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• Ombudsman Commission
  of Papua New Guinea

  AN INVESTIGATION INTO THE ALLEGED IMPROPER
  BORROWING OF AU$1.239 BILLION LOAN FROM THE UNION
  BANK OF SWITZERLAND, AKTIENGESELLSCHAFT (AUSTRALIA
  BRANCH) TO PURCHASE 149,390,244 SHARES IN OIL SEARCH
  LIMITED AND IMPROPER TENDER AND PROCUREMENT OF
  CONSULTANTS IN RELATION TO THE BORROWING.

  FINAL REPORT
  DECEMBER 2018

  TABLE OF CONTENTS

  TABLE OF CONTENTS
  ii

  ABBREVIATION
  vii

  GLOSSARY OF TERMS
  ix

  GLOSSARY OF PERSONS REFERRED TO IN THE REPORT
  xii

  CHRONOLOGY
  xiv

  EXECUTIVE SUMMARY
  xlv

  1. JURISDICTION AND PURPOSE OF INVESTIGATION
  1

• Page 2 of 475

• [1.1] INTRODUCTION
  1

  [1.2] JURISDICTION OF THE OMBUDSMAN COMMISSION
  4

  [1.3] PURPOSE OF THE INVESTIGATION
  5

  [1.4] METHOD OF INQUIRY
  6

  [1.5] WITNESSES WHO GAVE EVIDENCE BEFORE THE COMMISSION
  7

  [1.6] OMBUDSMAN COMMISSION NOT CONFINED TO REPORTING ON LEGALITY OF
  ADMINISTRATIVE CONDUCT
  7

  [1.7] WHAT IS ―WRONG CONDUCT‖?
  8

  [1.8] THE PROVISIONAL REPORT
  8

  [1.9] RESPONSE FROM THE PRIME MINISTER HON PETER O‘NEILL, CMG, MP,
  10

  [1.10]CHALLENGE ON OMBUDSMAN COMMISSION‘S JURISDICTION – SCR NO: 15
  OF 2015 17

  [1.11]RESPONSE FROM THE ACTING SECRETARY FOR TREASURY, MR DAIRI VELE
  18

  2. FINDINGS OF FACTS
  20

  PART 1 THE DECISION OF THE NATIONAL EXECUTIVE COUNCIL TO BORROW UBS
  AG
  (AUSTRALIA BRANCH) LOAN AND IT‘S IMPLEMENTATION
  20

  [1] NEC DECISION NO: 37/2013 ON THE RE-FINANCING OF THE
  INTERNATIONAL
  PETROLEUM INVESTMENT COMPANY (IPIC) EXCHANGEABLE BOND
  20

  [2] BANK OF PAPUA NEW GUINEA RECOMMENDED UBS AG AS THE LENDER OF
  THE
  LOAN TO RE-FINANCE THE IPIC EXCHANGEABLE BOND
  22

  [2.1] RESPONSE FROM THE GOVERNOR OF BANK OF PAPUA NEW GUINEA MR LOI
  BAKANI

• Page 3 of 475

• 31

  Table of Contents
  Page ii

  [3] THE STATE ENGAGES UBS AG TO FINANCE PURCHASE OF NEW SHARES IN
  OIL
  SEARCH LIMITED 33

  [4] BUY BACK OF IPIC EXCHANGEABLE BOND BY THE STATE FAILS 35

  [5] THE PRIME MINISTER‘S MEETING WITH MR PETER BOTTEN, MANAGING
  DIRECTOR OF OIL SEARCH LIMITED 36

  [6] THE ACTING SECRETARY, DEPARTMENT OF TREASURY, INVOLVEMENT IN
  THE
  WHOLE UBS AG TRANSACTION 39

  [6.1] RESPONSE FROM MR DAIRI VELE 43

  [7] STATE SOLICITOR‘S ADVICE ON THE WHOLE OF UBS AG TRANSACTION 57

  [8] NEC DECISION TO PURCHASE SHARES IN OIL SEARCH LIMITED 64

  [9] HON DON POLYE MP DECOMMISSIONED AS MINISTER FOR TREASURY 71

  [10] INVOLVEMENT OF INDEPENDENT PUBLIC BUSINESS CORPORATION 74

  [11] INDEPENDENT PUBLIC BUSINESS CORPORATION BOARD DECISION 78

  [12] INVOLVEMENT OF PETROMIN PNG HOLDINGS LIMITED 79

  [13] INVOLVEMENT OF NATIONAL PETROLEUM COMPANY OF PAPUA NEW GUINEA
  (KROTON) LIMITED 81

  PART 2 ENGAGEMENT OF CONSULTANTS TO FACILITATE THE BORROWING OF UBS
  AG
  LOAN 90

  [1] ENGAGEMENT OF LEGAL CONSULTANTS 90
  [1.1] RESPONSE FROM MR DAIRI VELE 92

  [2] ENGAGEMENT OF FINANCIAL AND TECHNICAL CONSULTANTS 94
  [i] ENGAGEMENT OF UBS AG AS FINANCIAL ADVISOR AND LEAD ARRANGER
  FOR
  THE REFINANCING OF IPIC EXCHANGEABLE BOND 94
  [2i] RESPONSE FROM MR DAIRI VELE 100

  [ii] ENGAGEMENT OF KPMG AND PACIFIC CAPITAL LIMITED TO FACILITATE
  THE
  BORROWING OF UBS AG LOAN
  101
  [2ii] RESPONSE FROM MR DAIRI VELE ON THE ENGAGEMENT OF KPMG AND

• Page 4 of 475

• PACIFIC CAPITAL LIMITED 106
  [2iii] RESPONSE FROM MR FRANK KRAMER 107

  [3] MR DAIRI VELE‘S, ACTING SECRETARY, DEPARTMENT OF TREASURY,
  ENGAGEMENT OF CONSULTANTS TO FACILITATE THE UBS AG LOAN
  TRANSACTION 108
  [3.1] RESPONSE FROM MR DAIRI VELE
  113

  [4] REQUEST FOR A CERTIFICATE OF INEXPEDIENCY FOR THE ENGAGEMENT
  OF
  CONSULTANTS
  115
  [4.1] RESPONSE FROM MR DAIRI VELE
  117

  [5] STATE SOLICITOR‘S ADVICE ON THE ENGAGEMENT OF CONSULTANTS TO
  FACILITATE THE BORROWING
  118

  [6] CENTRAL SUPPLY & TENDERS BOARD APPROVED THE ISSUANCE OF THE
  CERTIFICATE OF INEXPEDIENCY 122
  Table of Contents Page
  iii

  [6.1] RESPONSE FROM MR DAIRI VELE
  128

  [7] DR KEN NGANGAN, ACTING SECRETARY FOR DEPARTMENT OF FINANCE
  APPROVED THE AUTHORITY TO PRE-COMMIT FUNDS
  131
  [7.1] RESPONSE FROM DR KEN NGANGAN
  134

  [8] PRIVATE CONSULTANTS PREPARE POLICY SUBMISSION & OTHER
  DOCUMENTS
  FOR THE NATIONAL EXECTIVE COUNCIL
  135
  [8.1] RESPONSE FROM MR DAIRI VELE
  140

