An EPIC Fail – Somare Legacy

By Government Insider

Much has been said about the UBS Loan and the re-financing of it. But have we forgotten where it all started??? Do we understand why O’Neil had to take a loan on this?

In March 2009, Somare mortgaged 17.6% of Oil Search shares to International Petroleum Investment Company (IPIC) to raise $1.7 billion to fund PNG’s equity (19.6%) in the PNG LNG Project. The details of the agreement are sketchy but the main gist was that the Oil Search shares (196.6m) which was selling at $4.2 in 2009 was sold on its future expected value of $8.55 raising $1.7b when it expired in 2014 for mortgage repayment.

What actually happened was that when Somare got the IPIC loan, he mortgaged almost everything, on top of the Oil Search shares, he mortgage all of the SOEs as well. What O’Neil is trying to do is to get all the other SOEs out of that mortgage so that PNG is not held to ransom. For example, every time PNG want to buy a new plane for Air Niugini, they have to get the Arabs permission to do so.

This is the most risky business deal ever done by Somare, and of all funders he would have approached, he went to bed with the Arabs who are known for their ruthlessness. Even Japan Bank for International Corporation who had signed an MOU with the PNG Government for the same mortgage was overlooked. IPIC was chosen and an EPIC FAILURE  it was!

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Papua New Guinea had a very weak economy in 2009. At the time economists and commentators said the world was facing its worst prospects since the 1930s Great Depression. Giant US financial institutions such as Lehman Bros collapsed. Global player Citibank survived only because of a US government intervention. Around the world governments went to major banks and financial institutions for rescue.

Amidst the financial crises, Somare forsaking the advice from the Treasury Department, sold PNG to the Arabs!

Oil Search never closed at $8.55 during maturity, it closed at $8.49 and we could not repay the $1.7b mortgage, giving the IPIC the negotiating power to refuse the buyback and demand new terms. IPIC basically converted its bonds into shares and now holds 13% share in one of Papua New Guinea’s largest employer Oil Search.

To regain a footing in Oil Search, O’Neil approach UBS to fund a new 10% equity, this was to regain some degree of control in Oil Search and to ward off Woodside who wanted to buy Oil Search for $12billion.

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2 thoughts on “An EPIC Fail – Somare Legacy

  1. Stop spreadding Lies if you do not understand the mechanics of the trade deal..That deal was already closed and PNG does not owes IPIC nothing. The mortgage of Government shares in Oil Search was done to raise funds (K 10billion) to finance the 22% stake in the Exonn Mobil deal knowing that Oil Search price was going to double when the project gets going. The share price was doubled by maturity date and the increase was sold and used to repay the IPIC Loan. Maybe a loss of shares in Oil Search but gain in LNG Project. SMART DEAL BY AUTHUR SOMARE AND HIS TEAM. WE ALL SHOULD SALUTE THEM FOR THIS GREAT DEAL. Note sure why the State wanted to borrow and invest K 3 billion in Oil Search again which has been poor in dividend distribution over the years for a 10% share under PMPO. How much has the state received from Oil Search for it’s equity for the last 20 years from the oil flow from Southern Highlands for the Government to thread that path again, a pathway that was used to acquire equity in the LNG business under Somares Regime. The State s 100percent owned companies (Petromin Holding and its various subsidiaries, NPCP, Eda Oil, etc…) have been trading fairly ok and needed capital injection to boost their operations. The State’s UBS Deal for a 10percent stake in Oil Search is a failed deal and is now eating into the poor cash flow of the Governments funds. Doesn’t it looks fizzy why PMPO committed to buy shares in ???

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