K3 billion UBS loan affects PNG economy: Pruaitch

OPPOSITION Leader Patrick Pruaitch says the decision by Kumul Petroleum Holdings Limited (KPHL) to sell its shares in Oil Search is because the Government is unable to service its K3 billion UBS loan.
He said although KPHL managing director Wapu Sonk claimed that the loss on the transaction amounted to K760 million, the total loss when full transaction costs and interest charges were taken into consideration could be K1.5 billion.
He said the loan had severely impacted the economy because cash distribution by ExxonMobil to KPHL were locked away in a Singapore bank account as part of the loan agreement.
He said it contributed to the foreign exchange shortage in PNG which had severely harmed businesses in the country.
Pruaitch claimed that Prime Minister Peter O’Neill had agreed to purchase the Oil Search shares after months of negotiations with Oil Search managing director Peter Botten, who was concerned that Oil Search could be taken over by Australia’s Woodside Petroleum or some other company.
“This deal was not done for the national interest. Oil Search is the main beneficiary,” Pruaitch said.
O’Neill said on Sunday, in response to a statement by Opposition MP Sir Mekere Morauta, the Government’s decision to buy 10 per cent share in Oil Search in 2014 was “the right decision at the time”.
“We were at risk of a situation where shareholding in one of the largest firms in the country would fall into wrong hands,” O’Neill said.
“The Government’s intervention to buy shares in Oil Search boosted investor confidence in PNG.”
But Pruaitch, a former treasurer, said the Government’s purchase of a 10 per cent stake “helped make Oil Search a difficult takeover target and enabled Oil Search to purchase a 23 per cent stake in InterOil’s lucrative Elk-Antelope gas fields”.
“The UBS bridging loan of A$330 million (K839,000) and collar loan of A$900 million (K2 million) have been regarded as one of the most lucrative deals ever done by UBS with initial interest charges starting at three per cent and rising to between seven per cent and 12 per cent within a year,” he said.
“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.”
O’Neill signed off on the UBS loan as acting treasurer following the refusal by then treasurer Don Polye to sign the loan agreement because he claimed that the transaction was illegal and had not followed proper procedures.
Pruaitch succeeded Polye as treasurer until his dismissal in April.
The National Research Institute, said the loan paid no regard to PNG’s prudent fiscal management laws and it was improper that it was not included in the 2014 National Budget.