“Any development on the scale envisaged in an MOU between PNG authorities and a Chinese company raises concerns as it could impact on Australian fisheries, environment and traditional inhabitants of the Torres Strait,” she said.

“The PNG Government has assured us that the MOU is non-binding and that any final decisions are some way off. Decisions have not been made on fish stocks or areas to be fished.”

Daru, one of the few Torres Strait islands that do not belong to Australia, is just a few kilometres from Australia’s maritime border and less than 200km from the Australian mainland.

Australian fishers are worried the project will deplete fish stock in the Torres Strait, while security experts have raised concerns the facility could be used for military purposes.

Australian government sources conceded there was some concern with the project, particularly the depletion of fish stocks in the area, but insisted the project still has a long way to go before being approved.

Opposition foreign affairs spokeswoman Penny Wong said the Morrison government must guarantee the fishing facility did not threaten Australia’s security interests or fisheries.

“How did the Morrison government not see this coming?” Senator Wong said. “Scott Morrison talks a lot about protecting our sovereignty, but this episode raises serious questions about whether he’s actually delivering what he says. Someone in his government has clearly dropped the ball here.”

Opposition spokesman for international development Pat Conroy said the federal government had “diminished Australia’s standing in the Pacific and undermined our interests in a stable, secure and prosperous region – leaving a vacuum for others to fill”.

The MOU between the company and PNG was announced by China’s Ministry of Commerce, suggesting the project is sponsored by the Chinese government.

Some Chinese fishers are trained to assist the People’s Liberation Army, with fishing boats previously helping China’s navy seize the Philippines’ territory in the disputed South China Sea.

Michael Shoebridge, director of Australian Strategic Policy Institute’s defence and national security program, said the Torres Strait’s fish stocks were not large making it a “very dubious business proposition”.

He said the PNG government and the people of Daru needed to explain what would happen when the fish ran out.

“There is no good answer to that question, and that is what is ringing alarm bells about other purposes for the facility, which must involve port facilities for fishing vessels,” Mr Shoebridge said.

“It may just be a case of a rapacious Chinese fishing industry that simply wants to fish wherever it can, and is hoping that local PNG regulators will let it do whatever it wants to get the investment. The problem is that the Chinese state connection makes what happens after the fish run out not just a question of financial distress, closure and enduring local damage.”

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