One key change this year was a marked departure in official Indonesian statements towards West Papua and in its regional diplomatic strategy. As such, in April, Indonesia President Susilo Bambang Yudhoyono (SBY) called for a new policy emphasising "development with compassion".
This included a proposed and yet to be articulated ‘special autonomy plus' consideration for West Papua, with the leader even calling for policy contributions from the Free Papua Movement.
PNG's support is seen as critical. Hence, in mid-May, bilateral economic ties were set to expand after PNG dispatched a high-powered delegation to Jakarta, on Indonesia's invitation, consisting of 80 influential businessmen.
O'Neill visited Indonesia the following month and met with SBY, which culminated in the signing of 11 bilateral agreements in areas such as worker exchange, education, training, tourism, sports, air transport, energy, mining and exploration, border security and a new extradition treaty.
Perhaps the most important agreement was between Indonesian energy firm Pertamina and PNG National Petroleum Company to embark on a joint venture partnership to explore for oil and gas along the West Papua-PNG border.
Shortly after signing the agreement, a Pertamina media release confirmed the collaboration was focused on upstream opportunities and joint development of possible LNG projects.
Furthermore, Indonesia's national airline, Garuda, signed an agreement with Air Niugini for direct weekly flights between PNG's capital Port Moresby, Bali and Jakarta.
Indonesia's Telkom also signed an agreement with TelikomPNG to jointly invest in PNG's fibre optics and mobile phone sub-sectors. Another deal was Indonesian electricity company Perusahaan Listrik Negara's agreement to develop infrastructure and export two megawatts of electricity to PNG's remote border regions.
Indonesia's largest bank is also touted to invest in PNG and there are ongoing discussions on possibilities for defence cooperation.
While Indonesia has made progress with the PNG government, it remains alarmed at the regional support for West Papuan secessionist groups.
Recognising the threat that this poses to Indonesia's sovereignty over West Papua, Indonesia has sought to engage the Melanesian region to enhance its influence. As such, by late 2011, The Jakarta Post claimed Indonesia had established diplomatic ties with 15 Pacific island nations and was in the process of establishing diplomatic representation with Kiribati, Nauru and Tuvalu.
A mark of Indonesia's regional influence was its success in obtaining dialogue partner status in the 16-nation Pacific Island Forum.
Indonesia has achieved significant dividends by exploiting the lack of unity among West Papuan secessionists and the region's geo-political cleavages.
For example, when the Melanesian Spearhead Group held its conference in June, the Indonesian delegation was heavily represented by pro-Indonesian indigenous West Papuans, who lobbied against the West Papua National Coalition for Liberation (WPNCL), the key umbrella organisation that represents most West Papuan secessionist groups, and its application for full MSG membership.
The Indonesian delegation also extended an invitation to the leaders of PNG, Vanuatu, Fiji, Solomon Islands and New Caledonia, to be given a formal tour of West Papua to see the situation for themselves.
The invitation was accepted by most of the MSG member nations, which therefore put West Papua's application on hold for a further six months.
Although voicing its support to West Papua, Fiji's military dictator General Bainiarama has maintained close ties with Indonesia for several years. For instance, in November 2011, Fiji signed a deal with Indonesia to import arms manufactured by Indonesia's state-owned PT Pindad and receive training with Indonesian police and military (TNI).
This relationship has taken precedence to Fiji, which needs Indonesia's economic and military assistance, given its acrimonious ties with the Western powers. Yet the situation in West Papua has proven to be an explosive issue in Vanuatu, as seen last year when Sato Kilman's government was ousted in a public backlash over ties with Indonesia.
Since March this year, Vanuatu's new PM Moana Carcasses Kalosil, abruptly cancelled a defence cooperation agreement with Indonesia and has allowed the WPNCL to set up an office in Vanuatu.
Unsurprisingly, his government has vociferously backed WPNCL's application for full MSG membership. The WPNCL has also received strong backing from the Front de Liberation Nationale Kanak et Socialiste (FLNKS), translated as the National Socialist Liberation Front for Kanaky, which is a conglomeration of four pro-independence organisations.
The FLNKS assumed the MSG chairmanship in April, taking over from Fiji.
"MSG is only for Melanesia and liberation movements within it, the FLNKS leadership would therefore be very happy to welcome the WPNCL as a new member in our Melanesian family," FLNKS leader Victor Tutugoro said earlier this year.
"We open our heart and extend our hands to receive you, the lost Melanesian son, to come back into rightful Melanesian family."
FLNKS hostility to Indonesia was prominently displayed in 2011, when it opposed but failed to prevent the Indonesian Government's application for observer status in the MSG.
Regardless of the situation in West Papua, both Indonesia and PNG, unlike before, see greater mutual benefit in advancing their respective bilateral interests by expanding ties.
Indonesia's new found economic power and regional prestige has clearly had an impact on relations with PNG, with Indonesian economic incentives effectively winning its ongoing support for Indonesia's sovereignty over West Papua.
Similarly, for many years PNG has retained a strong interest in obtaining full ASEAN membership and recognises Indonesia's support as being crucial to ultimately fulfilling PNG's ‘Look North' policy.
However, O'Neill is also playing a shrewd game with Indonesia.
It is apparent that tensions along the West Papua-PNG border are of utmost concern to both nations.
Another case in point was in the lead up to the June meeting between O'Neill and SBY. Sensitivities over the border saw PNG abruptly revoke permission for non-indigenous West Papuans from entering PNG from West Papua.
A case in point was the timing of his visit to Indonesia in June, which took place at the same time of the MSG meeting in Vanuatu, which was attended by PNG's Deputy PM.
The meeting concluded with PNG's support of a communiqué endorsing continued support for West Papua's right to self-determination and encouraging MSG member nations to lobby the Indonesian government on human rights violations in West Papua.
It appears PNG is following a dual strategy in relation to West Papua by courting Indonesia to strengthen its border security, and provide economic benefits and other concessions, while also maintaining in principal support for West Papua's self-determination.
Given the instability in West Papua and the economic importance of the vast Grasberg copper-gold mine and other resources projects there, the Indonesian government has become determined to prevent PNG from abruptly changing course on its policy towards West Papua, like in the case of Vanuatu.
After all, PNG is mostly sympathetic to the plight of indigenous West Papuans. Similarly, it was only two years ago that two Indonesian military aircraft nearly collided with the official plane carrying PNG's then deputy PM Belden Namah and other senior officials returning from Malaysia.
At the time, O'Neill demanded an explanation and labelled it "an act of aggression and intimidation" by Indonesia.
Anti-Indonesian sentiment in PNG's domestic politics is a constant, as demonstrated by the remarks of Opposition Leader Belden Namah in June.
"We must defend and protect our stock with reference to six Melanesian societies that are part of the global community. The signing of the extradition treaty will in no way protect our Melanesian brothers and sisters, who deserve nothing less than their own political freedom," he said.
"The constant torture and killings of West Papuans by Indonesian soldiers who come across the border is very sensitive and an ongoing issue that cannot continue to be ignored while they seek refuge in our country."
Previously, O'Neill was also particularly vocal in his criticism of Indonesia's human rights record in West Papua before the 2012 election.
"We are asking the government to raise the plight of the West Papuans on the floor of parliament. We know that women are being raped, men are being tortured and we want our government to pay attention to the issue," he said in early 2012.
Sergei DeSilva-Ranasinghe is a security analyst, defence writer, consultant and visiting fellow at the National Security Institute, University of Canberra.