  [9] EXECUTION OF THE LOAN CONTRACT
  141

  PART 3 PAYMENTS MADE TO CONSULTANTS AND UBS AG AS PER NEC DECISION
  NO. 79/2014 144

  [1] PAYMENTS MADE TO UBS AG (AUSTRALIA BRANCH)
  144

  [2] PAYMENTS TO OTHER CONSULTANTS
  147
  [2.1] RESPONSE FROM MR DAIRI VELE

• Page 5 of 475

• 150

  [3] DR KEN NGANGAN, ACTING SECRETARY FOR DEPARTMENT OF FINANCE
  APPROVED THE RELEASE OF FUNDS FOR CONSULTANTS
  151

  [3.1] RESPONSE FROM DR KEN NGANGAN
  153

  [4] PAYMENTS MADE TO UBS AG BY NATIONAL PETROLEUM COMPANY OF
  PAPUA
  NEW GUINEA (KROTON) LIMITED
  154

  [5] LOAN AND INTEREST PAYMENT TO UBS AG (AUSTRALIA BRANCH)
  158
  [5.1] RESPONSE FROM MR DAIRI VELE
  166

  3. INTERVIEWS WITH WITNESSES
  168

  [3.1] EVIDENCE GIVEN BY HON DON POLYE, THEN MINISTER FOR TREASURY
  168

  [3.2] EVIDENCE GIVEN BY MR DANIEL ROLPAGAREA, STATE SOLICITOR
  168

  [3.3] EVIDENCE GIVEN BY HON KERENGA KUA, THEN MINISTER FOR JUSTICE
  AND
  ATTORNEY-GENERAL
  169

  [3.4] EVIDENCE GIVEN BY MR LOI BAKANI, GOVERNOR FOR BANK OF PAPUA
  NEW
  GUINEA
  169

  [3.5] EVIDENCE GIVEN BY MR DAIRI VELE, ACTING SECRETARY FOR THE
  DEPARTMENT
  OF TREASURY
  169

  [3.6] EVIDENCE GIVEN BY MR ANTHONY YAUIEB, DEPUTY SECRETARY
  (POLICY),
  DEPARTMENT OF TREASURY
  170

  [3.7] EVIDENCE GIVEN BY MR WASANTHA KUMARASIRI, THE MANAGING
  DIRECTOR
  FOR IPBC
  170

  4. FINDINGS

• Page 6 of 475

• 171

  [4.1] FINDING No. 1
  171

  [4.2] FINDING No. 2
  172

  [4.3] FINDING No. 3
  173

  Table of Contents
  Page iv

  [4.4] FINDING No.4 174

  [4.5] FINDING No. 5 175

  [4.6] FINDING No. 6 176

  [4.7] FINDING No. 7 178

  [4.8] FINDING No. 8 179

  [4.9] FINDING No. 9 180

  [4.10]FINDING No. 10 190

  [4.11]FINDING No. 11 195

  [4.12]FINDING No. 12 197

  [4.13]FINDING No. 13 201

  [4.14]FINDING No. 14 205

  [4.15]FINDING No. 15 206

  [4.16]FINDING No. 16 210

  [4.17]FINDING No. 17 211

  [4.18]FINDING No. 18 212

  [4.19]FINDING No. 19 214

  [4.20]FINDING No. 20 215

  5. RECOMMENDATIONS 217

  [5.1] CONSTITUTIONAL FRAMEWORK FOR MAKING RECOMMENDATIONS 217

  [5.2] RECOMMENDATIONS CONCERNING PARTICULAR INDIVIDUALS 218

• Page 7 of 475

• [5.3] RECIPIENTS OF RECOMMENDATIONS 218

  [5.4] RESPONSIBLE MINISTERS 218

  [5.5] MINISTERS RESPONSIBLE FOR FOLLOWING UP ON THE IMPLEMENTATION
  OF
  RECOMMENDATIONS 218

  [5.6] DUTIES OF RECIPIENTS TO ACT ON THE RECOMMENDATIONS 219

  [5.7] RECOMMENDATIONS 219

  [5.7.1] RECOMMENDATION No. 1 220

  [5.7.2] RECOMMENDATION No. 2 221

  [5.7.3] RECOMMENDATION No. 3 221

  [5.7.4] RECOMMENDATION No. 4 222

  [5.7.5] RECOMMENDATION No. 5 223

  Table of Contents Page v

  [5.7.6] RECOMMENDATION No. 6
  224
  [5.7.7] RECOMMENDATION No. 7
  224
  [5.7.8] RECOMMENDATION No. 8
  225
  [5.7.9] RECOMMENDATION No. 9
  226
  [5.7.10] RECOMMENDATION No. 10
  227
  [5.7.11] RECOMMENDATION No. 11
  227
  [5.7.12] RECOMMENDATION No. 12
  228
  [5.7.13] RECOMMENDATION No. 13
  229
  6. CONCLUSION
  231
  7. APPENDIX
  232
  7.1 RELEVANT LAWS AND SPECIFIC PROVISIONS
  232
  [7.1.1] CONSTITUTION OF THE INDEPENDENT STATE OF PAPUA NEW GUINEA
  232
  [7.1.2] ORGANIC LAW ON THE OMBUDSMAN COMMISSION
  236
  [7.1.3] ATTORNEY-GENERAL ACT 1989

• Page 8 of 475

• 237
  [7.1.4] CENTRAL BANKING ACT 2000
  237
  [7.1.5] LOANS (OVERSEAS BORROWING) ACT (CHAPTER 133)
  238
  [7.1.6] LOANS (OVERSEAS BORROWINGS) (No.2) ACT (CHAPTER 133A)
  240
  [7.1.7] OFFICIAL PERSONNEL STAFF ACT (CHAPTER 383)
  243
  [7.1.8] PAPUA NEW GUINEA FISCAL RESPONSIBILITY ACT 2006
  243
  [7.1.9] INDPENDENT PUBLIC BUSINESS CORPORATION OF PAPUA NEW GUINEA
  ACT 2002 243
  [7.1.10] PETROLEUM PNG HOLDINGS LIMITED AUTHORIZATION ACT 2007
  244
  [7.1.11] COMPANIES ACT 1997
  244
  [7.1.12] LAWYERS ACT 1986
  245
  [7.1.13] OATHS, AFFIRMATIONS AND STATUTORY DECLARATIONS ACT (CHAPTER
  317) 245
  [7.1.14] PUBLIC FINANCE (MANAGEMENT) ACT 1995
  245
  [7.1.15] THE FINANCE MANAGEMENT MANUAL
  250
  [7.2] INVESTMENT PETROLEUM INVESTMENT COMPANY (IPIC) LOAN AGREEMENT
  276
  [7.3] UBS AG LOAN DOCUMENTS
  280

  Table of Contents
  Page vi

  ABBREVIATION
  Act – The Act of Parliament
  APC – Authority to Pre – Commit
  BPNG – Bank of Papua New Guinea
  CoI – Certificate of Inexpediency
  Constitution – Constitution of the Independent State of Papua New
  Guinea
  CSTB – Central Supply & Tenders Board
  DJAG – Department of Justice & Attorney-General
  DoF – Department of Finance
  DoPE – Department of Public Enterprise
  DoT – Department of Treasury
  FAI – Foreign Affairs & Immigration
  FMM – Finance Management Manual
  GGPNG – Governor-General of Papua New Guinea
  GloCo – PNG Liquefied Natural Gas Global Company LDC
  GoPNG – Government of Papua New Guinea
  Hon – Honourable
  IPBC – Independent Public Business Corporation

• Page 9 of 475

• IPIC – International Petroleum Investment Company
  IRC – Internal Revenue Commission
  KPMG – Klynveld Peat Marwick Main Goerdeler
  LNG – Liquefied Natural Gas
  Ltd – Limited
  MD – Managing Director
  Abbreviation Page vii

  MP – Member of Parliament
  NEC – National Executive Council
  NPCP – National Petroleum Company of PNG (Kroton) Ltd
  Commission – Ombudsman Commission of Papua New Guinea
  OLOC – Organic Law on the Ombudsman Commission
  PFMA – Public Finance (Management) Act 1995
  PNGLS – Papua New Guinea Law Society
  PRL – Petroleum Resource Licence
  Pty – Propriety
  State – The Independent State of Papua New Guinea
  SE&SI – State Enterprise & State Investments
  State Sol – State Solicitor
  UBS AG – Union Bank of Switzerland, Aktiengesellschaft
  (Australia Branch)

  Abbreviation Page viii

  GLOSSARY OF TERMS

  Introduction
  The terminologies listed and defined in this Glossary were taken
  from the UBS AG Loan
  documents, the Internet and Oxford Dictionary.

  Authority to Pre-Commit
  The purpose of the APC process is to ensure proper accounting,
  management and
  reporting on the Pre-Commitment of Expenditure is maintained in all
  levels of the
  National, Provincial and Local-Level Governments. The validity of
  contracts with the

• Page 10 of 475

• government for those authorised by the Secretary for Finance is
  evidenced by his signature
  on an Authority to Pre Commit Form.

  Authorisation
  An authorisation, consent, declaration, exemption, notarisation or
  waiver, however it is
  described; and in relation to anything that could be prohibited or
  restricted by law if a
  Government Agency acts in any way within a specified period, the
  expiry of that period
  without that action being taken, including any renewal or amendment.

  BPNG
  The Bank of Papua New Guinea is the Central Bank of the Sovereign
  Independent State of
  Papua New Guinea.

  Bond
  It is a written and signed promise to pay a certain sum of money on
  a certain date, or on
  fulfilment of a specified condition. All documented contracts and
  loan agreements are
  bonds.

