The prospect of low taxes and cheap labour have made Vanuatu an attractive option for a Chinese-backed joint venture hoping to build a huge nickel smelter.
If approved, the New Caledonian mining company MKM and Jin Pei of China will ship nickel ore from New Caledonia to a US$1 billion smelter to be built on Santo.
The proposal has been welcomed by some locals but appears to have caught many in government by surprise.
Radio New Zealand International's Jamie Tahana reports.
New Caledonian company MKM and Chinese company Jin Pei want to build a nickel smelter on Santo, Vanuatu. Photo: RNZ / Johnny Blades
With the Pacific region's highest incomes, New Caledonians have reaped the rewards of holding about a quarter of the world's nickel reserves.
And since Indonesia - one of the top producers - banned the export of nickel ore in January, the world's largest consumer, China, has increasingly looked elsewhere, including to the French territory.
But the nickel industry has proved increasingly contentious in recent months, especially in the south of New Caledonia's main island.
There has been unrest over a number of spills and environmental damage at the Vale plant, which culminated in demonstrators causing more than US$30 million worth of damage to the plant earlier this year.
The head of the Noumea-based company Mai Kouaoua Mines (MKM), Wilfried Mai, said such opposition would make building another plant in New Caledonia difficult.
So instead it is looking north to Vanuatu, signing a deal with Chinese company Jin Pei last month to build a $US1 billion dollar nickel plant on Santo.
The agreement provides for a joint venture, which gives MKM a 51 percent stake and Jin Pei 49 percent.
The proposal would see nickel ore mined in New Caledonia (pictured) and shipped to Vanuatu. Photo: AFP
'It's not happening' - Vanuatu Lands Minister
The plan is to mine New Caledonia's low quality ore reserves, and then ship them to the smelter on Santo.
Mr Mai explained his project on local television last month.
"The best is to do this in Vanuatu. Why Vanuatu? It's a country in Melanesia, there is no tax, labour is not expensive and it's not far away from our country. All advantages."
Some Santo landowners have reportedly given approval for such a plant, with the investors already having made trips to case out a site around the Big Bay region.
MKM head Wilfried Mai has said building another smelter in New Caledonia would prove difficult. Photo: RNZ / Johnny Blades
That came as a surprise to Vanuatu's Lands Minister, Ralph Regenvanu, whose portfolio includes mining.
He said the government was never approached and knew nothing about the deal.
"I'm the minister of mines and the first I heard of this was the report on Radio New Zealand, and the government knows nothing about it," he said.
"It's not happening, because the government knows nothing about it. So I don't know what they're signing an agreement to do but it's nothing to do with the Vanuatu government, and therefore it's not going to happen."
Mr Regenvanu said the smelter was not something his country would approve anyway.
"No, we're not interested in it. The area they're talking about is a premier tourist destination in Vanuatu. This is where Champagne Beach is and some of the best, sandy beaches in Vanuatu. So we're not interested in putting a mine there."
The Chinese embassy in Port Vila, the chief executive of Vanuatu's Investment Promotion Authority and the Nagriamel custom movement on Santo have also said they know nothing of the venture.
However, late last week it transpired that Vanuatu's then-acting Prime Minister, Ham Lini, met the investors and indicated the government's interest.
Mixed feedback from Santo residents
MPs from around Santo are also showing a keen interest.
Marcellino Pipite said the government should consider the project because it does not have many viable development options at its disposal.
"We in our country, we want to raise funds, enough for the government to maintain services and also for people to have a minimum income, wages, to live. It's worth looking at. Let's do it. Let's find a way out."
However, not all feedback has been so effusive. The Luganville MP, Kalfau Moli, said there were a number of details that needed to be attended to before the project could get off the ground.
"We just only hope that the landowners that are currently involved in the initial stage of the investment will not fall out because experience has shown that when discussions on such a project get to the first stage then the landowners just fall out over rifts or disputes, then it spoils the whole investment."
Former MP Philip Pasvu said locals had not been consulted on the project, and if a nickel smelter were to be built, a pristine area would be harmed for short-term gain.
Mr Pasvu, who is also a custom landowner from the famous tourist site of Champagne Beach, said the lives of thousands of people were dependent on tourism and the region's enviornment, and the plant would employ a fraction of the population.
He said residents would be severely affected.
"The environment, especially, will be damaged because the distance between the site and my place, Hog Harbour - especially Champagne Beach, where the tourism is in place - that's their main source of income."
A feasibility study is yet to be conducted and MKM still has to submit a formal proposal through the Vanuatu Investment Promotions Authority, but it has sought preliminary agreements from local authorities on Santo.
A statement from the office of Vanuatu Prime Minister Joe Natuman said the government stresses the importance of ensuring that landowners receive maximum benefits from the smelter if it is established, and that it does not adversely impact their environment, or compromise the lives of future generations.
