UBS speaks out on controversial PNG loan deal

UBS speaks out on controversial PNG loan deal. Picture: POST COURIER

PORT MORESBY, 02 JULY 2019 (POST COURIER) – Swiss bank UBS has broken its silence on a controversial AUD$1.2 billion (US$835 million) loan made to the Papua New Guinea government, defending its role in the transaction following the establishment of a commission of inquiry examining the deal.

In PNG’s Parliament last Wednesday new Prime Minister James Marape proposed the official probe after a leaked Ombudsman’s Commission report into the 2014 loan suggested former leader Peter O’Neill may have broken the law and engaged in improper conduct, contributing to his political exit.

The Zurich-based financial giant told The Australian there had been no adverse findings against the bank and it welcomed any inquiry concerning the PNG government’s investments.

“The Ombudsman Commission report makes no findings against UBS, nor suggests any impropriety by the bank or its staff,” UBS said.

“UBS has operated in Australasia for more than 80 years and has earned its longstanding reputation for acting openly, honestly, ethically and with utmost integrity in all of its dealings, not least of all with its clients and other stakeholders including governments, regulators and the community.

“The proposed commission of inquiry provides a welcome opportunity for there to be a further, independent review of matters relating to PNG’s governance of its strategic investments.”

The UBS loan allowed the cash-strapped PNG government to buy a 10 per cent stake in Oil Search while allowing Oil Search, which was developing natural gas assets in the PNG Highlands, to take a 23 per cent interest in the country’s Elk-Antelope gas fields.

The deal turned sour when the oil price fell, slashing PNG’s stake by hundreds of millions of dollars.

UBS said the deal was struck under the nation’s longstanding lending laws.

“The PNG government relies on access to global financing markets in accordance with its existing borrowing law,” UBS said.

“The ‘Loans (Overseas Borrowings) (No. 2) Act’ is the umbrella legislation relied on for various financings by the PNG government over many years, including more recently its sovereign bond issue in 2018. Other international bank loans, including the UBS agreement of 2014, have been approved on the same basis.”

The Swiss bank said its loan role was struck as part of a competitive international tender process, with Ashurst PNG acting as its legal adviser on the deal.

“In 2013-14, the PNG government, with the benefit of independent financial and legal advice, conducted a competitive tender process, involving many international banks, before selecting UBS as its preferred financing institution. Furthermore, the PNG government received and relied upon independent financial and legal advice from a range of experts, including KPMG and Norton Rose Fulbright, before making its investment and financing decisions in relation to its shareholding in Oil Search.”

KPMG and Norton Rose Fulbright declined to comment.

Like O’Neill, Marape was a player in the country’s $1.23bn UBS loan scandal. The Ombudsman’s Commission found his conduct as finance minister “wrong and improper” in relation to a payment for the purchase of Oil Search shares by the PNG government.

The inquiry would lead to a “full and complete closure of the UBS saga,” Marape said.

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