UBS, Oil Search and the Forgotten Middle Men

Background to the Loan

In 2014 the government of then Prime Minister Peter O’Neill borrowed A$1.239 billion from the Union Bank of Switzerland (UBS) through its Australian branch, to fund the purchase of 149,390,244 shares in Oil Search Limited. The Ombudsman Commission says both the share purchase and the loan were unlawful.

The story really began though five years earlier, in 2009, when the Michael Somare government was looking to finance the State’s share of capital investment in ExxonMobil’s PNG LNG project.

Prime Minister Somare needed to raise A$1.7 billion. His government decided to use its 14.7% stake in Oil Search Limited to raise the cash. As the Oil Search shares were not then worth anywhere near $1.7 billion, the government was forced to pledge them against their projected future value. This was done in a five-year deal struck with an investment company owned by the Abu Dhabi government, the International Petroleum Investment Company (IPIC).

It was agreed that when the deal matured in March 2014, the PNG government would have first rights to buy back the shares, but only if the government could raise the money to do that and only if the Abu Dhabi government decided it wanted to sell.

Although a lot of time was expended by government officials in 2013 trying to secure a new loan to fund the share buy back, and a government delegation made a wasted trip to the Middle East to negotiate the deal (a trip that also included Peter Botten and representatives from UBS and Norton Rose Fulbright), in the end the Abu Dhabi government decided it didn’t want to sell.

This, it is claimed, left Oil Search vulnerable to a potential take over. The Ombudsman Commission opines this could have been undertaken by IPIC itself, or by Woodside Petroleum, Australia’s largest independent dedicated oil and gas company, says Fairfax media.

Oil Search was also facing another pressing problem. It wanted a large injection of cash so it could buy a stake in the new Elk-Antelope LNG project being developed by French oil and gas giant, Total SA.

It was in this context that Oil Search CEO Peter Botten and PNG Prime Minister Peter O’Neill met at the Grand Papua Hotel in Port Moresby on 23 February, 2014. There, “over a cup of coffee” says the Ombudsman Commission, the two men agreed the State should buy a new tranche of shares in Oil Search Limited.

Oil Search maintains that it was an innocent party in all this. It says that it was the PNG government which approached Oil Search wanting to buy a stake in the company. According to the company, Oil Search was already ‘well progressed in finalising funding options’ to buy into Elk-Antelope, and that if the PNG government wanted to stop any take-over of the company it already had that power under the Takeovers Code (which regulates company takeovers).

Whether or not the share purchase idea came from the PNG side or Oil Search, either way the government  was going to have to take out a new loan to finance the purchase. As an experienced operator in PNG, Oil Search and its CEO must have been very aware a significant loan would be needed, and that such a commitment could not be consented to by Peter O’Neill, it needed whole of government endorsement.

That endorsement from Parliament and key government agencies was never obtained. According to the Ombudsman Commission, O’Neill and Acting Treasury Secretary Dairi Vele, decided to borrow the money from the Swiss based bank, UBS, without going through normal government procurement and tendering processes.

Why was Peter O’Neill so keen for the already debt laden State to borrow even more money to buy shares in Oil Search, an investment that did not guarantee any return?

We don’t know, as Mr O’Neill failed to give evidence during the Ombudsman Commission investigation. It certainly was not though in order for the State to acquire a stake in the Elk-Antelope LNG project. The PNG government could have done that by investing the money directly rather than through Oil Search.

Some have suggested O’Neill stood to gain personally from the deal. Although that is plausible, especially given it is reported he “was desperate to hold a substantial stake in Oil Search”, PNGi has not seen any evidence to substantiate that allegation.

In any event, according to the Ombudsman Commission, on 6 March 2014, Mr Vele with the assistance of both local and international financial and legal firms, presented the National Executive Council (NEC) with Policy Submission No: 67/2014 seeking approval for the borrowing of a A$1.239 Billion loan from UBS to fund the purchase of shares in Oil Search Ltd.

The Ombudsman Commission argues the NEC was misled into giving its approval for what turned out to be a financially disastrous deal.

