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UBS Inquiry: Loan losses quantified

Former PNG Prime Minister Peter O'Neill
Former PNG Prime Minister Peter O'Neill

Papua New Guinea lost US$432 million on a loan arranged by the Sydney office of the Union Bank of Switzerland (UBS) in 2014, far more than earlier thought, the UBS Inquiry has heard.

Current Prime Minister, James Marape, set up the inquiry three years ago but it only began hearing evidence earlier this year. It is expected to report back at the end of September, 2021.

Led by former chief justice, Sir Salamo Injia, the inquiry is investigating whether there was any corruption or impropriety in the PNG government obtaining the loan.

Background

In 2014, the Peter O’Neill government borrowed US$900m to fund the purchase of 10%  of shares in Oil Search Limited at about $8 per share. The UBS loan comprised two components, a bridging loan of US$240 million (K844 million) and a collar loan, (where the value of the parcel of shares on any day supported the loan itself), of US$660 million (K2.82 billion).

The Ombudsman Commission said in 2015, the share purchase and the loan were unlawful, and that O’Neill and Acting Treasury Secretary Dairi Vele, by-passed all normal government procurement and tendering processes.

At the time, commentators said Oil Search was vulnerable to a take-over and wanted a large injection of cash so it could buy a stake in the new Elk-Antelope LNG project.

As Oil Search share prices fell, the PNG government, through Kumul Petroleum, sold the shares US$4.94, representing an on-paper loss of US$240 million (K760 million). O’Neill falsely claimed at the time that PNG had made a US$29 million profit on the deal.

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