  Bridge Loan
  A type of short term loan used to finance an enterprise, investment
  or government pending
  the receipt of other funds.

  Bridge Takeout Letter
  A written promise by a lender to provide a long term loan (Bridge
  Loan).

  Central Supply & Tender Board
  This is the GoPNG major procurement and tender authority that was
  empowered by the
  GoPNG to screen and further endorse contractors to be engaged by the
  State.

  Certificate of Inexpediency
  A certificate issued by the Central Supply & Tenders Board only when
  in situations where
  a declared natural disaster or defence emergency or health emergency
  occurs or there is a
  situation of civil unrest. A Certificate of Inexpediency cannot be
  applied retrospectively.

  Collar Loan
  The purchase of an out-of-the money put option is what protects the
  underlying shares
  from a large downward move and locks in the profit. The price paid
  to buy the puts
  (shares first placed on the stock market) is lowered by amount of

• Page 11 of 475

• premium that is collect
  Glossary Page ix

  by selling the out of the money call (the time which the share was
  placed). The ultimate
  goal of this position is that the underlying stock continues to rise
  until the written strike
  (agreed market value price of shares) is reached.

  Distribution
  Any payment or distribution of money or other property (including by
  management or
  other fee, interest on shareholder loans, dividend, return of
  capital, repayment or
  redemption) to or for the benefit of any holder (in that capacity)
  of securities issued.

  CHESS
  The Clearing House Electronic Sub-register System operated by the
  ASX Settlement and
  Transfer Corporation Pty Ltd (ASTC).

  Exchangeable Bond (XB)
  A security consisting of a straight bond and option to exchange the
  bond for the stock of
  the company other than the Issuer (usually a subsidiary or company
  in which the Issuer
  owns a stake) at some future date and under prescribed conditions.

  Facility Agent
  The UBS AG, Australia Branch ABN 47 088 129 613.

  Facility Agreement
  The Bridge Facility Agreement that was dated on or about the date of
  the Payment
  Direction Deed between, among others, the Borrower and the Facility
  Agent.

  Fee Letter
  The letter or letters dated on or about the date of the Bridge
  Agreement between the
  parties to the agreement.

  GloCo
  The Papua New Guinea Liquefied Natural Gas Global Company LDC.

  IPBC
  The Independent Public Business Corporation is the major shareholder
  in NPCP

  IPIC Loan
  Loan obtained by the State from International Petroleum Investment
  Company based in

• Page 12 of 475

• Abu Dhabi in 2009 to finance the PNG LNG Project.

  NPCP
  The National Petroleum Company of Papua New Guinea (Kroton) Ltd was
  created as the
  receivership of proceeds from the PNG LNG project.

  Payment Direction Deed
  This is the document that contains the directions that NPCP agreed
  to instruct and direct
  GloCo to pay, in immediately available funds, all Distributions
  which are to be paid to
  NPCP in relation to the Share Holding from time to time, to a bank
  account in the name of
  NPCP with the Facility Agent or an affiliate of the Facility Agent
  with such account to be
  located in Singapore.

  Glossary Page x

  Rollover Collar
  A rollover Collar loan is essentially a loan that gets renewed at a
  defined point, as
  stipulated in a loan contract. There are several types of rollovers,
  each different from the
  others except for this principal idea of renewal.

  Share Holding
  All shares or other securities held by NPCP in GloCo from time to
  time.

  Specific Security Deed
  Specific security deed dated on or about the date of this document
  granted by the
  Borrower in favour of the Security Trustee over certain OSH Shares
  held by the Borrower.

  Security Trust Deed
  The security trust deed dated on or about the date of this UBS AG
  Contract Agreement
  document between the borrower and the Security Trustee.

  Share
  A unit at a value for various investments.

  Share placement
  This is one way a company can raise additional share capital –
  particularly if funds are
  needed relatively quickly – is to do a ―share placement‖, ie., by
  way of ―placing‖ some
  shares with an investor/s at a share price that might typically be a
  say 15 – 25% discount to

• Page 13 of 475

• the most recent share issue or (particularly where stock exchange
  listed) market price of
  the company‘s shares.

  Side Letter
  This is a letter to confirm certain of the terms and conditions on
  agreement of the UBS AG
  Loan Contract Agreement.

  Sovereign Bond
  A debt security issued by a national government within a given
  country and denominated
  in a foreign currency. The foreign currency used will most likely be
  a hard currency, and
  may represent significantly more risk to the bondholder.

  Subscription Agreement
  It is an agreement signed on 27 February 2014 between the Equity
  Derivative Financier
  (UBS AG) and Oil Shares Limited.

  Substantial shareholders notice
  Notice of change of interests of substantial holder of shares
  (completed and filed by Oil
  Search Ltd on Australian Stock Exchange).

  Term Loan
  It is a monetary loan that is repaid in regular payments over a set
  period of time. Term
  loans usually last between one and ten years, but may last as long
  as 30 years in some
  cases. A term loan usually involves an unfixed interest rate that
  will add additional
  balance to be repaid.

  UBS AG
  Union Bank of Switzerland in which the loan was obtained.
  Glossary Page xi

  GLOSSARY OF PERSONS REFERRED TO IN THE REPORT

  Sir Michael Ogio, GCL, GCMG, KStJ
  Governor-General of PNG

  Hon Peter O‘Neill, CMG, MP
  Prime Minister of Papua New Guinea

  Hon James Marape, MP
  Minister for Finance

  Hon Ben Micah, MP
  Minister for State Enterprise & State Investments

• Page 14 of 475

• s
  Hon Kerenga Kua, MP
  Former Attorney-General and Minister for Justice

  Dr Ken Ngangan, PhD. CMA, CPA
  Acting Secretary, Department of Finance

  Hon Rimbink Pato, LLB, OL
  Minister for Foreign Affairs & Immigrations

  Hon Don Pomb Polye, MP
  Former Minister for Treasury

  Ambassador Isaac B. Lupari, CBE
  Chief of Staff to the Prime Minister

  Dr Lawrence Kalinoe, LLB, LLM, PhD
  Secretary for Department of Justice

  Mr Loi Bakani, CMG, CBE
  Governor of Bank of Papua New Guinea

  Ms Betty Palaso
  Commissioner-General, Internal Revenue Commission
  n
  Mr Dairi Vele,
  Acting Secretary for Department of Treasury

  Mr Daniel Rolpagarea,
  State Solicitor

  Mr Ilagi Veali, MPS
  Secretary, National Executive Council

  Glossary Page xii

  Mr Philip Eludeme,
  Chairman, Central Supply & Tenders Board

  Mr Anthony Yauieb
  Deputy Secretary, Policy for Department of Treasury

  Mr Babaga R. Naime
  Acting Board Secretary for Central Supply & Tenders Board

  Dr Clement Waine, PhD
  Secretary, Department of Public Enterprise & State Investments

  Mr Wasantha Kumarasiri,
  MD for Independent Public Business Corporation

  Mr Erastus Kamburi,

• Page 15 of 475

• Chief Legal Officer for Independent Public Business Corporation

  Mr Wapu R Sonk,
  MD for National Petroleum Company of PNG (Kroton) Ltd

  Mr Rogen Wato,
  Company Secretary, National Petroleum Company of PNG (Kroton) Ltd

  Mr Frank Kramer,
  Chairman for National Petroleum Company of PNG (Kroton) Ltd

  Mr Guy Fowler,
  MD for UBS AG

  Ms Celle Raguine
  Representatives of UBS AG

  Mr Luke Goldsworthy
  Representative of UBS AG

  Mr Peter Botten,
  MD for Oil Search Ltd

  Mr Peter Graham,
  MD for PNG Liquefied Natural Gas Global Company LDC (GloCo)

  Ms Tessa Hoser
  Norton Rose Fulbright of Australia

  Mr Carl Okuk
  Lawyer and Consultant

  Glossary Page xiii

  CHRONOLOGY

  1995

  1. On 5 December, the Investment Promotion Authority (IPA)
  registered Pacific Capital Ltd
  whose Shareholders also include Mr Frank Michael Kramer.

  2009

  2. On 5 March, the Government of PNG (GoPNG) mortgaged its shares in
  Oil Search Ltd
  with International Petroleum Investment Company (IPIC), Abu Dhabi
  and acquired the
  needed funding and it financed the State‘s share of the capital

• Page 16 of 475

• expenditure for the PNG
  LNG project.

