By Johnny Blades of RNZ Pacific

Political fallout from a controversial loan taken on by Papua New Guinea’s government five years ago could hinder rather than help attempts to remove Prime Minister Peter O’Neill.

O’Neill and other leading officials have been referred by the Ombudsman Commission to a Leadership Tribunal over a US$1.2 billion loan his government took on from Swiss-based investment bank UBS in 2014.

The ombudman’s report, which was completed last December but only handed to the Parliament Speaker, Job Pomat, late last month, is yet to be tabled in the house.

READ MORE: UBS loan to PNG may have breached 15 laws

LISTEN: The controversial loan saga on RNZ Dateline Pacific

However, the report has been published at a time when the parliamentary opposition, bolstered by recent defections from the government, is planning for a vote of no confidence against the prime minister later this month.

The UBS loan was nominally taken for the state to buy a 10 percent stake in oil and gas producer Oil Search, a major player in PNG’s burgeoning petroleum sector.

In last week’s heated Parliament debate the prime minister said it was imperative for the state to regain Oil Search shares.

These were earlier lost after being mortgaged by PNG’s Sir Michael Somare government in 2009 as it sought finance from the United Arab Emirates-based International Petroleum Investment Company to gain equity in the country’s first LNG gas project.

‘Strategic investment’
“The Treasury officials said the Oil Search investment is a strategic investment to government,” O’Neill explained in Parliament last week.

“So the company decided to offer the government of Papua New Guinea at a special issue so we can secure the 10 percent. Why? Because Oil Search, even today, is the biggest company in PNG, is the biggest taxpayer in PNG.

However, the report reveals that the Ombudsman found the prime minister failed to present the government’s proposal on the borrowing of a loan, from UBS’ Australia branch, in Parliament for debate and approval as required by the constitution.

O’Neill was found to have misled the cabinet into approving the loan, among other irregularities. But he was not alone.

The commission’s findings also implicate the former Finance Minister, James Marape, who was found to have signed off the loan’s approval as minister despite knowledge of irregularities and “that his actions were improper”.

According to the opposition’s justice spokesman, Kerenga Kua, the deal and O’Neill’s lead role in pushing it through were very suspicious. He said the greatest transgression in the deal was its commercial injustice.

“In the end we only held that share for about twelve months before it was foreclosed by UBS and sold. So you see we don’t have those shares in our hands any more, because the state fell into default on that loan arrangement.”

Stock price fell
PNG was forced to sell its Oil Search shares when the stock price fell sharply, incurring a big loss. On the other hand, UBS profited around US$83 million in fees, interest and trading revenue from the deal.

Kua said the financial professionals involved in arranging the huge loan must have known the transaction was bound to fail for PNG.

“They would have seen this as a scam, a real professional scam. Because everybody knew of the state’s financial vulnerability, and its lack of cash flow to pay for that loan,” Kua said.

“Yet they created a monster, so that within a matter of months it would fall into default, and then you foreclose on the asset, cover yourself. But what are the people of PNG left with? Nothing, except a debt of 3 billion kina [NZ$1.4 billion].”

But an issue over which the opposition has been attacking O’Neill for years is now proving problematic for the MP seeking to replace the prime minister.

Marape, who resigned last month as minister and left the ruling party, has emerged as the opposition’s choice for alternative prime minister in a motion of confidence against O’Neill which it lodged last week.

But along with other officials, including Government Chief Secretary Isaac Lupari, Treasury Secretary Dairi Vele, and the Central Bank Governor Loi Bakani, Marape has also been referred by the Ombudsman Commission for investigation under the leadership code over the UBS loan. This undermines his own recent attacks on the prime minister.

Questions unsuccessful
Standing on opposite sides of the Parliament chamber for the first time last week, Marape questioned the prime minister about the loan process. The questions were unsuccessful because the prime minister was able to remind Marape that he was also involved in those decisions himself.

While it remains to be seen whether O’Neill, Marape and others will face the Leadership Tribunal, the opposition continues to portray the prime minister as the lead transgressor in the UBS saga and other controversies.

The former Health Minister, Sir Puka Temu, who also left the government last month, has portrayed the prime minister as exerting too much control on state departments, overriding the authority of ministers.