How the Deal was Structured

The simple headline story is that PNG borrowed more than A$1.2 billion from UBS to buy 149 million newly issued shares in Oil Search Limited at a price of $8.20 per share.

The borrowing was divided into two loans. A A$335 million bridge loan and a A$904 million ‘collar’ loan, which was designed to insure against the risk of sharp falls in the value of the new shares by capping any potential gains.

Of course, the fine print behind the loan is a little more complex. It involves different contracts being signed between at least eight different parties including the PNG State, UBS AG, UBS Nominees Pty Ltd, UBS Securities Australia Limited, the National Petroleum Company of PNG (Kroton) Limited and its parent, the Independent Public Business Corporation, the Papua New Guinea Liquefied Natural Gas Global Company LDC and, finally, Oil Search Limited.

For a cash strapped, heavily indebted country, the deal made no financial sense. Indeed, as the Ombudsman Commission has pointed out: “the buying of shares in a speculative market by the Government using huge Loans from a financial institution is highly inappropriate as it defeats the whole purpose of the government”.

Indeed, the risks were so great UBS insisted on some pretty remarkable guarantees to ensure they would get paid.

Those guarantees were provided through the sequestration of the State’s income stream from the PNG LNG project. Although Petromin PNG Holdings Ltd was identified as the company that would own the State’s new shares in Oil Search, the loan costs and repayments were to be guaranteed through another State owned entity, the National Petroleum Company of PNG (Kroton) Ltd.

The National Petroleum Company of PNG Directors were required to agree for the company to forego its expected income stream from the PNG LNG project, and had to instruct the PNG Liquefied Gas Global Company (GloCo) that any monies which PNG should have received from LNG sales be paid to UBS instead.

This sequestration required the consent of both the National Petroleum Company of PNG and its sole shareholder, the state holding vehicle, the Independent Public Business Corporation.

The final piece of the puzzle was that with the placement of the new shares to the PNG government, Oil Search was able to acquire a 22.835% gross interest in PRL 15  – Elk Antelope – through the Pac LNG Group Companies for US$900 million.

The Losses

Although UBS and the middle-men made a lot of money out of the share placement and the associated loans, for PNG the deal was a financial disaster.

UBS is thought to have made about A$120 million in fees and interest, while PNG was forced to sell off the Oil Search shares as their value plummeted. The last of the shares were offloaded in September 2017 for A$6.70, a loss of almost 20% on the original purchase price of $8.20.

All up, says the Australian Financial Review, the deal is estimated to have cost the nation about A$420 million (K1 billion).

The AFR has also reported that the loan documents and an independent report commissioned by the PNG government show UBS was charging interest rates of 8.2 to 10.16 per cent during the first nine months of the $330 million bridging loan. In addition PNG pre-paid $107 million in interest, and incurred fees of $10.9 million from UBS, and a further $1.6 million to professional service firms Ashurst, Norton Rose Fulbright and KPMG.

Fairfax says that in all, PNG paid about $33 million over those first nine months, an effective annual rate of 13.3% ‘or about five times the rate at which banks lend to each other in Australia’.

The $900 million collar agreement is also reported to have been unusually beneficial for UBS.  In particular, it gave UBS the right to purchase 20% of the PNG government’s Oil Search shares for a price 10% below what the government paid for them, automatically “guaranteeing a loss in the order of $18 million”.

In addition, UBS would have have reaped ‘significant’  profits from managing its share position.

It has been reported that at a 2014 Christmas party UBS’ Australian bankers boasted about the firm’s success that year, largely due to profits made on the PNG loan, profits made at the expense of PNG taxpayers.

Was UBS gouging profits from its client?

Robert Wyld, co-chair of the International Bar Association and a leading Sydney lawyer, said in 2015 it was “extraordinary” that UBS would approve such a huge, complex and costly deal.

“There are serious questions about this transaction – what did it involve, how and where did the money flow and to who and what was the commercial drivers behind this deal for the PNG people.”

“Where is the commercial logic? You would think that anybody at the highest levels at UBS would have known they were dealing with an incredibly high-risk government with an incredibly high-risk prime minister.”