  3. On 1 July, the IPA registered Pertusio Capital Partners Ltd whose
  Shareholders also
  include Mr Dairi Vele.

  2013

  4. On 25 June, Prime Minister Hon Peter O‘Neill, CMG, MP (Prime
  Minister) advised Hon
  Kerenga Kua, MP, the then Attorney-General that a Brief-Out on
  legal services should be
  publicly tendered.

  5. On 6 August, the National Executive Council (NEC) appointed Mr
  Dairi Vele, as the
  Acting Secretary for the Department of Treasury (DoT).

  6. On 12 August, the DoT officials met with Union Bank of
  Switzerland, Aktiengesellschaft,
  Australia Branch (UBS AG) officials at Sydney, Australia.

  7. On 13 August, the DoT officials met with Morgan Stanley officials
  in Sydney, Australia.

  8. On 14 August, the DoT officials met with JP Morgan officials at
  Sydney, Australia.

  9. On 15 August, the DoT officials held a second meeting with UBS AG
  officials at Sydney,
  Australia.

  10. On 16 August, the DoT officials met with Credit Suisse officials
  at Sydney, Australia.

  11. On 19 December, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 that the BPNG provide final evaluations on the proposals
  from Citi Bank and
  UBS AG to re-finance the International Petroleum Investment
  Company (IPIC)
  Exchangeable Bond.

  12. On 20 December, Hon Ben Micah, MP, Minister for State
  Enterprises and State
  Investment (SE&SI) wrote to Mr Loi Bakani, CMG, CBE, the Governor
  of Bank of Papua
  New Guinea (BPNG) and requested the BPNG to evaluate the
  potential financiers‘
  proposals to re-finance the IPIC Exchangeable Bond.

• Page 17 of 475

• Chronology of Events Page xiv

  13. On 22 December, Mr Bakani advised Minister Micah that the four
  financiers should have
  been provided all the information and requested to bid for the
  Exchangeable Bond re-
  financing facility.

  14. On 27 December, Minister Micah requested Mr Bakani for
  clarification on the BPNG‘s
  advice on the four proposals by Hemsley Capital, ANZ/Barclay,
  CitiBank and UBS AG in
  regard to the refinancing of the IPIC Exchangeable Bond.

  2014

  15. On 7 January, Mr Bakani advised Minister Micah that the State
  re-negotiate the funding
  structure of the proposals with the two Financiers, the UBS AG and
  Citi Bank in the event
  that the negotiations do not meet the State objectives, the State
  should consider othr
  Financiers.

  16. On 9 January, Mr Bakani forwarded the BPNG‘s recommendations to
  Minister Micah as
  requested that included the invitation of other potential
  Financiers apart from Citi Bank
  and UBS AG to re-finance the IPIC Exchangeable Bond.

  17. On even date, Mr Bakani requested the Prime Minister to allow
  the BPNG the mandate to
  assist the State in meeting the basic re-financing requirements in
  the negotiation process.

  18. On 14 January, Mr Wasantha Kumarasiri of Independent Public
  Business Corporation
  (IPBC), requested Mr Bakani to correct his advice to Minister
  Micah as it was incorrect
  and misleading when the actual amount should be AU$1.681 Billion
  and not AU$1.8
  Billion.

  19. On 15 January, Minister Micah wrote to Mr Bakani and requested
  that the BPNG provide
  its final recommendations on the two Banks, UBS AG and Citi Bank.

  20. On 16 January, Mr Bakani requested all parties including the
  BPNG, Minister Micah,
  IPBC, and the DoT to draft the Terms of Reference to be used
  during negotiations with
  potential Financiers.

• Page 18 of 475

• 21. On 17 January, Mr Bakani wrote to and advised Mr Kumarasiri that
  the BPNG‘s
  evaluations and recommendations were based on information provided
  in accordance with
  the NEC Decision No: 479/2013 in its Special Meeting No: 37/2013
  that approved for BPNG
  to provide final evaluations on the proposals from Citi and UBS AG
  to refinance the IPIC
  Exchangeable Bonds; that Minister Micah advice the Government of
  United Arab
  Emirates the GoPNG‘s decision to redeem the IPIC Exchangeable
  Bonds and directed
  Miniser Micah to report back to NEC by end of January 2014 with
  the final evaluation
  report provided by BPNG.

  22. On even date, Mr Bakani requested Ms Natalie Yacoubian of Banque
  Nationale de Paris
  Paribas (BNP Paribas) to resubmit PNP Paribas proposal
  incorporating the refined terms.

  23. On even date, Mr Bakani requested Mr Mitchell Turner of UBS AG
  to resubmit UBS AG
  proposal incorporating the refined terms.

  24. On even date, Mr Bakani requested Mr Philip Graham to resubmit
  Citi Bank‘s proposal
  incorporating the refined terms.

  Chronology of Events Page xv

  25. On even date, Minister Micah advised Mr Bakani that he expected
  a recommendation by
  Wednesday 22 January 2014.

  26. On 23 January, Mr Bakani recommended to the NEC to request the
  Abu Dhabi
  Government for an extension of six months, to allow time to
  improve on the proposal by
  BNP Paribas, the superior proposal, as well as the UBS AG, Citi
  Bank and ANZ/Barclays.

  27. On 27 January, Hon Don Polye, Minister for Treasury wrote to Mr
  Bakani and requested
  for a full brief on the implementation of the NEC‘s Decision No.
  479/2013 regarding the re-
  financing of IPIC Exchangeable Bond.

  28. On even date, after its inconclusive asseement of the proposals
  from BNP Paribas, UBS
  AG, Citi Bank and ANZ/Barclays, Mr Bakani, recommended the UBS AG
  to Minister
  Micah, for the refinancing of the IPIC Exchangeable Bond.

• Page 19 of 475

• 29. On 30 January, Mr Vele engaged UBS AG to act as the sole
  Financial Advisor and Lead
  Arranger, in relation to the management of the investment of the
  State in Oil Search Ltd by
  way of letter.

  30. Mr Bakani informed the Directors for Investment Banking, UBS AG
  that the State had
  accepted its proposal to re-finance IPIC Exchangeable Bond worth
  AU$1.7 Billion and that
  UBS AG to confirm in writing its commitment to fund the AU$1.7
  Billion IPIC
  Exchangeable Bond.

  31. On even date, Minister Micah noted Mr Bakani‘s recommendations
  but he advised that
  the six months extension recommended would incur costs and was not
  possible.

  32. On 3 February, Minister Micah informed Mr Frank Kramer, Chairman
  for National
  Petroleum Company of PNG Ltd (NPCP) Board regarding the
  Exchangeable Bond and the
  appointment of UBS AG. At that material time, the Speaker of
  Parliament was yet to
  certifiy Kroton Act.

  33. On even date, Hon Minister Micah accepted the BPNG‘s
  recommendations and the
  NPCP‘s lead to re-finance IPIC Exchangeable Bond process on behalf
  of the Independent
  State of Papua New Guinea (State), even though NPCP had no legal
  basi to conduct
  business for and on behalf of the country and the government of
  PNG.

  34. On 4 February, the Prime Minister advised HH Sheik Mansour bin
  Zayed Al Nahyan that
  the State wanted to retain its shares in Oil Search Ltd.

  35. On 7 February, Mr Bakani re-assured Minister Micah on its
  recommendation to use UBS
  AG to re-finance IPIC Exchangeable Bond.

  36. On 13 February, a Mandatory Exchange Notice to Deutche Bank AG,
  London Branch
  (Exchange Agent) indicated that the IPIC did not want to sell its
  shares to Government of
  Papua New Guinea (GoPNG).

  37. On even date, Mr John Leahy, Head of Business Assurance & Asset
  Serving, National
  Nominees Limited, consented and became a member of Oil Search Ltd

• Page 20 of 475

• and undertook
  trading of Shares on the Australian Stock Exchange.

  Chronology of Events Page xvi

  38. On 23 February, the Prime Minister, Mr Peter Botten, MD of Oil
  Search Ltd, Mr Gerea
  Aopi, Board Chairman for Oil Search Ltd and Mr Vele met at Grand
  Papua Hotel and
  decided over a cup of coffee for the State to buy 149, 390, 244
  shares which translated to 10.01
  % shareholding in Oil Search Ltd.

  39. On 24 February, Hon Rimbink Pato, MP, Minister for Foreign
  Affairs and Immigration
  (FAI) advised HH Sheikh Abdullah bin Zayed Al Nahyan, the
  Minister for FAI, Abu
  Dhabi, United Arab Emirates, that the GoPNG wanted to retain
  ownership of the Oil
  Search Ltd shares.

