The K4 Billion Question: Was the Vendor Financing Agreement a Cover for the UBS Mortgage?

by PAUL L. KEBAIJA

A single clause buried in a deed signed in Singapore may explain why, nearly a decade on, the people of the PNG LNG project areas are still waiting for equity they were told they had bought.

The story begins in 2014. In a fifteen-day window, the O'Neill government borrowed AUD 1.239 billion from UBS to acquire roughly 10 per cent of Oil Search. The Ombudsman Commission later found the loan and the share purchase unlawful, and the Commission of Inquiry described the whole episode as an "unnecessary disaster" that cost the State dearly. That much is settled on the public record.

What is less understood is how that disaster reaches into the pockets of Hela, Southern Highlands, Gulf, Central and Western landowners.

Under the 2009 Kokopo Umbrella Benefit Sharing Agreement, beneficiary groups held an option to acquire an indirect 4.27 per cent interest in PNG LNG through Kroton, the vehicle holding the State's 16.57 per cent stake. The option had to be exercised by 31 December 2016. On 27 December 2016, governors including Hela's Francis Potape signed the Vendor Financing Agreement with Kumul Petroleum Holdings Limited (KPHL), under which KPHL would self-fund the option price by withholding a quarter of the LNG revenue otherwise owed to beneficiaries.

Here is the problem. The Payment Direction Deed executed in Singapore, and Clause 2.4 in particular, is now said to confirm that the State's entire 16.57 per cent equity, the 4.27 per cent Kroton portion included, had already been pledged against the UBS financing before December 2016.

If that reading holds, one question dwarfs all others: what, exactly, were the landowners and provincial governments asked to purchase in 2016?

You cannot sell what is already mortgaged. If the beneficiary equity was encumbered before the ink dried on the Vendor Financing Agreement, then the governors signed up their people to "buy" an asset already committed elsewhere and to repay it out of their own withheld revenue.

So the questions are direct, and they are owed answers. Did KPHL or the National Government disclose Clause 2.4 to the governors before they signed? Were the signatories Potape among them told the equity was already pledged? What due diligence was done before they committed Hides PDL1 and PDL7, Angore, Juha, Moran, Kutubu and the others to this arrangement? If the answer to the disclosure question is no, then the beneficiaries were induced into a deal on incomplete information.

It is alleged that this sequence has cost landowners and provincial governments in the order of K4 billion in foregone benefits equity value, dividends, and the obligations layered onto the financing structure.

These are not partisan talking points. They are accountability questions, and they can be settled by documents. If the deeds and approvals show the Kroton equity was mortgaged before the Vendor Financing Agreement was signed, the people of the project areas are entitled to know it — and to know who knew it at the time.

Nearly a decade later, the 4.27 per cent still has not been transferred to the landowners. KPHL and the Mineral Resources Development Company have been fighting in court over who controls it, and successive promises of a "free carry" handover have not been honoured.

The remedy is not another press statement. It is an independent review of every agreement, deed and approval in this chain — the UBSA, the UBS facilities, the Payment Direction Deed and the Vendor Financing Agreement — to establish the truth and to determine whether those entrusted with beneficiary interests discharged that trust.

Until then, one demand stands: the Board and Management of KPHL must release the 4.27 per cent Kroton equity, and account for the missing K4 billion, without further delay.