PNG Government Wins Stay Against Ombudsman’s Directive

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Order doesn’t affect investigation into UBS loan scandal

By Todagia Kelola

PORT MORESBY, Papua New Guinea (PNG Post-Courier, June 12, 2014) – The Government has successfully obtained a stay on an Ombudsman Commission directive which stopped the State and its agents from acting on any issues relating to the controversial K3 billion [US$1.2 billion] Union Bank of Switzerland (UBS) loan.

Yesterday, the National Court upheld an application by Prime Minister Peter O’Neill and acting Treasury Secretary Dairi Vele to stay the directive by the commission so that the state can meet its obligation on the loan repayment.

But the stay, according to the court, does not affect the ongoing investigations by the commission and whatever actions that it wishes to take on those under its jurisdiction.

The Prime Minister and Mr Vele had earlier on Tuesday successfully sought leave for a judicial review into the decision of the commission and yesterday they moved their application to stay the directives to allow the State to meet its obligation to make interest payment to the UBS (Australia branch).

Under the UBS loan, the state is required to make periodic interest payments.

If the state is prevented from making those payments, it will be in default and UBS will have the right to commence enforcement processes without further notification to the State, which could result in the loss by the state of its Oil Search Ltd shareholding.

During submissions in the morning, lawyer for the Prime Minister, Ian Molloy and lawyer for Mr Vele, Tiffany Nonggor argued that the legal obligations under the UBS loan agreement is binding and there will be serious ramifications should the state not make interest payments as and when they fall due.

They stated that a default under the UBS loan is also highly likely to have much broader adverse ramifications for the state and its people.

Loans to the state from multilateral institutions, such as the World Bank and the Asian Development Bank, typically include cross default provisions and so a default under the UBS loan is likely to trigger cross defaults under such other loan arrangements, which would clearly have significant adverse implications..

Justice Gavera Nanu, who presided over the matter, upheld the stay application and ordered that the directive by the commission to stop the state from meeting its obligation under the loan agreement is stayed pending the substantive judicial review application.

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