  40. On 25 February, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of UBS
  AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30 January
  2014, in relation to the management of the investment of the
  State in Oil Search Ltd and
  associated matters flowing from the issuance in 2009 of
  Exchangeable Bond in respect of
  the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi. This is done
  with a conflict of interest.

  41. On even date, trading in Oil Search Ltd shares halted ahead of
  its announcement issuing
  shares to existing shareholders and interested buyers.

  42. On even date, His Excellency Grand Chief Sir Michael Ogio,
  G.C.L, G.C.MG, K.St.J the
  Governor-General of Papua New Guinea (GGPNG) signed the document
  agreements
  which were witnessed by Mr Carl Okuk as a Commissioner for Oath
  witnessing the
  agreement on the terms and conditions of engagement of UBS AG.
  The action of the
  GGPNG was improper and unconstitutional as per Section 2(1) and
  3(1) of the Loans
  (Overseas Borrowing) Act (Chapter 133).

  43. On 26 February, Prime Minister wrote to Mr Botten regarding the
  State‘s willingness to
  buy shares in Oil Search Ltd.

• Page 21 of 475

• 44. On 27 February, four days after the meeting, the Prime Minister
  wrote to Mr Guy Fowler,
  the MD for UBS AG regarding UBS AG proposal to provide funding
  facilities to the State
  in connection with the subscription by the State for
  approximately 149.39 million shares
  in Oil Search Ltd at AU$8.20 per share. (Refer to said dated
  letter). Facts relevant to this
  query are set out in page 38

  45. On even date, the Subscription Agreement was signed between UBS
  AG (the Equity
  Derivative Financier) and Oil Shares Limited.

  46. On even date, Oil Search Ltd shares trading were suspended ahead
  of its announcement.

  47. On even date, Oil Search Ltd announced that it had agreed to
  acquire a 22.835% gross
  interest in PRL 15 (Elk Antelope) from the Pac LNG Group
  Companies for US$900 million
  to be funded through a placement of new shares to the State.

  48. On even date, the UBS AG forwarded a Commitment Letter that was
  signed by the
  GGPNG which was witnessed by Mr Okuk.

  49. On 4 March, Ashurst Lawyers forwarded draft documents for its
  client UBS AG to the
  State that outlined the financial package that UBS AG was
  offering the State.

  Chronology of Events Page xvii

  50. On even date, Mr David Heathcote of KPMG presented KPMG‘s
  analysis on the monetised
  collars relating to financing the purchase of Oil Search Ltd
  shares.

  51. On 5 March, Mr Fowler requested the Prime Minister to intervene
  in resolving the IPIC
  Exchangeable Bond, PNG LNG direction-to-pay and Sovereign Bond
  take-out of the
  Bridge Loan.

  52. On even date, Mr Vele requested Mr Daniel Rolpagarea, the State
  Solicitor to give legal
  clearance on the documents relating to the transaction for the
  State to acquire 149,390,244
  shares in Oil Search Ltd.

• Page 22 of 475

• 53. On even date, Mr Rolpagarea requested Mr Vele to provide to him
  details of confirmation
  and clear instructions on the engagement of Pacific Legal Group
  Lawyers and the breach
  of Section 209 of (Parliament Responsibility) of the Constitution
  by the NEC.

  54. On even date, NPCP Board Chairman submitted a proposal to the
  IPBC Board advising of
  the State‘s acquisition of 149,390,244 shares in Oil Search Ltd
  and that UBS AG required
  NPCP to enter into a payment direction between NPCP, PNGLNG Global
  Company LDC
  (GloCo).

  55. On even date, Mr Rolpagarea advised Mr Vele that the NEC
  Submission needed approvals
  from the relevant Agencies‘ Boards and the Parliament for the
  Bridge and Collar loans
  totalling AU$1.239 Billion.

  56. On 6 March, the UBS AG issued a Bridge Takeout Letter to Mr Vele
  that outlined the
  terms of the fees payable to UBS AG as Facility Agent under the
  Bridge Facility Agreement
  that was signed by the GGPNG and witnessed by Mr Okuk.

  57. On even date the UBS AG as the Facility Agent for the loan wrote
  to Mr Vele and
  requested for the State to pay the Facility Agent fees as per the
  Bridge Facility Agreement
  that was signed by the GGPNG and witnessed by Mr Okuk.

  58. On even date, the UBS AG as the Security Trustee for the loan
  wrote to Mr Vele and
  requested for the State to pay the Security Trustee fees as per
  the Bridge Facility
  Agreement that was signed by the GGPNG and witnessed by Mr Okuk.

  59. On even date, the Prime Minister submitted an NEC Policy paper
  No: 67/2014 to the NEC.

  60. On even date, the NEC in its Decision No: 79/2014 appointed
  Petromin as the State‘s
  subscriber and nominee for the transaction, confirmed the
  authority of the Treasurer,
  execute the Payment Direction Deed by NPCP, approved the payment
  direction by IPBC,
  Central Supply Tender Board (CSTB) to issue a Certificate of
  Inexpediency (COI) and
  Authority to Pre-Commit (APC) to be executed by the Department of
  Finance (DoF).

  61. On even date, Mr Vele advised Minister Polye that the loan would

• Page 23 of 475

• not affect the State‘s
  debt program and that Petromin was the subscriber and nominee.

  62. On even date, Mr Vele requested Mr Philip Eludeme, the Chairman
  for CSTB to approve
  the request for COI at the earliest to cover the advisory costs.

  Chronology of Events Page xviii

  63. On even date, the Prime Minister advised the GGPNG, that the NEC
  approved the
  borrowing of a loan for the purpose of purchasing shares in Oil
  Search Ltd and for the
  purpose of meeting the expenses of the borrowing itself.

  64. On even date, Mr Okuk representing Mr Vele delivered 28
  documents pertaining to the
  UBS AG loan to Mr Rolpagarea for his legal clearance.

  65. On 7 March, Mr Vele explained to Mr Eludeme that the COI was
  needed to access funds
  to pay for fees pertaining to the State‘s acquisition of the
  shares in Oil Search Ltd.
  66. On even date, Mr Vele requested Mr Rolpagarea to issue legal
  clearance on the submission
  regarding the State‘s borrowing of loan arrangements.

  67. On even date, the Prime Minister informed IPBC of the
  government‘s decision to enter into
  the agreement.

  68. On even date, Ambassador (Amb) Isaac Lupari, the Chief of Staff
  to the Prime Minister,
  advised Mr Kumarasiri that the NEC approved the State‘s intent to
  borrow from UBS AG
  to fund its acquisition of shares in Oil Search Ltd.

  69. On even date, Minister Micah directed the Board of IPBC to
  approve the Payment
  Direction Deed and to sign the Payment Direction Deed on or before
  09 March 2014.

  70. On 8 March, Mr Vele emailed to and requested Dr Thomas Webster,
  the then Chairman
  for IPBC Board, to progress the documents to the IPBC Board for
  its consideration and
  approval. The electronic mail included electronic copies of
  documents that Mr Vele had
  prepared for the IPBC Board and NPCP Board to endorse and approve.
  The attachments
  are as follows:

• Page 24 of 475

• Memo with explanation of Transaction and the Payment Direction
  Draft Payment Direction Deed
  Draft IPBC Shareholder Resolution regarding Payment Direction
  Draft IPBC Director Resolution regarding Payment Direction
  Draft NPCP Board resolution regarding Payment Direction
  Draft Power of Attorney regarding Payment Direction.

  71. On even date, Mr Kumarasiri advised Dr Webster to issue
  instructions to the management
  of IPBC Management to prepare documents in anticipation to receive
  requests from the
  Board of NPCP with their resolutions.

  72. On 9 March, Mr Erastus Kamburi, the Chief Legal Officer for
  IPBC, requested the IPBC
  Directors to meet and discuss on the directives from the Minister
  Micah and Amb Isaac
  Lupari and the NEC Decision No: 79/2014.

  73. On even date, an Explanatory Note was prepared with the Board
  Circular Resolution
  outlining the purpose of the Special Board Meeting.

  74. On even date, the NPCP Special Board of Directors Meeting No:
  02/2014 resolved that the
  Company enter into any Transaction Document to give effect to the
  Payment Direction
  Deed and authorised Mr Sonk and Mr Wato with the Power of
  Attorney.

