Canberra, 8 August 1966
Confidential
Proposed Japanese participation in oil exploration and development in Papua and New Guinea
The purpose of this submission is to seek approval for Asian capital investment in Papua and New Guinea in the oil search and development industry to be permitted and for Australian Aquitaine Petroleum Pty. Ltd. to enter into a joint working agreement with Japan Petroleum Exploration Co. Ltd. (Japex) for oil exploration and development in Papua and New Guinea.
2. Aquitaine is a French owned company wholly financed by a French semi-governmental agency. Japex is a semi-governmental agency with 65% of its capital owned by the Japanese Government.
Proposal
3. Aquitaine was granted a permit for petroleum exploration in the Sepik District of New Guinea in March 1965. The company has carried out the conditions of the permit since that date. Its proposed working agreement with Japex provides that in return for contributing 35% of the costs of joint operations over the next three years or the date of commencement of preparation for drilling, which-ever. is the earlier, Japex will have a 35% interest in any proceeds from the joint venture. Provision has been made in the draft agreement for 15% of Aquitaine’s 65% share to be reserved for Australian or local Territory interests until Ist September, 1966. The proposal involves the issue of a temporary entry permit to a Japanese geologist or geophysicist for approximately six months during each of the next three years and the issue of temporary permits of approximately one month’s duration to possibly one or two other Japanese nationals each year over the same period.
Existing policy
4. In December, 1964 Cabinet adopted, subject to certain understandings and reservations, the detail of the policy to be followed in relation to proposals for Asian participation in commercial enterprises in Papua and New Guinea which had been suggested by an Interdepartmental Committee. The policy was not intended to extend, except in approved cases, to foreign governments or their agencies. Cabinet adopted the suggestion of the Interdepartmental Committee that at this stage Asian capital investment in the mineral and oil search industries will not be encouraged but the policy may be reviewed in the light of any positive proposals which Asian interests might initiate. Each application for Asian participation in commercial enterprises was to be considered on its merits and until a case history had been built up the Department of Territories was directed to consult with other interested departments including those represented on the Interdepartmental Committee on the action to be taken on each application received.
Report by committee
5. The proposal has been examined by an Interdepartmental Committee representing Territories, Prime Minister’s, Trade and Industry, Treasury, External Affairs, Primary Industry and National Development.
6. The report of the Committee is attached.1 A summary of the views and conclusions of members of the Committee on the main policy issues is at paragraphs 60–79 of the report.
7. The majority of the Committee could see no fundamental difference between on the one hand the oil search industry (viewed as embracing possible development) and on the other hand the fishing and forestry industries in which in terms of the Cabinet decision of December, 1964, Asian participation was acceptable. They believed that approval of oil search as an acceptable industry would not constitute a change in policy but simply a definition of policy in the light of the first concrete proposal. They also considered that while oil exploration by its nature could not be expected to provide substantial and immediate benefits to the Territory the longer term benefits of viable future discoveries of oil or gas justified allowing Asian participation in this field of activity. They noted the high cost of oil search in the Territory, the fact that Australian interests have shown little inclination to invest in oil search in the Territory and the link to possible export markets in Japan. In their view approval of the proposal would have beneficial effects on Australia’s overall commercial relations with Japan. They noted in addition that agreement to the proposal would involve limited Japanese immigration.
8. The majority of the Departments have made a positive recommendation that the application by Aquitaine be approved.
9. A minority of the Committee believed that an important extension of policy was involved and questioned whether sufficient and adequate justification existed for permitting Asian participation in oil search in the Territory. They noted that Aquitaine’s reasons for association with Japex were commercial and questioned whether the Asian capital represented an addition to rather than substitution for other capital for oil search.
10. The Committee suggested that, in the event of the Government’s approval of the proposal, the possibility be explored with Australian Aquitaine of extending until six months from the date of approval, the company’s offer to reserve 15% from its 65% share to Australian or Territory interests.
11. I have considered carefully the report of the Interdepartmental Committee. Having regard to all the circumstances and points raised in the report I am of the view that the proposal should be approved. Approval will not necessarily result in the provision of new or additional funds for oil search in the Territory; but as the programme in the permit area concerned develops, association of the Japanese interests with the enterprise could result in more funds being made available than would be provided in the absence of Japanese participation. This is particularly important because of the high costs involved in oil search and the scarcity of risk capital for this activity. Should oil be discovered in the area a link with the Japanese export market would be available. On the other hand refusal of the application could have a discouraging effect generally on the attitude of Japanese enterprise towards investment in the Territory. Japanese capital and know-how in selected fields could play an important part in the Territory’s economic development. Growth of the local economy will of course help to lighten the heavy financial burden which Australia carries.
12. I see no objection to participation of the Japanese Government through Japex in this instance.
Reference to Administrator’s Council
13. Under Territory law the authority to approve the proposed working agreement is vested in the Administrator. I have in mind that should Cabinet approve the proposal, and before any announcement is made, the Administrator’s Council, on which there are Australian and indigenous elected members of the House of Assembly, should be given the opportunity to express a view.
RECOMMENDATION
14. I recommend that—
(a) Asian participation in oil search and development in Papua and New Guinea should be permitted on the same bas is as already approved in relation to participation in the forestry and fishing industries;
(b) the application by Australian Aquitaine be approved as recommended by the majority of the Interdepartmental Committee, subject to reference to the Administrator’s Council.
[NAA: A5841, 387]
1 Not printed.