“I resigned because I saw things were not working well. There were a lot of corrupt practices and there were governance processes from agencies and bodies of the state that the leaders did not support,” Sir Puka said.

O’Neill has denied any wrongdoing, characterising the investigation as politically motivated, and part of a “dirty game” by the opposition as it tries to lure support to change the government.

He has indicated that the issue would be the subject of a judicial review.

Although he was a member of the last Somare government in its later stages, O’Neill has placed blame with that regime for placing PNG in a weak position when it sought finance in Abu Dhabi for the LNG Project.

Country ‘mortgaged’
“When they borrowed that money, when the mortgaged not only Oil Search, but they borrowed every state-owned entity of this country,” O’Neill explained.

“So if we wanted to sell one of the planes in Air Niugini, we had to ask the permission of the Arabs. If we wanted to sell one of the buildings in any of the SOEs, we had to ask the Arabs. So literally, we were mortgaged to the Arabs.”

But Kua said the O’Neill government’s purchase of Oil Search shares under the controversial UBS loan was a far more shoddy deal than the IPIC transaction.

“The IPIC transaction led to PNG owning 19.26 percent in the PNG LNG Project. That equity is still there and annually we are receiving over a billion kina in revenue from that project,” he explained.

The UBS loan was opposed from an early stage by the then Treasurer Don Polye, who ultimately refused to sign off on the deal before resigning in protest.

Polye insisted that the loan required parliamentary approval, warning that taking the loan on would break the country’s official debt ceiling.

The former Kandep MP was also not involved in the negotiations with Oil Search on the purchase of the shares.

‘Cup of coffee’
According to the Ombudsman report, the agreement to buy the shares was reached “over a cup of coffee” in a swanky Port Moresby hotel when O’Neill and Vele met with Oil Search’s managing director Peter Botten and its board chair, Gerea Aopi.

The government’s purchase of the Oil Search shares allowed the company to buy a stake in the Elk Antelope gas field in PNG’s Gulf province. This resource is being developed by French company Total SA to be the second major LNG project in PNG.

The Papua LNG Project agreement was signed by Total and the government last month.

However, the agreement immediately preceded the exodus from O’Neill’s ruling party, and was cited as a causal factor in the move by several of the MPs who resigned, including  Marape.

Warning that interests of provinces and landowners were not being protected, the MPs lamented that promised equity and royalty benefits from PNG’s first big LNG gas project, based in Marape’s province, had still not transpired, 10 years after that project agreement.

Meanwhile, the Chief Ombudsman, Richard Pagen, says the commission submitted its final UBS report to the Parliament Speaker, Job Pomat, on April 30.

Asserting that the commission has jurisdiction over the prime minister’s office, Pagen said the Speaker must table the report within 8 sitting days of receiving it.

Public interest
However, he added that the commission decided to publish the report as it considered it a matter of public interest

Only one day of Parliament sitting has lapsed since the handover of the report. That was last Tuesday, May 7, the same day the opposition lodged its motion of no confidence, when Pomat adjourned parliament until May 28.

PNG’s Attorney-General has filed a Supreme Court application to which could yet delay the confidence vote against the prime minister proceeding.

Opposition MPs say they’re confident that the vote will go ahead. The group is not likely to change Marape’s nomination as alternative prime minister, but his involvement in the UBS loan may yet count against him.

Article by AsiaPacificReport.nz

“On almost every measure of economic welfare, the PNG economy would have been better off without the PNG LNG project.”

Pacific Media Centre Newsdesk

Papua New Guinea’s massive PNG LNG project is one of “broken promises” that has largely failed the country, according to a major study released yesterday by Jubilee Australia.

Entitled Double or Nothing: The Broken Economic Promises of PNG LNG, this report, co-authored by Paul Flanagan and Dr Luke Fletcher, compares the projected economic benefits of the PNG LNG project with actual outcomes.

The new study uses PNG government data to examine the predictions of the 2008 project report commissioned by ExxonMobil and promoted by Oil Search.

This examination finds that the positive predictions for the PNG economy were largely incorrect.