  Chronology of Events Page xix

  75. On even date, the NPCP Board empowered Mr Sonk and Mr Rogen
  Wato, the Company
  Secretary for NPCP with the Power of Attorney.

  76. On even date, Mr Sonk verified copies of the Shareholder
  resolutions of the NPCP dated
  09 March 2014, Minutes of a Meeting of the Board of Directors and
  Power of Attorney of
  the NPCP.

  77. On even date, Mr Wapu R Sonk, Managing Director for NPCP
  forwarded to Mr
  Kumarasiri an Extract of the Board Meeting Minutes.

  78. On even date, Mr Rolpagarea advised Mr Vele that the Treasurer
  was the authorised
  person to execute loan agreements on behalf of the State strictly
  in accordance with

• Page 25 of 475

• Section 209 (Parliament Responsibility) of the Constitution.

  79. On even date, Norton Rose Fulbright wrote to the GGPNG and the
  Minister for Treasury
  regarding financing of the acquisition of the shares and possible
  options to re-finance
  following completion.

  80. On even date, Norton Rose Fulbright wrote to the GGPNG outlining
  what documents
  needed to be signed in order for the State to borrow AU$1.239
  billion to purchase Oil
  Search Ltd shares.

  81. On even date, the GGPNG signed the document enabling the State
  to borrow AU$335
  million from UBS AG for the purpose of the purchase of shares in
  Oil Search Ltd and for
  the purpose of meeting the expenses of the Borrowing and for the
  services of the State.

  82. On even date, Mr Kumarasiri wrote to Hon James Marape MP,
  Minister for Finance and
  requested him to approve the Memorandum of Approval to enable NPCP
  to enter into the
  Transaction Documents.

  83. On even date, Minister Polye advised Mr Vele that he will not
  sign the documents that
  enabled the State to borrow the said UBS AG loan.

  84. On even date, Minister Marape approved the Memorandum of
  Approval that enabled
  NPCP to enter into the Transaction Documents.

  85. On 10 March, IPBC Board resolved that NPCP Directors enter into
  the Transaction
  Documents and recommend to the Minister for Finance to approve a
  proposal by NPCP to
  enter into Agreement to execute all documents that gave effect to
  the Payment Direction
  Deed.

  86. On even date, the NPCP Board deliberated and resolved and
  authorised Board to enter into
  Agreement to execute the Transaction Documents.

  87. On even date, Mr Eludeme advised Mr Vele that the CSTB resolved
  and approved the
  issuance of the COI for the awarding of contracts to both local
  and international
  Consulting Firms.

  88. On even date, Mr Vele confirmed with Mr Rolpagarea that the

• Page 26 of 475

• GGPNG and Minister for
  Treasury were to execute the transaction documents to purchase Oil
  Search Ltd shares on
  behalf of the State.

  Chronology of Events Page xx

  89. On even date, Mr Kumarasiri certified the Circular Resolution of
  the Board of Directors of
  IPBC that authorised the execution of the Payment Direction Deed
  by NPCP.

  90. On even date Mr Kumarasiri wrote a Memorandum of Recommendation
  recommending
  Minister Marape to approve the NPCP to enter into the Transaction
  Documents.

  91. On even date, the Prime Minister decommissioned Hon Polye as the
  Minister for Treasury.

  92. On even date, Hon Polye accepted his decommissioning as Minister
  for Treasury by the
  Prime Minister.

  93. On even date, the National Gazette No: G83 and G89 of 10 March
  2014 confirmed the
  decommissioning and replacement of Hon Polye as the Minister for
  Treasury by the Prime
  Minister.

  94. On even date, the Determination of titles and responsibilities
  of the Prime Minister Hon
  Peter O‘Neill, MP also changed to allow him to act as the
  Minister for Treasury that
  enabled him to sign the loan contract agreements on the same
  date.

  95. On even date, Mr Vele requested Dr Ken Ngangan, Acting Secretary
  for DoF to approve
  the payment to UBS AG in relation to the acquisition of the
  shares.

  96. On even date, Mr Rolpagarea advised the GGPNG that all
  documentations relating to the
  borrowing were in order and that Mr Vele was satisfied with the
  Terms of the Transaction
  Documents.

  97. On even date, the State and Oil Search Ltd signed and exerted
  the subscription
  Agreement.

  98. On even date, Mr Vele advised Mr Eludeme that the local and

• Page 27 of 475

• international financial and
  legal Advisors should be paid for services rendered.

  99. On even date, the DoT deposited K1,250,000.00 into Pacific
  Capital Ltd Managed Account
  with ANZ bank (PNG) Ltd.

  100. On even date, Hon Don Polye, then Minister for Treasury was
  interviewed at the
  Ombudsman Commission Office at Deloitte Tower, Port Moresby
  during which he stated
  that it was during his term as Treasurer that the 2014 budget was
  compiled and tabled in
  Parliament

  101. On 11 March, Mr Kamburi advised Mr Kumarasiri that the
  Certificate did not include the
  Shareholder Resolution which was signed and hence he sent an
  amended and verified
  Certificate for Mr Kumarasiri‘s signature.

  102. On even date, Minister Marape gave his approval for the NPCP to
  enter into Payment
  Direction Deed.

  103. On even date, Dr Ngangan and Mr Vele signed and approved the
  APC form to release
  AU$14,555,759.00 to be paid to the Consultants relating to the
  purchasing of Oil Search
  Ltd shares.

  Chronology of Events Page xxi

  104. On 12 March, Mr Babaga R. Naime, Acting Board Secretary for
  CSTB, advised Mr
  Rolpagarea that the CSTB awarded the Contract to both local and
  International
  Consulting Firms.

  105. On even date, Mr Eludeme certified that the inviting of tenders
  for the provision of
  financial, legal and technical advisory services was impractical
  or inexpedient.

  106. On even date, Dr Ngangan approved the application for the
  Department to complete and
  issue the APC for the above Procurement.

  107. On even date, the State, NPCP and UBS AG agreed to the terms
  and conditions upon
  signing the Payment Direction Deed that directed PNG Liquefied
  Gas Global Company

• Page 28 of 475

• (GloCo) to pay immediately available funds due to NPCP to UBS AG
  as per the NEC
  Decision No: 79/2014, even though at that material time the
  Kroton Act was yet to be
  certified by the Speaker of Parliament.

  108. On even date, UBS AG confirmed with Mr Vele the terms and
  conditions of the financing
  transaction that were entered into between the State and UBS AG
  in respect of Oil Search
  Ltd shares.

  109. On even date, the Prime Minster, Mr Vele, UBS AG (the
  Arranger), UBS AG (the Facility
  Agent) and UBS Nominees Pty Ltd signed the Bridge Facility
  Agreement.

  110. On even date, the GGPNG witnessed by Mr Okuk signed the
  Specific Security Deed
  (CHESS Securities – Collar) with UBS AG that provided security to
  the loan acquisition.

  111. On even date, the GGPNG, witnessed by Mr Okuk signed the
  Security Trust Deed with
  UBS Nominees Pty Ltd that provided security to the loan
  acquisition.

  112. On even date, the GGPNG, witnessed by Mr Okuk signed the
  Participant Sponsorship
  Agreement with UBS Nominees Pty Ltd.

  113. On even date, the Prime Minster, Mr Vele, UBS AG (the
  Arranger), UBS AG (the Facility
  Agent) and UBS Nominees Pty Ltd signed the Confirmation Side
  Letter.

  114. On even date, the GGPNG witnessed by Mr Okuk signed the Nominee
  Deed with UBS
  AG, UBS Nominees Pty Ltd and UBS Securities Australia for the
  Nominee (UBS Nominees
  Pty Ltd).

  115. On even date, the Substantial shareholders notice prepared and
  lodged with Port Moresby
  Stock Exchange (POMSox) and ASX lodged on 17 March 2014.

  116. On even date, the State (Subscriber) represented by the GGPNG
  witnessed by Mr Okuk
  signed the Subscription Agreement with Oil Search Limited
  (Issuer).

  117. On even date, Mr Stephen Gardiner, the Chief Financial Officer
  for Oil Search Ltd, advised
  that Goldman Sachs Financial Markets Pty Ltd with a Bank Account

• Page 29 of 475

• number 011-112034-
  041 was the recipient of the Subscription.

  118. On even date, Oil Search Ltd announced completion of share
  placement and file appendix
  3B, Cleansing Notice and Completion Letter.

  Chronology of Events Page xxii

  119. On 14 March, the Substantial shareholder notice prepared and
  lodged with POMSoX and
  ASX (lodged on 17 March 2014).

