Papua New Guinea has reacted to Australia's recent decision to establish a diplomatic post in the Autonomous Region of Bougainville by banning Australian travel to the province. This spat is proving to be an irritant not only for the friendly relationship between Canberra and Port Moresby, but also for relations between Port Moresby and government authorities in Bougainville.

Foreign Minister Julie Bishop's arrival in Papua New Guinea, November 2014. (DFAT)

Australia's aid spend in Bougainville is $50 million next financial year – larger than Australian aid programs in Samoa, Tonga or Kiribati. Establishing an office to administer a program of this size is understandable. It is perhaps surprising Australia has not sought to establish a consulate either in Bougainville or another location in Papua New Guinea before now, given the quantum of Australian interests in our nearest neighbour. For its part, Papua New Guinea maintains three consulates in Australia — in Sydney, Brisbane and Cairns — in addition to its High Commission in Canberra.

The Papua New Guinea Government has interpreted the Australian decision as a threat to its sovereignty, but it is unclear whether Port Moresby really believes this or was upset by what it called 'a lack of consultation' on the matter.

The Australian Government would be foolish if it failed to consider the consequences of a 'yes' vote for independence in Bougainville when the referendum is held. But it is not in Australia's interests to be perceived as cheering for the creation of another state in the Pacific that will likely be vulnerable and largely dependent on aid. Canberra has to be careful to remain neutral while ultimately prefering to see Bougainville remain an autonomous region within Papua New Guinea.

This incident will be particularly frustrating for Foreign Minister Julie Bishop, who has worked so hard to strengthen Australia's relations with Papua New Guinea and who is held in high regard in Port Moresby. Bishop would have hoped the fact that she had quarantined Papua New Guinea from the impact of the largest ever cut to Australia's aid program was good news for Port Moresby, but instead she finds herself on the defensive in the first diplomatic stoush with Papua New Guinea under her watch.

Prime Minister O'Neill has claimed the restrictions his Government has imposed on Australians traveling to Bougainville have been well received in the autonomous region but it is not clear that this view is widely held. Current President John Momis, for example, has said he wants Foreign Minister Rimbink Pato to lift the restrictions immediately. Polling in Bougainville's elections has just closed, with the count to take place next week. It would be unfortunate if this spat between Papua New Guinea and Australia damages Port Moresby's ability to develop a positive relationship with a new government in Bougainville as it prepares for a referendum on independence within the next five years.

The Australia-Papua New Guinea relationship has depth and is bolstered by strong business links. The fact that the Papua New Guinea Government's retaliatory measures were aimed only at restricting the travel of Australians to Bougainville suggests there is no desire to harm the wider relationship. Indeed, Prime Minister O'Neill declared in his speech to the Lowy Institute last week that the relationship was in better shape than at any time since independence. On Monday this week I watched the Prime Minister give another positive speech about the bilateral trade and investment relationship alongside the visiting Australian Trade Minister Andrew Robb at the Australia-PNG Business Forum in Lae, and the two had a friendly meeting afterwards.

Both governments have an interest in the delivery of an effective aid program in Bougainville. If they don't resolve this spat soon, it could end up undermining their own objectives.

There has clearly been some kind of misunderstanding, misinterpretation or miscommunication about Australia's intentions, but rather than rehash who should have said what and when, it would be in the interests of ministers in Port Moresby and Canberra to prove the maturity of the  relationship with a swift resolution to this problem.