Key findings:

• Despite predictions of a doubling in the size of the economy, the outcome was a gain of only 10 percent and all of this focused on the largely foreign-owned resource sector itself;
• Despite predictions of an 84 percent increase in household incomes, the outcome was a fall of 6 percent;
• ●Despite predictions of a 42 percent increase in employment, the outcome was a fall of 27 percent;
• ●Despite predictions of an 85 percent increase in government expenditure to support better education, health, law and order, and infrastructure, the outcome was a fall of 32 percent; and
• ●Despite predictions of a 58 percent increase in imports, the outcome was a fall of 73 percent.

-Partners-

30-year span
PNG LNG is an Exxon-led project which supplies about 8 million tonnes of LNG a year to Japan, South Korea and China.

It is projected to run for 30 years. In 2009, Australia’s Export Credit Agency, Efic lent A$500 million to Exxon, OilSearch, Santos and the government of PNG.

Efic’s decision was based on advice from the Department of Foreign Affairs and Trade (DFAT) provided to the then-Minister for Trade, Simon Crean, on advice from DFAT. This is the largest loan ever made by Efic.

Paul Flanagan writes in PNG Economics:

Specifically, growth in the resource sector has matched the confident predictions even with the fall in oil prices in 2014.

However, all other parts of the PNG economy have not done as well as predicted.

This is a major “broken promises” gap. This is the basis for the title of the latest report – the PNG LNG project promised to double GDP, but the outcome of 10 percent is close to nothing (especially when the size of PNG’s GDP is facing a major downgrade in the latest NSO 2015 update).

Revenues to the budget are only one-third of expected levels, and after allowing for project costs, will continue having a net negative impact on the budget (so below nothing) until around 2024.

Economy gone backwards
Of even greater concern, the examination finds that the PNG economy, apart from the resource sector, has actually gone backwards relative to its underlying growth path.

The most likely explanation for this sad outcome is PNG has slipped again into poor policies associated with the resource curse. The temptations of the rosy PNG LNG promises were too strong for politicians despite warnings from PNG Treasury, BPNG and outside academics.

During the O’Neill/Dion government, PNG descended into very damaging economic policies of a bloated budget and PNG’s largest deficits ever, fixing the exchange rate at an over-valued level, making foolish investments in areas such as Oil Search and harming the independence of PNG’s economic institutions.

With the focus being so strongly on getting the PNG LNG project operational, there was a lack of policy emphasis on other parts of the economy.

This is the “resource curse” gap.

Third time
PNG needs to learn the lessons from this experience. This is the third time that PNG has suffered from the resource curse:

• the first was with Bougainville Copper and the experience of the late 1980s;
• the second was the Kutubu/Porgera expectations that crashed so badly in the mid-90s;
• and the PNG LNG period is the third resource crisis.

The benefits of PNG’s resource wealth could in theory be tapped without damaging the rest of the economy.

But it would require very different choices by PNG’s politicians. PNG probably lacks the strong governance and institutions required to deal with the powerful resource sector lobby.

Even in Australia, the power of vested interests around the resource sector is blocking sensible options for sharing resource benefits more equitably and efficiently.

The Oil Search facility near Lake Kutubu in Hela province, Papua New Guinea’s Southern Highlands. Image: Damian Baker/Jubilee Australia

Article by AsiaPacificReport.nz

Pacific Media Centre Newsdesk

People in earthquake-affected areas of Papua New Guinea’s Highlands have asked international agencies to bypass the national government when providing relief.

The PNG Government has admitted that its response to the earthquake has been slow, hampered by damage to roads and access to funding.

In Koroba in Hela Province, local leader Stanley Hogga Piawi told the ABC’s PNG correspondent Eric Tlozek that more than two weeks after the 7.5 magnitude quake, people were still waiting for help.

LISTEN: Angry Highlanders call on relief agencies to sidestep PNG government

Continuous rain is hampering relief efforts in the earthquake-devastated regions of the Highlands, reports the PNG Post-Courier.

The wet may continue for a few more days as helicopters, the mainstay of the relief efforts, are now limited in the operation.

The National Weather Service (NWS) office has warned of a “high risk” of landslides, flooding and a slight chance of a tropical cyclone. The wet season has finally extended into the Southern and Highlands regions, the NWS said yesterday.