  120. On even date, the Commission issued directives under Section
  27(4) of the Constitution
  determined that it was necessary to issue a direction under
  Section 27(4) of the Constitution to
  freeze all further progress on the PGK3 Billion loan and
  requested for collective cooperation
  from the Prime Minister; and the members of the NEC; the Chief
  Secretary; the Minister
  for Treasury and the Minister for Finance; the Secretary, DoF;
  and the Secretary, DoT; the
  Attorney-General; and the Secretary, DJAG; the Governor of BPNG;
  Petromin; and IPBC;
  and Port Moresby Stock Exchange Limited; and Oil Search (PNG)
  Limited; and UBS
  Nominees Pty Ltd.

  121. On 15 March, the Commission wrote to Mr Vele acknowledging
  receipt of his letter dated 14
  May 2014 and advised that he will be advised on the Commission‘s
  independence and
  proceedings under Section 217(5) and (6) of the Constitution.

  122. On 20 March, Mr Rolpagarea advised Mr Naime on his legal
  opinion on the request for the
  issuance of Legal Clearance – CSTB COI 02/04 stating that the CoI
  shall only be issued
  during Natural Disaster; or Defence Emergency; or Health
  Emergency; or Civil Unrest and
  that the CoI cannot be applied retrospectively.

  123. On 26 March, during his interview with the Ombudsman
  Commission, Mr Rolpagarea
  stated that he was not given enough time to thoroughly go through
  the documents and
  that he was not present at the CSTB meeting that approved the
  issuance of the COI.

  124. On 28 March, Mr Eludeme advised Mr Vele that the State
  Solicitor declined the issuance
  of legal clearance.

• Page 30 of 475

• 125. On even date, Mr Kumarasiri advised the Commission that the
  IPBC gave its approval for
  NPCP to go ahead with the transaction and referred the matter to
  the Minister for Finance
  to execute.

  126. On 31 March, Hon Kua, then Attorney-General was interviewed at
  the Commission Office
  at Deloitte Tower, Port Moresby during which he stated that he
  was never present at the
  NEC meeting that made the decision to approve the borrowing, nor
  was he consulted on
  the matter.

  127. On 3 April, Mr Bakani was interviewed at the Commission Office
  at Deloitte Tower, Port
  Moresby during which he stated that the BPNG was not involved in
  the second part of the
  UBS AG loan in which the loan was obtained to purchase shares in
  Oil Search Ltd.

  128. On 10 April, Mr Eludeme advised Mr Vele that the Board
  effectively nullified the issuance
  of the COI for the engagement of private Consultants.

  129. On 11 April, Mr Sonk directed Mr Peter Graham, MD for GloCo to
  divert all distributions
  of payments payable to NPCP to be paid to UBS AG (Singapore
  Branch).

  130. On even date, Mr Sonk and Mr Wato of NPCP directed Mr Graham of
  Esso Highlands
  who was also the MD for GloCo to immediately pay all available
  funds to UBS AG.

  Chronology of Events Page xxiii

  131. On 22 April, Ashurst Lawyers advised Norton Rose Fulbright of
  Australia that non-
  compliance with payment obligations would constitute an Event of
  Default and UBS AG
  can commence enforcement processes without further reference to
  the State.

  132. On 28 April, Hon Polye reiterated to Hon Theodore Zurenuoc, the
  Speaker of Parliament,
  his position that the government‘s borrowing UBS AG loan was bad.

  133. On 30 April, Hon Polye stated to the Commission that the loan
  was an unplanned activity

• Page 31 of 475

• and it was not a prudent thing to do and it breached the 2014
  Budget Appropriation Bill
  and the Fiscal Responsibilities Act.

  134. On even date, Ms Tessa Hoser of Norton Rose Fulbright of
  Australia advised Mr Vele that
  in the event of a default UBS AG would charge default interest on
  any unpaid interest.

  135. On 2 May, Hon Don Polye instituted proceedings in OS 142 of
  2014 against the Hon Peter
  O‘Neill, Prime Minister, Hon Patrick Pruaitch and the State.

  136. On even date, during his interview with the Ombudsman
  Commission, Mr Vele stated
  that the State engaged UBS AG together with the other financial
  and legal firms as they
  were already providing the services.

  137. On 8 May, the National Court (Salika, DCJ) OS 142 of 2014 ruled
  that Hon Polye‘s
  application be dismissed on the grounds of abuse of process of the
  National Court rules.

  138. On 9 May, Mr Anthony Yauieb, Deputy Secretary for DoT, stated
  to the Commission that
  the NEC Policy Submission on the UBS AG Loan to purchase Oil
  Search Ltd shares was
  prepared outside by Mr Vele.

  139. On 14 May, Mr Vele advised the Commission that the State is
  required to make periodic
  interest payments to UBS AG.

  140. On even date, Finance Forms number 3 & 4 (FF3& FF4) indicated
  AU$2,261,938.36
  which is about K5,543,966.57 was paid to UBS AG.

  141. On 15 May, Mr Luke Goldsworthy and Ms Celle Raguine,
  Representatives of UBS AG
  pointed out to Mr Vele that failure to pay interest breached
  clause 5.1(b) of the Agreement
  which states that all payments to be made under the Commitment
  Documents shall be
  paid in the currency of the invoice and immediately available,
  freely transferable cleared
  funds and shall be paid without set-off or counterclaim or any
  deduction or withholding
  for or on account of tax (a ―Tax Deduction‖) unless a Tax
  Deduction is required by law. If
  a Tax Deduction is required by law to be made, the amount of the
  payment due shall be
  increased to an amount which (after making any Tax Deduction)
  leaves an amount equal

• Page 32 of 475

• to the payment which would have been due if no Tax Deduction has
  been required;‖

  142. On even date, Mr Vele requested clearance from Commission on
  the interest payment to
  UBS AG.

  143. On 16 May, Mr Vele instructed Mr Bakani to immediately process
  and remit funds to the
  UBS AG.

  144. On even date, Mr Vele advised Mr Bakani that interest payment
  must be paid to UBS AG.

  Chronology of Events Page xxiv

  145. On even date, Ms Betty Palaso, Commissioner-General for
  Internal Revenue Commission
  (IRC) issued a Tax Clearance Certificate to the DoT to transfer or
  remit moneys for the
  purpose of payment of interest on UBS AG Loan.

  146. On even date, a copy of the Notification (transmission) of
  Original indicated that the
  BPNG transferred AU$2,261,938.36 to the Reserved Bank of
  Australia.

  147. On 19 May, Hon Don Polye filed an application under to Section
  18(1) of the Constitution
  that in SCCOS No. 1 of 2014 to be part of the Supreme Court
  proceedings relating to the
  borrowing of the UBS AG loan.

  148. On 23 May, the Commission responded to Mr Vele‘s letter dated
  15 May 2014 and advised
  that the Commission‘s investigation into the UBS AG Loan was
  continuing and that
  Section 27(4) of the Constitution was still in force and that it
  also applied to the interest
  payments to UBS AG.

  149. On 27 May, Dr Clement Waine, Acting Secretary, Department of
  Public Enterprise (DoPE)
  explained that neither he nor his Department were involved in the
  matter been
  investigated.

  150. On 3 June, Mr Kramer stated that NPCP was involved in the
  execution of the Payment
  Direction Deed as per the IPBC Board request and direction.

  151. On 5 June, Mr Vele wrote to the Commission and stated that the
  Commission does not

• Page 33 of 475

• have the power to issue directives to stop such interest payments.
  To fail to make the
  interest payments would simply not be in the best interest of
  Papua New Guinea or its
  people.

  152. On even date, Mr Eludeme confirmed that CSTB approved a request
  for application for
  COI by Mr Vele.

  153. On 6 June, Mr Vele as second Plaintiff and the Hon Peter
  O‘Neill, Prime Minister as First
  Plaintiff filed proceedings in OS (JR) 383 of 2014 the National
  Court against the
  Commission and the State seeking Courts powers under Section 18(2)
  of the Constitution to
  refer questions to the Supreme Court on the Commission‘s power to
  issue Directions
  under Section 27(4) of the Constitution and Section 23 and 27(5)
  of OLDRL.

  154. On 12 June, Dr Lawrence Kalinoe, Secretary for DJAG, advised
  the Commission that
  neither he nor his Department was involved in the UBS AG Loan
  transaction.

