Papua New Guinea's rich natural resources are of increasing interest to international investors.

 Papua New Guinea’s parliament re-elected Peter O’Neill as the prime minister on 30 May 2012, a day after it again disqualified former-prime minister Michael Somare as a member of parliament on the grounds of his absence from three consecutive parliamentary sessions. The events, the most recent in a chain of disturbing political developments, look certain to create fresh uncertainty and risk for investors, at a time when firms are becoming increasingly interested in the country’s hydrocarbon and mineral potential.

The latest events occurred in response to a Supreme Court ruling on 21 May which decided that Somare should be reinstated as PNG’s prime minister. By subsequently disqualifying Somare, the parliament – where the majority supports O’Neill – was able to get around the court ruling, arguing that Somare cannot be reinstalled as he is no longer an MP. The prime ministerial vacancy then triggered the parliamentary vote, which O’Neill won for a third time since he first dislodged Somare in August 2011.

Despite repeated calls from the Supreme Court for Somare to be reinstated, O’Neill is expected to maintain control of the government until the June/July elections. Somare’s inability to take control of state institutions, combined with O’Neill’s strong parliamentary support suggests that a People’s National Congress Party (PNC)-led coalition government (led by O’Neill and Belden Namah) is the most likely outcome in the upcoming elections. However, with the majority of MPs likely to lose their seats in a highly fluid system, it is difficult to forecast which coalition will eventually form the government. 

Challenges to stability

O’Neill and parliament declared a State of Emergency in several provinces on 25 May after police officers reported to be supportive of Somare sought to surround PNG’s parliament, indicating the potential scale of the current crisis. The leadership dispute between O’Neill and the ousted Somare also threatens the independence of the judiciary, by placing the legislature – which supports O’Neill – on a confrontational course with the independent judiciary.

PNG’s top judge, Chief Justice Salamo Inja, for example, was arrested over charges of corruption on 24 May 2012. This was followed by the arrest of Nicholas Kiriwom, another Supreme Court senior judge, on the same charge five days later. Both judges had handed down the ruling on 21 May 2012, which deemed O’Neill’s appointment to replace Somare to be unconstitutional.

The arrests and charges were made possible by the controversial Judicial Conduct Bill, which was passed by the pro-O’Neill parliament in March 2012. The dispute has also disrupted functions of the government, with reforms likely to be delayed as a result. For instance, PNG Governor-General Michael Ogio announced on 25 May that he would not approve any parliamentary sitting or sign any document from the parliament until the formation of a new government, although his departure for Queen Elizabeth II’s Diamond Jubilee in the UK may give some leeway to O’Neill’s government.

Potential implications

The current political crisis could damage the legitimacy of PNG’s constitution and judiciary, which are now being used as a tool for political advantage. These institutions have long been the mainstay of PNG’s democratic system. There is concern that their standing is being eroded by the conflict, which calls into question PNG as a country under the rule of law.

In addition, the on-going crisis may set an unfortunate precedent, as politicians may be more likely to turn to the military, or ignore court or parliamentary decisions in the future. In addition, the political impasse does not help PNG to shake off its reputation as a politically-dysfunctional state, hence presenting a major deterrent to foreign investment.

Recent events have therefore dramatically increased both short and long-term risks for investors, both through creating short-term instability and uncertainty, and potentially in the longer-term through undermining PNG’s democratic progress.

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