheld disbursements until some of these issues were resolved. The project officially entered implementation on November 24, 2015. However, in 2017, the project scope was expanded to include a larger wharf and cover the costs of water, electricity, and telecommunication connections. PNG's Prime Minister Peter O'Neill announced in September 2017 that China Eximbank would fund the expanded project with a $150 million dollar loan. The project ultimately completed and handed over to the local authorities on January 31, 2019. The project was plagued by controversy for three reasons. First, an audit of the Department of Commerce and Industry revealed that government officials had siphoned off ‘millions of kina’ from the PMIZ project through graft and corruption. Second, government officials ignored independent recommendations to site the project in Port Moresby or Lae, where firms could utilize existing infrastructure to operate at lower production costs. The International Finance Corporation declined to finance for the PMIZ when the Department of Commerce and Industry refused a project feasibility assessment and indicated that it would only consider locating the PMIZ in Madang Province (which infrastructure, transport, labour and communications networks). Third, Madang residents mobilized land claims to demand a greater share of benefits from tuna-based investments. Hundreds of coastal residents staged large protests and defaced PMIZ billboards – consistent with predictions of a ‘high potential of sabotage from those that will be detrimentally affected by the PMIZ’ included in the PMIZ feasibility study contracted by China Eximbank. In May 2015, individuals living within the impact area of the PMIZ, apparently under the guidance of Ken Fairweather (a Member of Parliament for Sumkar), circulated a petition “Stop PMIZ – a ‘Fishy Deal’". They demanded a response by May 25, 2015. The petition was presented to the Governor of Madang. Ken Fairweather assisted the villagers by presenting it on the floor of Parliament. This brought a reaction from Nixon Duban, the member for Madang proper, who objected in Parliament, ‘Our people have registered their umbrella companies, they are all organized, and I want to assure the Government that we want this project to go ahead.’ Within a week Duban had the support of Madang Governor, Jim Kas. The Prime Minister, Peter O’Neill, had already put out a press release, which said that ‘The Government is fully supportive of the PMIZ project continuing. There has been some misinformation, particularly in relation to land ownership, and this is unfortunate. The land where the PMIZ project is located was bought from RD Tuna Cannery for four million Kina and is State land, not customary land as some have claimed.... We are satisfied that the project will not cause pollution to the environment, especially the pristine water ways and islands of Madang.... In total the project will generate K2 billion every year in economic activity to our nation with most of this being around Madang Province. Through this project, the processing of tuna will be done in Papua New Guinea instead of being sent overseas. The PMIZ will generate more than 20,000 jobs for local communities through direct employment and the generation of small business.... Very importantly, the Port township will be jointly owned by the local communities, the Madang Provincial Government and the National Government.’