Chief Ombudsman refuses loan payment

 ACTING Treasury secretary Dairi Vele had requested Chief Ombudsman Rigo Lua to allow the State to make the first interest payment on the K3 billion loan on May 16, according to a leaked letter.

This is to avoid the State losing its stake in Oil Search Ltd.

Lua, however, said yesterday he refused to allow the payment to go ahead.

“Our directions are still current,” he told The National.

“We have never given any approval. We will be stupid if we allow that direction.”

The commission is investigating the loan which the Government needed to buy a 10.1% stake in Oil Search.

Vele had written to Lua on May 14 seeking approval to pay the interest but the commission said it would first have to analyse the request.

Vele wrote to Lua again on May 15, a copy of which was obtained by The National, stressing that “time is of the essence”. 

Vele sought his understanding, otherwise the State would suffer serious ramifications.

“Under the UBS loan, the State is required to make periodic interest payments,” Vele told Lua.

“If the State is prevented from making these payments, the State will be in default, and the UBS will have the right to commence enforcement processes without further notification to the State.

“Currently, the State is on notice that should the interest payment not reach the requisite bank account of UBS by 5pm this afternoon, May 16, 2014, the shares will automatically be sold.

“This is the effect of the collar loan – if the interest is not paid, the shares will be liquidated.

“This enforcement process will result in the loss by the State of its OSL shareholding, and furthermore lead to substantial financial and strategic disadvantages to the State because it would lose the opportunity to benefit from holding these shares.

“This is not the objective of the State and I believe it is not the objective of the commission.”

Vele told Lua that a default of the UBS loan would have very serious ramifications for the country.