Australia has promised to build a new high-speed internet cable for Papua New Guinea and Solomon Islands after Chinese influence concerns, but questions have been raised about the Government's decision to pay for it out of the aid allocation in Tuesday's budget.

Key points: The cable is expected to cost $200 million

The cable is expected to cost $200 million It's confirmed the majority of Australia's contributions for the cable will be aid money

It's confirmed the majority of Australia's contributions for the cable will be aid money Australia provided $1.1 billion in aid money to the Pacific in this financial year

The body representing Australia's aid groups has issued the Government a stern warning that the money should not come at the expense of education and health aid programs.

But its chief executive is also predicting that it is the start of a new trend that will see Australia increasingly promise to fund large infrastructure projects in the Pacific, to counter the Chinese Government's promises of convention centres, new roads and wharves, which are often paid for by concessional loans.

While final costs for the submarine cable are yet to be settled, Canberra has announced it has agreed to pay two-thirds of the cost, while PNG and Solomon Islands are expected to foot the remainder of the bill.

The leaders of Australia and PNG say the deal is a reflection of strong relations between the countries. ( AAP: Lukas Coch )

Based on previous estimates, the cable is expected to have a price tag of about $200 million.

A deal on the final funding arrangements between the three countries is expected within weeks, while Sydney, Townsville or the Sunshine Coast are being considered as the Australian link point for the cable.

Australia stepped in last year after the Solomon Islands Government signed a deal with Chinese communications giant Huawei to build it an underwater cable from its capital, Honiara to Sydney.

That deal sparked concerns from security experts and analysts about growing Chinese influence in the region and the prospect of a state-owned company gaining access to Australia's internet infrastructure.

The Minister for International Development and the Pacific, Concetta Fierravanti-Wells, told Pacific Beat the cable project's full costings had not been completed.

But she has confirmed the majority of Australia's contributions will be aid money.

"We will provide the majority funding for this cable, there will be appropriate financial contribution from PNG and the Solomon Islands governments," she said.

"The bulk of our funding for this project will be from our Overseas Development Assistance program."

This was confirmed by a Department of Foreign Affairs spokesperson, adding the Australian Government would fund the majority of the undersea telecommunications cable.

'A strategic investment in our region': Fierravanti-Wells

Total Australian Overseas Development Assistance to the Pacific in 2017-18. ( Supplied: Department of Foreign Affairs and Trade )

In this financial year, the Overseas Development Assistance (ODA) — Australia's aid budget — provided $3.9 billion, a quarter of which went to the Pacific.

Australia offered the cable amid reports Chinese President Xi Jinping was making deals with PNG PM Peter O'Neill. ( Supplied: PNG PMO )

Senator Fierravanti-Wells has previously confirmed to Pacific Beat that this year's aid budget will be slightly increased to $4 billion.

She has argued in favour of using aid money to foot the bill for the undersea internet cable.

"The stability and prosperity of the Pacific is one of our highest foreign policy priorities and this is a strategic investment in our region," she said.

"It's very much in Australia's interest to have a more connected, a better connected Papua New Guinea and Solomon Islands, with a more development-friendly IT infrastructure.

"[It] is vitally important because … if we enable improved internet access and connectivity, it should in turn, improve long-term economic trajectory of both the countries."

Cable at the expense of education and health programs

Sorry, this video has expired Senator Concetta Fierravanti-Wells discusses the undersea cables with Beverley O'Connor

Marc Purcell, chief executive of the Australian Council for International Development (ACFID), agreed an internet cable would be beneficial, but he did not want the money to be taken from the current aid budget.

"Deep sea cables can be very useful for the benefit, for development of countries, but the issue is [if it is] new and additional money to resource it, in which case, fine," he said.

"But if it's at the expense of cutting existing programs in basic health and education for the people of Solomon Islands and PNG, then that would be wrong."

Malcolm Turnbull and former Solomons PM Manasseh Sogavare who backed the Australian deal. ( Twitter )

Stephen Howes, director at ANU's Development Policy Centre and ex-chief economist of the government's former aid program, has taken a more measured approach.

"We'll have to wait for the budget to see where the money is coming from and is it coming from other projects in PNG and the Solomon Islands? Or is it coming from other parts of the aid program?" Professor Howes said.

"While those are legitimate questions, it's also the case that this is potentially a very high return project, and a lot of time the aid program in the Pacific struggles to find high return projects.

"I think you can make a case this is potentially a good use of aid funding, but it is really going to depend on the structure put around it".

PNG and the Solomon Islands are expected to own the infrastructure and will share the revenue generated.

Last year PNG received $546 million in Australian aid, while Solomon Islands got $142 million.

Dipping into aid money would be 'highly disruptive'

Jonathon Pryke, director at the Pacific Islands Program at the Lowy Institute, said if the cable was financed by aid money from the bilateral aid programs of PNG and Solomon Islands, it would be highly disruptive.

A new cable system will improve internet connection speed across Solomon Islands. ( Supplied: Asian Development Bank )

"If we take the assumption that it's around $130 to $150 million, split maybe half and half between Papua New Guinea and Solomon Islands, that's the equivalent of 50 per cent of our bilateral aid spend in Solomon Islands, and it's the equivalent of about 10 per cent of our aid spend in Papua New Guinea," he said.

"The aid dollar is already stretched and allocated across a whole number of sectors and so that is a substantial amount of money, and considering we expect the project to be completed by November 2019, it's not like we can stretch it out over five or 10 years to reduce the burden on these countries."

The majority of that funding has been spent on what the Australian Government calls "effective governance", which pays for programs focused on electoral reform, combatting corruption and improving access to justice.

Significantly less is spent on infrastructure in both countries; making up about a fifth of both country's Australian aid budgets.

But ACFID's Mr Purcell predicts that will change in coming budgets.

"I think we can speculate we're going to see more of this kind of infrastructure aid in the future in response to the much reported concerns about China's presence in the Pacific and its use of its aid program and concessional loans for hard infrastructure," he said.