The Ombudsman Commission Findings

The Ombudsman Commission says its investigation revealed numerous irregularities and widespread improper conduct committed, in particular, by the then Prime Minister Peter O’Neill and Acting Treasury Secretary Daire Vele, when securing the UBS loan and engaging private financial and legal consultants.

The illegalities included:

1. By-passing of Parliamentary approval of the borrowing as required by the Constitution
2. Breaching the PNG Fiscal Responsibility Act and the Loans (Overseas Borrowing0 (No2) Act by exposing the State to too much debt
3. Engaging private law firms without the Attorney-General’s statutory approval in breach of the Attorney-General Act
4. Engaging financial and legal consultants without public tendering in breach of the Public Finance (Management) Act
5. Issuing of Certificate of Inexpediency by Central Supply and Tenders Board for engagement of financial, legal and technical consultants without clearance from the State Solicitor
6. The engagement of financial, legal and technical consultants by Dairi Vele
7. Improper engagement of Petromin Holdings Ltd as subscriber and nominee for the transaction
8. Improper engagement of the National Petroleum Company to hand over the proceeds from the government’s stake in the PNG LNG project
9. Signing of the loan documents by the Governor General without the presence of the other parties
10. Witnessing and execution of the loan documents by someone who was not a registered lawyer or Commissioner for Oaths in breach of the Lawyers Act and Oaths, Affirmations and Statutory Declarations Act.
11. Compromising the State’s sovereignty by entering into the loan agreement with UBS as the lender, facilitator and arranger of the borrower

The Ombudsman Commission claims that the conduct of Prime Minister O’Neill was wrong and improper when:

1. He committed the State to buy 149 million shares in Oil Search Limited without prior approval from the NEC
2. He did not present the proposal for the UBS loan to Parliament for debate and approval
3. He personally sponsored the NEC Submission 67/2014 and misled the NEC into approving the loan
4. He failed to consult Petromin Holdings Ltd to be the State’s subscriber and nominee to acquire the shares in Oil Search

The Ombudsman Commission says the conduct of Acting Treasury Secretary Dairi Vele was wrong and improper when:

1. He engaged UBS as the Sole Financial Advisor and Lead Arranger without NEC approval
2. He misinformed and misled the NEC that the Policy Paper 67/2014 was in order
3. He issued directions and instructions to the IPBC Chairman and management.
4. He requested the CSTB for a Certificate of Expediency (CoE) for the engagement of consultants and that it should be applied retrospectively
5. He failed to formally request the Attorney General for Brief-Out of legal services to engage private law firms

The Ombudsman Commission also found the very existence of the National Petroleum Company of PNG ‘questionable’, as the firm is not legally established since the Papua New Guinea Petroleum Company (Kroton) Act has not been certified by the Governor General and is therefore not yet in force. Therefore, the engagement of National Petroleum Company of PNG in the whole scheme by NEC was wrong and improper.

The Ombudsman Commission also highlights what it deems wrong and improper conduct attributable to a number of high ranking officials:

• Frank Kramer was in a conflict of interest as Chairman of the National Petroleum Company of PNG, and (former) Director/Shareholder in Pacific Capital Ltd which was engaged to provide financial consultancy services to the State for the borrowing from UBS
• The conduct of Minister for State Enterprises Ben Micah was wrong and improper when he directed the IPBC Board and management to approve via a Direction Deed the interest payment to UBS.
• The conduct of Isaac Lupari, Chief Secretary to Peter O’Neill, was wrong and improper when he advised the IPBC of the NEC Decision 79/2014 for the State to acquire shares in Oil Search Limited.
• The conduct of Central Supply and Tenders Board Chairman Philip Eludeme was wrong and improper when he issued a Certificate of Inexpediency
• The conduct of Bank of PNG Governor Loi Bakani was wrong and improper when he failed to provide independent due diligence on the selection of the financiers and advice against the appointment of UBS as the lender
• The conduct of Finance Secretary Dr Ken Ngangan was wrong and improper when he signed and approved payment of financial, legal and technical consultants when no funds were appropriated in the 2014 Budget
• The conduct of legal consultant Carl Okuk was wrong and improper when he witnessed and commissioned the signing of documents for the UBS loan by the Governor-General.
• The conducts of Minister for Finance, James Marape, was wrong and improper when he approved the Payment Direction Deed for National Petroleum Company of PNG when it was not properly established by law.

