PNG Prime Minister Peter O’Neill’s decision to purchase 149 million Oil Search shares three years ago has become a financial disaster that adversely impacts livelihood of all Papua New Guineans, Opposition Leader Patrick Pruaitch said today.
“The forced sale of these shares has taken place because of the Government’s inability to adequately service the K3 billion UBS loan, resulting in the sale of the remaining 31.3 million shares announced last Friday,” Mr Pruaitch said.
Although Kumul Petroleum Managing Director Wapu Sonk claimed the loss on the transaction amounted to K760 million, Mr Pruaitch said the total loss when full transaction costs and interest charges are taken into consideration will possibly exceed K1.5 billion.
He said the UBS loan has also severely impacted the PNG economy because cash distribution by ExxonMobil to Kumul Petroleum has been locked up in a Singapore bank account as part of the loan agreement. This contributed to foreign exchange shortages in PNG that has severely harmed businesses throughout the country.
The Opposition Leader said Mr O’Neill had agreed to purchase the Oil Search shares after months of secret negotiations with Oil Search Managing Director Peter Botten, who was concerned Oil Search could be taken over by Australia’s Woodside Petroleum or some other company.
Mr Pruaitch said: “This deal was not done for the national interest. Oil Search is the main beneficiary.
“The PNG Government purchase of a 10% stake helped make Oil Search a difficult takeover target and enabled Oil Search to purchase a 23% stake in InterOil’s lucrative Elk-Antelope gas fields.
“The UBS bridging loan of A$330 million and collar loan of A$900 million has been regarded as one of the most lucrative deals ever done by UBS with initial interest charges starting at 3% and rising to between 7% and 12% within a year.
“It is understood that as repayments were delayed, the collar structure was gradually unwound through hedging mechanisms taken up by UBS and JP Morgan, which refinanced the UBS loan in February last year.”
Mr Pruaitch said the share sale was very poorly timed and conducted in a suspicious manner.
Oil Search shares were only sold for A$6.70 when they have been worth as much as A$7.70 in the past year. Big broking firms, including Goldman Sachs, have a current target price of A$7.90 for Oil Search shares.
Mr O’Neill signed off on the UBS loan as Acting Treasurer following the refusal of the then Treasurer, Don Polye, to sign the loan agreement on grounds the transaction was illegal and had not followed proper procedures. Mr Pruaitch subsequently took over as PNG Treasurer until his dismissal by Mr O’Neill in late April this year.
“When the purchase of the Oil Search shares was first announced, Mr O’Neill was constantly boasting about what a good deal it was, although the unwinding of the transaction now makes it one of the worst financial deals ever done in PNG.
“Now that PNG has been forced to accept a huge loss, the Prime Minister says nothing and Kumul Petroleum has to act as a scapegoat for a transaction that it did not negotiate,” Mr Pruaitch said.
Among the organisations, which previously criticised the highly controversial deal, was the Government think-tank, the National Research Institute, which said the UBS loan paid no regard to PNG’s prudent fiscal management laws and that it was improper that it was not included in the 2014 National Budget.
While concluding that the deal to purchase Oil Search shares “is not good for the country”, NRI said the main beneficiaries were Oil Search shareholders, UBS and the consultants and middlemen who facilitated the deals.
HON. PATRICK PRUAITCH, CMG MP
Leader of the Opposition
25th September, 2017