Karon Snowden: Our nearest neighbour, Papua New Guinea, celebrates twenty years of independence tomorrow - years in which mining developments have been a mainstay of the country's wealth. That's unlikely to change quickly, especially with the launch this week of the global public offering of shares in the world's largest undeveloped gold mine.

The mine, on Lihir Island in PNG's northern reaches, is expected to deliver 600,000 ounces of gold every year in the first fifteen years of the mine's forty year life, delivering substantial earnings to the government through its eventual 20-30% shareholding, along with hundreds of local jobs.

Landowners near Lihir have signed a contract not to bring environmental claims against the company. That's one of the arrangements. The position and geological nature of Lihir means millions of tonnes of rocks and mine tailings will be dumped into the sea just off the coast. The Chair of Lihir Gold is Ross Garnaut, Professor of Economics at the Australian National University, and an adviser to PNG at the gaining of independence in 1975. He believes negotiations with local people go a long way to ensuring Lihir will proceed smoothly.

Ross Garnaut: A lot of effort has been put into ensuring that these risks are minimised in the case of Lihir. There has been a lot of discussion with the local community, all of the people of Lihir. That has led to the negotiation what both sides call an integrated benefits package, a wide range of arrangements to benefit the Lihirian community.

Interestingly, the people of Lihir have agreed to tackle most of these issues as a community rather than just landowners negotiating benefits and compensation as has been the case in some other places.

Karon Snowdon: Now on the environmental side, Lihir boasts quite high environmental standards for the mine. Yet there will be millions of tonnes of rock and overburden deposited not far off shore, directly into the ocean.

Environmental issues of course played a sparking role in the Bougainville crisis, and they are plaguing BHP's Ok Tedi operation. What potential for future problems are there on the environmental side, for an operation the size and scale and nature of Lihir?

Ross Garnaut: A very careful and deliberate choice was taken to send the waste into deep water.

Karon Snowdon: What about the impact on their marine environment?

Ross Garnaut: That has been very carefully studied, and the studies have concluded that there won't be detrimental effects on fish life. It's highly technical stuff, and I myself have to rely on expert opinion on that. But the expert opinion is reassuring.

Karon Snowdon: In addition to the Papua New Guinea government, the partners in Lihir are: Southern Gold, which is a Bahamas registered company of the world's biggest miner, RTZ; the Canadian company, Vengold; and the Australian company which discovered the deposit, New Guinea Mining.

The Lihir Gold Company is confident of raising $600 million through its share issue, at a time when investor confidence in PNG hasn't been improved by the controversy surrounding BHP's Ok Tedi mine, which is being sued for environmental damage.

Lihir's bank loans of $400 million have been insured for political risk by the Australian Export Finance and Insurance Corporation. And I asked Ross Garnaut whether the timing of the share offer to coincide with PNG's anniversary was deliberate.

Ross Garnaut: It's fortuitous. It wasn't deliberate. But it is actually quite a happy coincidence that we're doing this in the week of the twentieth anniversary. It's been a tough couple of years in Papua New Guinea, the last few years have been very hard for the economy.

And for this hopeful development, the Lihir development, to be coming into the scene when people are reviewing the past and talking about the future, I think is a positive thing for Papua New Guinea and the project.

Karon Snowdon: Well, for a person who has had such a long association with PNG itself, have you been saddened by the events of recent years, that breaking down of economic and political stability?

Ross Garnaut: Oh yes, I think that when the problems are discussed, they are usually discussed in economic terms, but they convert into a lot more than that. When you have to suddenly contract budget expenditure because of insolvency, the way Papua New Guinea has at times over the past few years, then that affects basic health services, basic education services - and sure, it has been painful to watch that.

Karon Snowdon: Well, do you think that the World Bank structural adjustment program is the way to renew PNG and give back to the people the services they are so desperately in need of?

Ross Garnaut: I think that the main elements of the structural adjustment program are necessary. There are a lot of critics of the program, but once you get yourself into a position of insolvency, of bankruptcy, you lose control of the way out, and you have to go through big adjustments.

And there's always room for argument at the margin about whether this could have been done a bit differently or a bit better, but the central elements of the World Bank/IMF program, I think, were unavoidable once Papua New Guinea got itself into the severe economic problems that it did get into, over these last few years.

Karon Snowdon: How much blame, perhaps, should developers themselves accept for some of the problems of PNG, given that it was viewed, by some, as merely a quarry that could be mined without too much regard for social and ethnic sensibilities?

Ross Garnaut: First, one can't generalise. Most existing large scale mining operations, petroleum operations, have put a fair bit of effort into local developments.

Take Ok Tedi - it's currently in the news, BHP being much criticised for the environmental impact. Without taking a view on the pros and cons of that current debate on the environmental issues, it is, I would have thought, a relevant part of the debate that the people of the Star Mountains, where the Ok Tedi mine is related, were some of the poorest, most miserable people on earth when this mine was first conceived, twenty years ago. Life expectancy of women was nineteen years. There has been a very substantial improvement in nutritional standards; in general health and welfare the opportunities for those poor and miserable people have expanded very considerably. That is part of the Ok Tedi history that is just as real as the environmental problems in the Fly River.

Karon Snowdon: And at this point, as PNG is celebrating its twenty years of independence, for you, looking ahead, what is your assessment of the current ability of the political leadership within the country to see PNG over its next twenty years and beyond?

Ross Garnaut: Well I think we do have to look over those long periods. There is no quick and easy solution to the task of development in a poor, underdeveloped economy. What I hope for Papua New Guinea is that there will be a gradual building, a gradual learning, over a long period of time, a gradual strengthening of institutions.

Karon Snowdon: And has the current leadership got the wherewithal to set them on the path?

Ross Garnaut: I think there are elements of the current leadership that are able to look in the right directions - the current leadership both in government and in Opposition, and leadership of Papua New Guinea outside the Parliament...

Karon Snowdon: That's not a complete vote of confidence, from a man who is involved now with a major, high risk development.

Ross Garnaut: Oh I'm not saying that there's no risk. And in our prospectus we have discussed those risks. But certainly I have taken on this task because I think the odds are reasonable. And that's how one has to look at this. But you're linking the general statements I have made, to Lihir.

I think that this project has been set up in such a way that, even if there is a continuation of problems at a national level, this project will be, to a substantial extent, insulated from them, both by the strong community support at a local level and by some of the particular financial and other arrangements that have been made for the mine.

But overall, I think that Papua New Guinea will make it. I'm just alerting or cautioning people against thinking that it could ever be a quick and easy process. It didn't seem to me in 1975 that it could ever be a quick and easy process, given the very low educational base, given the weakness of the institutions that Australia handed over. And if Papua New Guinea succeeds in the next twenty years by exceeding my expectations as much as they have in the past twenty years, she'll be well on the road.

Karon Snowdon: Ross Garnaut is Chair of Lihir Gold and Professor of Economics at ANU.

And from next week, Adrian Thirsk brings you The Business Report for about a month, I'm off for that time.

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This is a transcript of the Business Report as originally broadcast on Radio National, the Australian Broadcasting Corporation's national radio network of ideas .