Based on its findings the Ombudsman Commission has recommended Peter O’Neill, James Marape, Isaac Lupari, Dairi Vele, Philip Eludeme and Wapa Sonk be referred to the Leadership Division of the Commission to be investigated under the Leadership Code. The Ombudsman Commission has also recommended Carl Okuk be referred to the PNG Law Society to be investigated and Philip Eludeme and Frank Kramer be referred to the police.

The Middle Men

While the terms of reference under which the Ombudsman Commission operates precludes the direct investigation of companies and private individuals, during the UBS inquiry the conduct of such parties inevitably came within the purview of the Commission.

There were a number of international and local law firms and financial service providers involved in the construction and execution of the UBS loan deal.

The Ombudsman Commission lists the financial and technical consultants as UBS, KPMG and Pacific Capital Ltd while the legal consultants involved were Pacific Legal Group, Norton Rose Fulbright, and Ashurst (who acted for UBS).

The engagement of UBS as not just the financier of the loan, but also as the ‘sole financial advisor and lead arranger’, was a situation the Ombudsman Commission described as ‘prejudicial to the State’.

According to the evidence given to the Ombudsman Commission, the legal firm Norton Rose Fulbright was advising the Acting Treasury Secretary, Dairi Vele, throughout his negotiations with UBS and Oil Search on the share placement and its funding.

Vele was also being advised by Pacific Legal Group, who Vele says were engaged by Norton Rose as their local counsel. According to Vele it was Norton Rose who were responsible for drafting the ‘necessary documents, approvals and permissions that would be needed’ and Pacific Legal Group was assisting them.

Those documents allegedly included the draft NEC Policy Submission, unsigned Transaction Documents and other related documents and ran to 28 volumes in total.

The role of private lawyers in allegedly drafting all these documents and the NEC submission in particular, did not impress the Ombudsman Commission:

The preparation of the NEC Policy Submission No. 67/2014 was highly irregular as such documents were prepared by Legal Firms and other Consultants previously engaged by Mr Vele and were not prepared by Government Officials nor were Government Officials involved in the preparation of these Documents for NEC.

Norton Rose and Pacific Legal Group didn’t do all the drafting work though. It is alleged the Draft Board Resolutions and other legal documents for the State owned Petromin, IPBC and National Petroleum Company of PNG were drafted by UBS’s own lawyers, Ashurst. The Ombudsman Commission says these documents were “pre-empting the SOE Board‘s decision and resolutions”.

According to the evidence given by Dairi Vele, KPMG was brought in as part of the State‘s due diligence to provide independent advice on the structure of the loan for the purchase of Oil Search shares:

KPMG‘s role was to test the assumptions about the pricing auctions that UBS AG had developed and generally to ensure that UBS was providing good value for money to the State.

Vele says, in addition to KPMG, he also received advice about the transactions from Pacific Capital.

The actual sums of money paid to each of the beneficiaries and middle men remain unclear.

Presumably Oil Search received its A$1.2 billion for its 149,390,244 shares.

UBS is reported to have received at least $120 million and may have benefited further from other trading fees.

The National Executive Council and Central Supply and Tender Board are reported to have approved the sums of K9,000,000 and A$14,555,759 to be paid to the various legal and financial advisors.

The Ombudsman Commission says the payments endorsed by Mr Vele as Acting Treasury Secretary and approved by Dr Ngangan as Finance Secretary were K9 million to Pacific Capital Ltd and Pacific Legal Group. Two further payments were made of K1,25 million to Pacific Capital, and K1.6 million to the Pacific Legal Group. The Ombudsman Commission says these further payments, beyond the initial K9 million, indicate ‘double payments may have been made to the Local Consultants’.

