Papua New Guinea’s Government has conceded it lost hundreds of millions of dollars on a controversial deal to buy a stake in Australian-listed oil and gas company Oil Search.
PNG Government-owned company Kumul Petroleum Holdings has sold its 10 per cent stake in Oil Search, closing a complicated and costly loan worth $1.2 billion.
“The board has made a commercial decision to divest itself of the Oil Search shares,” chairman Sir Moi Avei said.
“My job as chairman is to protect the interests of Kumul Petroleum, nothing more than that.”
The PNG Government took the loan from the Australian arm of Swiss bank UBS in 2014 to buy shares in Oil Search, a joint venture partner in PNG’s biggest resources development, the $19 billion US PNG LNG project.
It controversially mortgaged its expected revenue from the project for the loan and did not pass legislation in Parliament enabling the transaction.
That failure to get parliamentary approval led to Prime Minister Peter O’Neill being referred to a leadership tribunal for allegedly failing to comply with “administrative and financial processes including the normal borrowing process”.
But despite welcoming the tribunal as a chance to clear his name, Mr O’Neill fought the referral in the courts and the tribunal was not convened.
Mr O’Neill also sacked his Treasurer, Don Polye, for failing to support the loan and alleging it was illegal.
He promoted the deal as a win for PNG at the time.
“The purchase of these shares is an investment in the key resource infrastructure of our country,” Mr O’Neill said in 2014.
But Oil Search’s share price has since fallen by about 20 per cent.
Not clear how much money was lost on the deal
The complicated — and confidential — nature of the loan makes it difficult to work out just how much money the Government lost, even for Kumul Petroleum Holdings managing director Wapu Sonk.
“That’s a hard number to come up with at the moment,” he said.
But Mr Sonk conceded the deal cost Kumul Petroleum at least $US254 million for the interest and payment of a bridging loan at the start of the deal.
Economist Paul Flanagan, a former adviser to the PNG Treasury, said the total loss would be much higher than that.
“We don’t know the total cost of this poor decision to get the Government involved in what should always have been a private company matter,” he said.
“But it would be running into many hundreds of millions of kina and this would have been money much better spent on areas of high priority such as health and education.”
A key reason the PNG Government sold its shares was to avoid repaying the loan.
But Mr Flanagan said the Oil Search deal will still have long-term, negative implications for the country.
“There’s been an extraordinary lack of transparency hiding behind the arguments that the loan agreements are commercial in confidence,” he said.
“The people of PNG, the taxpayers of PNG, deserve a lot more transparency to know exactly what went on and for those involved in the initial decisions that have proven to be very poor decisions, there should be more scope to hold them to account.”
The ABC sought a response from the PNG Prime Minister’s Office, but was yet to hear back.
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