Lot’s of fuss..
IOC: PNG’s Constitutional Crisis: A Temporary Distraction
Analyst(s): Pavel Molchanov & Cory J. Garcia
* Following several days of constitutional crisis in Papua New Guinea, we take this opportunity to address some of the questions that we have been asked by InterOil investors during this time. At the outset, we would underscore that, in the grand scheme of things, this political struggle is of limited consequence for InterOil (and other international resource companies in PNG).
* Why are two people claiming the prime minister’s post? On Monday, PNG’s supreme court ruled that former prime minister Sir Michael Somare, ousted by parliament in August after going abroad for several months of medical treatment, was unlawfully dismissed and must be reinstated. However, Peter O’Neill, who was appointed as prime minister on August 2 after being endorsed by parliament, retains the support of a parliamentary majority and rejects the court’s ruling. There is a power struggle between two branches of government, with the judiciary backing Sir Michael and the legislature backing O’Neill.
* Who decides which one is the rightful PM? In PNG and the other 14 Commonwealth realms, from Australia to Jamaica, it is the governor-general (the representative of the monarch in London and thus the de facto head of state) who formally appoints the prime minister. The appointment cannot be arbitrary: the prime minister must have a majority in parliament (otherwise risking a vote of no confidence). It would appear that with parliament firmly backing O’Neill, he has the stronger claim. However, on Wednesday, the governor-general decided to swear in Sir Michael’s cabinet in accordance with the court order. After this, parliament reasserted itself by voting to dismiss the governor-general and ask the monarch to appoint a new one. During the vacancy, the speaker of parliament – an ally of O’Neill – is acting governor-general. Confused yet? Keep in mind, none of this has long-term impact, given that elections are due to take place anyway by June 2012.
* Has anything like this happened before? The fact that two people are claiming to be prime minister, as well as governor-general, is clearly an unusual situation. However, the Commonwealth has had precedents with other power struggles. For example, in late 2008, the leader of the opposition in Canada formed a multiparty coalition and asked that the governor-general name him the new prime minister. The prime minister’s response was to ask the governor-general to suspend parliament, and the governor-general went with the PM’s advice. By the time parliament was brought back into session, the opposition coalition had collapsed. In 1975, Australia faced a different, but no less controversial, constitutional crisis, involving the governor-general’s powers. The point here is that what PNG is going through is not some sort of coup (such as what Fiji had in 2006), but rather a process that will ultimately be resolved within the constitutional framework.
* Why should InterOil investors care? As far as InterOil is concerned, it doesn’t objectively matter which politician ultimately “wins” this power struggle. Over the past decade-plus, ever since it entered PNG, InterOil has maintained a working relationship with the government under half a dozen different PMs from various parties. So, to be crystal-clear, InterOil does not have a dog in this fight. The substantive concern, however, is that the constitutional crisis is creating political gridlock and depriving the government of stable leadership at a time when InterOil is working to finalize the necessary approvals as it moves toward final investment decision (FID) on its gas development. Put simply, a delay in FID past the end of the year becomes much more likely the longer this gridlock persists. Thus, the best outcome for InterOil, in our opinion, would be a quick resolution, regardless of who “wins”.