The Ombudsman Commission says the endorsed payments to the international consultants KPMG, Norton Rose Fulbright, Ashurst and UBS (as advisors) totalled A$10,347,821. Sums actually transferred included:

• UBS (advisory fee) A$4,207,938
• Ashurst A$812,500
• Norton Rose Fulbright A$600,000
• KPMG A$166,221

Greed, incompetence or wilful blindness?

Although the Ombudsman Commission was not empowered to investigate the conduct of those outside government it did make a number of important findings that do call into question the conduct of the beneficiaries and middle men.

One of the most fundamental findings made by the Ombudsman Commission is that the government‘s proposal to borrow money through a UBS loan should have been presented to Parliament for debate, and approval, as required by Sections 209(1), 211 and 212 of the Constitution.

This was also the advice given to the government by State Solicitor Daniel Rolpagarea. The government’s failure to comply with these Constitutional requirements was one of the reasons given by then Treasury Minister Don Poyle for his refusal to endorse the loan; a refusal which led to his sacking from the government.

Yet, in his evidence to the Ombudsman Commission, Dairi Vele explicitly stated that the advice he received from Norton Rose Fulbright and Ashurst was that all the Constitutional requirements were being followed:

I had then been advised by Norton Rose Fulbright and by Ashurst that all processes had been and were being followed in accordance with S209 of the Constitution and the respective legislation that provides the mechanics for S209.

Perhaps this is simply a case of different legal interpretations, or Vele not accurately conveying the advice solicited to him by outside contractors. But the decision by the private lawyers to facilitate or participate in a process which did not involve the Attorney General and State Solicitor has created a situation where legitimate questions can be asked about their conduct and advice.

The potential ramifications of the Ombudsman Commission findings for the beneficiaries and middle men extend further.

Section 8(4) of the Attorney-General Act 1989 states that for any legal issue affecting the conduct of the business of the State, advice shall only be provided by the Attorney General unless s/he authorises advice to be given by another person.

By letter in June 2013, the Prime Minister advised the Attorney-General that when exercising his discretion on whether to Brief-Out legal services, the AG could not appoint a specific legal firm but instead the services should be publicly tendered.

Attorney-General Kerenga Kua has ‘categorically denied’ that he was involved in the approval of the UBS loan. Kua maintains he was not at the NEC meeting that approved the borrowing and he did not approve the engagement of any of the legal firms who gave advice to the government.

If the Ombudsman Commission is right, and the engagement of Norton Rose Fulbright, Ashurst and Pacific Legal Group was “wrong and illegal”, what burden of responsibility falls on the law firms to check that the Attorney General had given his approval?

Presumably these outside law firms must also have been aware that their services should have been publicly tendered? After all, the NEC Submission that was allegedly drafted by Norton Rose and Pacific Legal Group specifically endorsed a Certificate of Inexpediency to be issued by the Central Supply and Tenders Board for consultancy services in relation to the loans.

This comes at a time when the practice of retrospectively issuing certificates of inexpediency has been severely criticised by the Courts as grave breach of the Financial Instructions and the Public Finances (Management) Act.

Accordingly the Ombudsman Commission notes, and according to evidence provided by the Solicitor General, the Certificate of Inexpediency wrongfully issued by the Central Supply and Tender Board did not absolve the Department of Treasury of acting illegally when engaging the law firms to give advice to the government. Certificates of inexpediency, they argue, are only warranted in cases of natural disaster, defence emergency, health emergency or civil unrest and cannot be applied retrospectively.

The Ombudsman Commission concludes:

The five (5) Consultants; Norton Rose Fulbright of Australia, Pacific Legal Group Lawyers, Pacific Capital Ltd, Ashurst Lawyers and KPMG were all engaged by Mr Vele prior to the awarding of the contract by the CSTB and this was in breach of Section 40(1) of the Public Finance (Management) Act 1995 and Part 13, Division 4, Clause 13 of the Finance Management Manual.

Were none of these firms aware of these legal restrictions, given that they are something the average law student would know?

