PORT MORESBY - Malaysian Prime Minister Dr Mahathir Mohamad and his Papua New Guinea counterpart Sir Michael Somare on Saturday signed a bilateral cooperation pact PNG hopes will help loosen the influence of the country's former colonial master, Australia.

The agreement, announced by the two leaders, included a plan for Malaysia's national oil company, Petronas, to help PNG develop oil and gas resources.

Government sources said it was hoped Petronas would agree to build a natural gas pipeline from the Highlands region to Port Moresby, where a small oil refinery is under construction and a feasibility study is underway for a US$700 million methanol plant.

The agreement also involves Malaysia in helping PNG develop its information and communication technology sector, tourism and air services.

Look North

In a speech Saturday to business leaders gathered for the Mahathir visit, Somare said he was "determined to look North to facilitate greater inter-dependence" with other countries.

He notably cited recent invitations to Indonesian President Megawati Sukarnoputri and Thai Prime Minister Thaksin Shinawatra to visit PNG.

Somare also recently hosted a major Chinese delegation here and is due to visit China next year in a series of initiatives designed to lower PNG's dependence on Australia, with whom relations have recently been frosty.

Australia provides more than A$300 million dollars (US$210 million) in annual grants to support the struggling PNG economy but the government of Prime Minister John Howard recently said it wanted greater control on how those funds were spent.

Australia also has proposed dispatching several hundred policemen to help stamp out lawlessness and corruption in PNG and has hinted future aid could depend on the outcome of the clean-up operation.

Somare, who led PNG to independence in 1975 and returned as prime minister a year ago, has bridled at the Australian initiative and used Mahatir's visit to hit out at the one-time colonial power.

At a dinner to honour Mahathir on Friday, Somare paid tribute to the outspoken Malaysian leader - also a frequent critic of Australia and who retires next week - for ignoring the advice of the "pillars of capitalism", referring to his guest's economic policies during the 1997 Asian financial crisis.

Somare hit out at the World Bank and Australia for dictating economic measures to PNG, and said Canberra expected too much from its former colony.

"We are told to remove nationalistic strategies to embrace free trade when the big players continue to protect their market from foreign intrusion," Somare said.

"We are reminded too many times of being corrupt when corruption thrives in key institutions among those who champion the fight against corruption," he added.

Adding on

The veteran politician said PNG was not looking to "replace its ongoing relationships with the developed nations", but to add to them.

"Countries with identical historical experiences must move closer to each other as the barrier keeping us apart is removed through globalisation," he said.

Malaysia's interest in increasing its relationship with PNG - currently the country's second largest investor after Australia - was evident in the makeup of Mahatir's 150-member delegation, which included six cabinet ministers and a 30 businessmen.

Malaysian investments in PNG are currently valued at US$395 million, including interests in logging, running of PNG's biggest palm oil operations as well as construction, supermarkets and restaurants.

Shortly before flying out of the country, Mahathir told a press conference Malaysia was not rich enough to offer PNG a formal aid program, but said it could help in training on development issues. - AFP