Divisions emerging in PNG government over fiscal management

Transcript

Peter O'Neill's position as Prime Minister of Papua New Guinea appears secure despite an uproar over a major loan his cabinet has taken out on the state's behalf.

The 1.1 billion US dollar loan with Swiss bank UBS will be used to buy back the government's shares in PNG's largest oil and gas company Oil Search.

As well as operating all of PNG's oilfields, Oil Search has a 29 percent stake in the major ExxonMobil-led, 19-billion dollar LNG Project, as well as other significant gas interests in the country.

Johnny Blades has more.

Using its Oil Search shares as bonds, PNG's previous government negotiated a loan with the Abu Dhabi-based International Petroleum Investment Company in 2009 to buy equity in the LNG project. Five years later with the maturity of the exchangeable bonds, the government sought to buy back its Oil Search shares but didn't want to pay the price the Arabs were demanding. In recent weeks the Peter O'Neill-led government reached an agreement with Oil Search to buy back in with 10 percent.

However the Prime Minister sacked two high profile ministers in the process: the Petroleum and Energy Minister William Duma and the Treasurer Don Polye, both leaders of key parties in Mr O'Neill's coalition government. Neither party has left the coalition yet but cracks in the government are beginning to show over Mr O'Neill's fiscal management. Don Polye says that as Treasurer, he opposed approving the loan because the matter hadn't been brought to parliament. He also says it would have breached the government's debt management strategy to take up such a loan.

DON POLYE: A 1.29 billion Australian dollar, that's equivalent to three billion PNG kina. And that will be done on the balance sheets of the state, meaning that our existing stock of debts at around 8 or 9 billion will be built up with an extra three billion. So we will see our debt level go up through the roof. And it's not just a small amount of money, it's a big amount of money.

But Peter O'Neill insists the state does not incur any loss by replacing the IPIC loan with the the UBS loan. He told local media that the government had to ensure PNG owns shares in Oil Search.

PETER O'NEILL: Oil Search is - as many of you know - one of our largest investors in the country, employs the largest number of people in the country. So not having shares meant that PNG's investor confidence was being eroded.

Paul Barker of the Institute of National Affairs says the government is determined to maximise earnings from the LNG Project once it begins production later this year while also having a stake in the Elk/Antelope fields which are expected to provide for PNG's next major LNG project.

PAUL BARKER: Oil Search issued effectively a share issue specifically to the government on a slightly concessional basis, somewhat below the price the government would have to have paid to regain or to retain its shares and that seems to link into this arrangement which has enhanced Oil Search's position in acquiring equity in the Elk Antelop fields.

Peter O'Neill has indicated he'll look to refinance the UBS loan in the next two years.

However Opposition Leader Belden Namah has directed his lawyers to try and restrain the government from executing the UBS loan which he fears will be paid for with revenues from the LNG project.