The Ombudsman  Commission and State Solicitor also state the engagement of UBS as the Financial Advisor, Lead Arranger and Lender for the borrowing was done in breach of the public tender requirements of the Public Finance (Management) Act.

Were UBS and the lawyers advising them, Ashurst, aware of this legal requirement? Were they aware that a Certificate of Inexpediency was only valid if issued in cases of natural disaster, defence or health emergency or civil unrest. Were they aware that a Certificate of Inexpediency could not legally be retrospective in its effect? Given that the answer to these questions are easily discovered in legal precedents and in a vast volume of previous Commission of Inquiry, Auditor General, and Public Accounts Committee reports, its hard to understand how anyone in the legal profession could be unaware of such requirements.

The Ombudsman Commission says the request for NEC to endorse a Certificate of Inexpediency (COI) to be issued by the CSTB “was a blatant ignorance of the procedural requirements of the procurement and tender process and abuse of the COI”.

Yet the evidence of Vele is that the request for the COI was made on the advice of Norton Rose. Indeed, it is said all the documents that went before NEC were drafted by Norton Rose and Pacific Legal Group.

According to evidence given to the Ombudsman Commission by the State Solicitor, Mr Rolpagarea, the draft loan transaction documents, draft NEC Policy Submission and draft board minutes and resolutions for IPBC and NPC (that pre-empted the Board decisions) were all drafted by Norton Rose and Pacific Legal Group.

The documents, some 28 volumes in all, were delivered to him ‘very late at night’ with the NEC meeting the very next day.

Despite the late hour, Mr Rolpagera states on that same day he advised Mr Vele that Section 209 of the Constitution required Parliamentary approval for the loans.

Were Norton Rose and Pacific Legal Group unaware of this Constitution requirement? Or did they have an unorthodox interpretation of how this requirement may be met?

Despite the State Solicitor’s advice, the documents were all presented to NEC the following day and approved.

That NEC approval included the involvement of the National Petroleum Company of PNG (Kroton) Ltd to supply the proceeds for the loan repayments and arrangement fees. Were Norton Rose and Pacific Legal Group, who drafted the NEC submission unaware, the legislation creating the company was, according to the Ombudsman Commission, still not effective? Were Ashurst, the firm acting for UBS, and which presumably was insisting on the sequestration of the LNG proceeds, also unaware of this fact?

According to the Ombudsman Commission, the National Petroleum Company of PNG (Kroton) Ltd had “no legal foundation” and “did not have a sound Balance Sheet”.

If correct, how did high price lawyers and financial consultants miss this?

The Ombudsman Commission report includes another startling revelation.

Lawyer Karl Okuk, another ‘middle-man’ engaged by the Treasury Department, was not at that time registered as a practicing lawyer with the PNG Law Society and was not legally entitled to act as a Commissioner for Oaths. Yet he witnessed the signing by the State of all the legal documents on the borrowing and payments to be made to UBS and the contractors.

Okuk’s witnessing of the documents was, according to the Ombudsman Commission, ‘improper’. Did any of the other lawyers involved in guiding the contracting parties carry out due diligence checks? Why was this startling fact not uncovered?

The Ombudsman Commission is also critical of the fact that documentation for the loan agreement with UBS was not all signed in one place, at one time, with all the parties present. Instead the government and State representatives signed the documents in Port Moresby and then sent copies to Sydney where they were signed by representatives of UBS.

“This act alone exposed and put to risk Papua New Guinea’s independence and sovereignty”, as the documents could have been edited before being signed by UBS, yet it was seemingly not queried by the expensive lawyers the State was relying on for advice.

Conflicts of interest

As well as the rather obvious potential conflicts of interest created by UBS being engaged as the financier of the loan and ‘sole financial advisor and lead arranger’, something the Ombudsman Commission described as ‘prejudicial to the State’, there were other alleged conflict of interests among the middle men that the Ombudsman Commission was critical of.

For example, Frank Kramer was the Chairman of the National Petroleum Company of PNG (Kroton) Ltd (NPC). NPC remember was required to assign its income from the PNG LNG exports to UBS in order to finance the loan.