As Papua New Guinea experiences the wet season and unusual natural disasters, the NWS forecasting and warning centre assistant director Jimmy Gomoga is now urging people to listen to the radio stations for weather warnings updates.

Aircraft use restricted
The Australian and New Zealand defence forces said yesterday they had limited the use of their lighter aircraft due to bad weather.

The NWS said the wet season normally set in about December until late May when the dry season begins.

“According to the latest analysis from the weather office, we are in a weak La Nina phase and will mean higher rainfalls across the mainland PNG and mostly over the Southern region with high risk of flooding in the Momase, Highlands and Southern regions, high risk of landslides in the Highlands and deforested areas and 30 to 40 per cent chance of a tropical cyclone forming or passing within PNG,” Gomoga said.

He said the wet season triggered tropical cyclones so people living along coastal waters, particularly along the Solomon Sea and Coral Sea, must listen to weather warnings on the radio and take precautions.

“This weather we are experiencing will continue for the next 24 hours and may continue as the country is still in the wet season,” Gomoga said.

“The peak period has already passed and the month of April and May are the transitional periods and eventually into dry season which kicks into in the month of June.”

In the meantime, the weather office is closely monitoring the ocean currents in possibility of a tropical cyclone.

Water shortage ‘looming disaster’
While relief supplies continue to be delivered to earthquake-affected communities, a lack of water is proving to be a looming disaster, reports EMTV News.

In a briefing, Oil Search Limited managing director Peter Botten said the lack of access to clean water sources for many communities had increased the risk of sickness.

The company is now working with its partners, including state agencies, in an effort to deliver clean water to communities, to prevent the spread of water-borne diseases.

Among its relief efforts, Oil Search has deployed a dedicated medical team to reach affected communities – these teams have already noted an increase in water-borne diseases, with several medical evacuations already carried out.

Australian doctors to help
Australian Prime Minister Peter O’Neill has announced Australian doctors would come to Papua New Guinea to help medical teams in earthquake-affected areas, as fear of water-borne diseases emerge, reports The National and as also reported earlier by Asia Pacific Report.

“We know that over the next few days or weeks, most of the water-borne diseases will start affecting some of the population in the area. We have to lift our presence in medical support that we will have to extend to them,” O’Neill said.

“Dr Temu [Health Minister Sir Puka] has already cleared for the Australian doctors to come and help us…They will come and help our own medical specialists which the Health Department is putting together to dispatch to the remotest communities throughout the country.”

Sir Puka said they were mobilising a team from the Port Moresby General Hospital.
“We have formally requested the Australian government [to send doctors] because Australian doctors in emergency situations are well organised,” Sir Puka said.

“So we have asked them for assistance which will complement what we have.”

O’Neill said relief efforts were ongoing, reports The National.

Remote communities
“We are starting to reach many of the remote communities, supplying medicine, food and relief supply to the provinces affected,” he said, adding that the district development authorities in areas being allocated funding were assisting the people “which we are not able to reach”.

“Most of the members of Parliament and the district chief executive officers have been trying to mobilise the supplies and in particular medicine, and getting the injured and the sick out of the areas that have been affected,” he said.

He added that commitments, towards the government’s relief efforts so far had exceeded K100 million.

It included donations from governments – “private sector donations coming through is well over K5 million.”

Article by AsiaPacificReport.nz

By Jeffrey Elapa in Port Moresby

More than 30 people are believed to have been killed in the massive 7.5 magnitude Papua New Guinean earthquake that hit Hela and Southern Highlands Provinces yesterday.

Provincial authorities say more than 300 mainly villagers have been injured and properties destroyed.

Although the communication network into the two provinces has been cut-off, reports through satellite by Hela Provincial Administrator William Bando said there had been unconfirmed reports of more than 30 deaths.

Sketchy reports indicated that more than 13 people have been reportedly killed in the Southern Highlands capital Mendi, while a further 18 people have also been reportedly killed in the most affected areas of Kutubu and Bosave.

The quake, reported widely by the world media, hit in the early hours at a relatively shallow depth of 25 kilometres.

Developers of the multi-million LNG project in Hela and Southern Highlands are preparing to evacuate non-essential staff because of this.

Bando said it was a severe natural disaster which had claimed the lives of many in the two provinces, creating sinkholes and landslides.

