Papua New Guinea says it cannot agree to Australia's demand for immunity for its personnel in PNG under the multi-million dollar Enhanced Cooperation Programme.
But the PNG Secretary of Foreign Affairs, Gabriel Pepson, says PNG's still hoping a solution can be reached with Australia and does not believe talks have broken down.
Business leaders and others in PNG are monitoring the situation regarding the ECP as talks under way since May between the parties appear to drift without a resolution.
Mr Pepson says PNG's suggested that Australian police, who have been withdrawn because of the impasse, could be redeployed in non-frontline supervisory and advisory roles.
He says this would not require immunity, but concedes it's not a solution if Australia continues to press for immunity from prosecution for its ECP personnel in PNG.
Mr Pepson says it would be unwise for PNG to agree to immunity in areas involving the Police Commissioner and the Public Prosecutor's Office.
"The government basically giving instructions to them to say that you don't have to do these things, that's the last things we'd like to do. For the government, any government of the day, to influence the office of the police commissioner and the public prosecutor, we would like to be very careful on that for the purpose of good governance it can be manipulated - the moment you open the floodgate you don't know where to stop and we don't want to go down that path."