Kramer was also a former shareholder and a director of Pacific Capital, the firm engaged by the government to provide financial advice on the share purchase and loan arrangement. Pacific Capital was paid K1.25 million for its services, and the Ombudsman Commission was concerned that it may indeed have been paid twice.

The Ombudsman Commission also raises the question of whether the then Prime Minister Peter O’Neill and the State were guilty of insider trading when the State purchased shares in Oil Search as it appears they knew of the impending investment by Oil Search in the Elk/Antelope PRL15; information that may not have been available to other potential purchasers. The timing of the decisions and announcements was “highly suspicious and may amount to insider trading” says the Ombudsman Commission.

Did any of the law firms involved hold similar concerns?

Board disgust

While the government Ministers who sat in the National Executive Committee meeting on March 6, 2014, may have been willing to sign off on the deal presented to them by Peter O’Neill, Dairi Vele and their team of private lawyers, others who were required to give their consent did voice concerns, if only in private.

For example there are the leaked Minutes of the Meeting of the Board of Directors for the National Petroleum Company of PNG (Kroton) Ltd. They, for example, show how the organisation felt its independence was being compromised. The minutes also provide a fascinating insight into the role of the middle-men and how far they went to usurp the powers and responsibilities of State bodies.

The Board met via a teleconference link at 11am on Sunday March 9, 2014. Present were four of the Board’s seven Directors, Frank Kramer (Chairman), Wapu Sonk (Managing Director), Dr Benedict Yaru and Larry Andagali. There was only one item on the agenda, the State’s acquisition of shares in Oil Search and the endorsement of NPC’s involvement in the related financing.

The Chairman opened the meeting by stating his concern over how the State had “bulldozed the transaction without regard for due process and without giving each State party, including NPCP, sufficient time to understand the nature of the transaction… and the full extent of its exposure”.

“Such behaviour erodes and undermines the independence and credibility of the Board” he said, but finished by saying as the State was the ultimate shareholder of the company, they were obliged to do what they were told.

The Board were presented with a number of documents, including a draft Board Resolution and draft Power of Attorney which they were expected to approve.

The Board noted that the draft resolutions and Power of Attorney have been drafted by UBS’ lawyers.

Those lawyers were “Ashurst”, according to the Board Chairman.

The draft resolution prepared, say the Board, by UBS lawyers included the statement: “Each director present confirmed that he was of the view that the Transaction Documents and the transaction contemplated by them are directed to the greatest advantage of the people of Papua New Guinea”.

This was evidently too much for the Board to stomach.  The directors unanimously agreed that they did NOT share the view the transaction was ‘directed to the greatest advantage of the people of Papua New Guinea’. They insisted the offending phrase be removed from the resolution.

The Board reiterated that the whole transaction was being rushed and that they were only passing the resolutions as they were acting under directions from the State as the ultimate shareholder.

Conclusion

If it was obvious to Treasurer Don Polye, State Solicitor Daniel Rolpagarea and the Ombudsman Commission that the financing of the investment in Oil Search needed to be approved by Parliament, how could some of the regions top lawyers, accountants and financiers as well as the Managing Director of Oil Search been so unaware?

How could they not have noticed that the scheme they arranged and presented as a fait accompli, in 28 volumes of documents, breached as many as fifteen different laws?

Or is it the Ombudsman Commission that has gotten it all so profoundly wrong?

Prime Minister James Marape has ordered a Commission of Inquiry to try and get to the bottom of a deal which cost the nation A$420 million.

Such an inquiry could provide a unique opportunity for a deep dive into the ambiguous world of the middle-men, where so many of the commercial transactions – both large and small – that cost the PNG tax payer billions of dollars every year are arranged.

Unfortunately though, even a Commission of Inquiry does not have the power to compel witnesses in Australia to give evidence. Lets hope that those outside PNG who were instrumental in the whole UBS fiasco will give their full cooperation and not seek to hide behind jurisdictional boundaries, commercial confidentiality or lawyer client privileges.