Flights cancelled
Electricity supply in the two provinces has been disrupted while flights have also been cancelled.

He said the Komo Airport was believed to have suffered damages to half of the runway.

Bando, who was to fly to Tari from Port Moresby, was also unable to leave because the airport was reportedly closed.

Unconfirmed reports from Mendi said that the earthquake was so powerful that people did not sleep, while there has been reports of landslides, landslips and sinkholes in several places and deaths.

The Department of Mineral Policy and Geohazard Management said the 7.5 magnitude earthquake was centered about 30km south of Tari and 40km northwest of Lake Kutubu, (in Bosave) Southern Highlands Province, at a depth of 25km.

It said that the earthquake occurred as a result of fault movements in the Papuan Fold and Thrust Belt, which runs parallel to the axial mountain range of PNG.

“There is potential for significant damage from this earthquake because of the large magnitude and shallow depth of the event. A number of aftershocks have occurred, and more are likely in the coming days,” department said.

“The largest of the aftershocks so far is M5.5. There is little possibility that this earthquake would have generated a tsunami.”

Series of aftershocks
Oil Search Limited, the developer of oil and gas developments in Hela and Southern Highlands, said in an email that the quake struck about 3.44am yesterday.

There had also been a series of aftershocks.

The company said its primary concern was the safety of its employees and contractors and that no injuries had been reported.

Oil Search said that as a precautionary measure and in order to assess any damage to facilities, its production operations in the PNG Highlands is in the process of being shutdown.

ExxonMobil PNG Ltd, the developer of the PNG LNG, also confirmed that the PNG LNG Project facility at Hides has also been safely shut down. It said that all its employees and contractors at its Hides facilities have been accounted for and are all safe.

“As a precaution, ExxonMobil PNG Limited has shut its Hides gas conditioning plant to assess any damages to its facilities,” the management said.

Meanwhile, Oil Search and ExxonMobil said they were also monitoring the impact on people in the local communities and would assist the relevant authorities, where possible.

Assessing damage
“We are continuing to assess damage to our facilities in Southern Highlands and Hela provinces. The Hides gas conditioning plant has been safely shut down and our wellpads have been shut in as a precaution until full assessments can be completed.

“Preliminary reports from the Hides Gas Conditioning Plant indicate the administration buildings, living quarters and the mess hall have sustained damage. Flights into the Komo airfield have also been suspended until we are able to survey the runway.

“The safety and security of our employees and contractors is top priority. Due to the damage to the Hides camp quarters and continuing aftershocks, ExxonMobil PNG is putting plans in place to evacuate non-essential staff.

“We are also concerned about the impact the earthquake is having on our nearby communities. Telephone communications have been impacted in the region, and we are working with aid agencies and our community partners to better understand damage in the local area,” ExxonMobil said in a statement.

The developers had a briefing with the department of Petroleum and Energy yesterday and big rivers like the Tagali and Hegego have been blocked and building up dams, threatening lives down stream in Kutubu and the Gulf Province.

The gas to electricity that powers Porgera gold mine is also said to be affected while the Ok Tedi mine has also reported to have been affected.

Infrastructure like roads and bridges have all been destroyed, cutting off traffic in the two provinces.

Disaster reports
However, National Disaster director Martin Mose said all reports on the overall damages should be ready by today when the government team flies in to access the situation, some 28 hours after the disaster.

Chief Secretary Isaac Lupari said the National Government has dispatched disaster assessment teams to parts of Southern Highlands and Hela following the earthquake.

“The National Disaster Centre is working with provincial authorities to assess any damage and impacts on service delivery in the area.

“The Papua New Guinea Defence Force has also been mobilised to assist with the assessment and the delivery of assistance to affected people, as well as the restoration of services and infrastructure.

“Information will be provided as this is made available from assessment teams in the area.

“As this assessment process is underway, it is important that people in the Southern Highlands and Hela be aware of the dangers of earthquake aftershocks. It is advisable to stay out of multi-story buildings, to be aware of the potential of landslides, and to be prepared to move to open ground in the event that an aftershock is felt,” Lupari said.

Jeffrey Elapa is a journalist with the PNG Post-Courier.

Article by AsiaPacificReport.nz