  155. On 13 June, Hon Kua categorically denied the allegations that
  he was personally involved
  in giving clearance for the UBS AG loan and that he was not
  present in the NEC Special
  Meeting No 37/2013 that approved the UBS AG loan.

  156. On 4 July, Mr Vele advised the Commission that the UBS AG loan
  transaction was
  constitutional and had been lawfully undertaken by the State and
  its related parties in
  every aspect including the decision made over a cup of coffee at
  the Grand Papua Hotel by
  the Prime Minister, Mr Botten, Mr Aopi and Mr Vele.

  Chronology of Events Page xxv

  157. On 7 July, Mr Ilagi Veali, MPS, Secretary to the NEC forwarded
  copies of the NEC Special
  Meeting No: 08/2014 together with the list of Cabinet Ministers
  who were present or
  absent at the Special Meeting.

  158. On 27 October, Pacific Legal Group Lawyers representing the Hon
  Peter O‘Neill, Prime
  Minister and Mr Vele, mared the proceedings in OS (JR) No. 383 of

• Page 34 of 475

• 2014 for the Court to
  refer certain questions to the Supreme Court for interpretatin.

  159. On 3 December, the National Court granted the application by
  the Hon Peter O‘Neill,
  Prime Minister and Mr Vele and referred various questions to the
  Supreme Court for
  interpretation pursuant to Section 18(2) of the Constitution. The
  Court also ordered that the
  proceedings in OS (JR) No. 383 of 2014 be stayed.

  160. On 8 December, the Ombudsman Commission issued the Provisional
  Report to those
  implicated.

  161. On 11 December, copies of Provisional Reports were delivered to
  Hon James Marape,
  Minister for Finance, Dr. Ken Ngangan, Acting Secretary for DoF,
  Mr Dairi Vele, Acting
  Secretary DoT and Mr Loi Bakani, Governor for Central Bank.

  162. On 12 December, copies of the Provisional Report were delivered
  to Hon Peter O‘Neill,
  Prime Minister, Hon Ben Micah, Minister for State Enterprise and
  State Investments, Mr
  Philip Eludeme, Chairman of CSTB and Amb Isaac Lupari, Prime
  Minister‘s Chief of Staff.

  163. On 16 December, a copy of the Provisional Report was delivered
  to Mr Carl Okuk, legal
  consultant.

  164. On 22 December, Young & Williams Lawyers representing the Prime
  Minister Hon Peter
  O‘Neill, MP responded to the Provisional Report, refuting any
  wrong doing and that the
  Commission‘s investigations were fatally flawed. The Prime
  Minister‘s Lawyers did not
  request for an extension of time as required.

  2015
  165. On 8 January, the National Court ruled pertaining to OS No. 810
  of 2014 that the
  Constitutional question be referred to the Supreme Court and
  interim injunctions and a
  stay of proceedings on the leadership tribunal.

  166. On 22 January, Dr Ken Ngangan responded to the Provisional
  Report.

  167. On 23 January, Mr Vele, Acting Secretary, DoT responded to the
  Provisional Report.

  168. On even date, Hon Peter O‘Neill, Prime Minister made an

• Page 35 of 475

• application to the National
  Court seeking referral of several questions for interpretation by
  the Supreme Court under
  Section 18(2) of the Constitution.

  169. On 16 February, Mr Frank Kramer, Chairman, KPHL responded to
  the Provisional Report.

  Chronology of Events Page xxvi

  170. On 18 February, Mr Vele submitted his affidavit in the matter
  SCR No.7 of 2014 relating to
  the Special Reference by Hon Ano Pala, Minister for Justice &
  Attorney-General, MP
  before the Supreme Court.

  171. On 24 February, Mr Loi Bakani, Governor for Central Bank
  responded to the Provisional
  Report.

  172. On 25 September, Young & Williams Lawyers responded on behalf
  of Prime Minister Hon
  Peter O‘Neill, MP filed a schedule of questions and proposed
  answers to questions in
  consolidated references pursuant to Order made 11 August by the
  Bernard Sakora, J.

  173. On even date, Young & Williams Lawyers representing the Prime
  Minister Hon Peter
  O‘Neill, MP filed a Special Reference 7 of 2014 and SC References
  No. 1 and 2 of 2015
  referring 13 Constitutional questions to the Supreme Court to
  answer.

  2016
  174. On 19 July, Justice Catherine Davani of the National Court made
  reference to the Supreme
  Court under SCR No. 5 of 2016, eleven (11) questions pertaining
  to whether the OC had
  the jurisdiction to investigate the PM and whether or not the
  issuing of the OLOC
  Provisional Report ultra vires the power of the Ombudsman
  Commission.

  175. On 28 July, Justice Catherine Davani submitted Facts pertaining
  to the Supreme Court
  Reference SCR No. 5 of 2016.

  176. On 19 August, the Ombudsman Commission submitted an
  Intervention to be part of the

• Page 36 of 475

• Supreme Court Reference SRC No. 5 of 2016.

  177. On even date, the Prime Minister Hon Peter O‘Neill, MP
  submitted an Intervention to be
  part of the Supreme Court Reference SRC No. 5 of 2016.

  178. On 20 September, Hon Ano Pala, Attorney-General submitted an
  Intervention to be part
  of the Supreme Court Reference SRC No. 5 of 2016.

  179. On 26 September, Hon Ano Pala, Attorney-General amended his
  statement of response
  and submitted it as part of his Intervention to be part of the
  Supreme Court Reference
  SRC No. 5 of 2016.

  180. On even date, the Prime Minister Hon Peter O‘Neill, MP through
  his lawyers filed an
  injunction on the matter OS No. 15 of 2015 in the National Court.

  2017
  181. On 6 October, the Supreme Court dismissed the Supreme Court
  Reference SCR No. 5 of
  2016 made by Justice Catherine Davani and returned the matter to
  the National Court.

  182. On 15 November, the Supreme Court conclusively determined that
  the Office of the Prime
  Minister does fall within the OLOC functions of the Commission.
  There was therefore no
  utility in the current proceedings. Therefore, the court
  dismissed the entire proceedings

  Chronology of Events Page xxvii

  with costs and discharged any injunction that may have been
  issued against the
  Commission on this matter.

  RESPONSE FROM THE ACTING SECRETARY FOR TREASURY, MR DAIRI VELE

  On 23 January 2015, Mr Dairi Vele responded to the Provisional
  Report, in particular to
  the Chronology of Events section and stated the following:

  Comments

  As an initial comment on the Chronology as set out by the
  Ombudsman Commission, I say that it has
  been drafted in a way that is biased towards a finding of
  improper conduct. Many essential steps in the
  process have been completely omitted, beginning with omitting all

• Page 37 of 475

• Cabinet decisions in 2013
  concerning, the sourcing of advice on the IPIC Bond, including
  the creation of a Committee of which I
  was Chair to advise both IPBC and NEC on the options available
  for refinancing of the IPIC Bond and
  the retention of Oil Search shares – to omitting that the
  Ombudsman Commission refused to allow the
  State to pay interest to UBS AG pursuant to the binding
  obligations on the loan exposing the State to
  serious adverse financial consequences, and also fails to include
  that such decision of the Ombudsman
  Commission was stayed by the National Court.

  It fails to set out that at all times I sought legal advice on
  every step of the process.
  It also does not include that the initial proceedings commenced
  by Don Polye to challenge the validity
  of the loan that were dismissed, but more importantly does not
  include the commencement by Mr
  Polye of SCCOS 4 of 2014 on 15 May 2015 that seeks constitutional
  opinions of the Supreme Court on
  the application of Section 209 in these circumstances and which
  seeks to have the loan declared void
  and unenforceable against the State. These Supreme Court
  proceeding make the subject matter of this
  report subjudice the Ombudsman Commission ought to cease work on
  this investigation pending the
  outcome of SCCOS 4/14 otherwise, it is acting in content of the
  Supreme Court.
  In order to respond to this Chronology, I have reproduced the
  Chronology but have in addition
  inserted the factual events that have been omitted – these are
  highlighted and in different font for your
  ease of reference.

  1995

  1. 5 December, the Investment Promotion Authority (IPA) registered
  Pacific Capital Ltd whose
  Shareholders also include Mr Frank Michael Kramer.

  2009

  2. 5 March, the GoPNG through IPBC mortgaged its shares in Oil
  Search Ltd with International
  Petroleum Investment Company (IPIC), Abu Dhabi and acquired the
  needed funding and it financed
  the State‘s share of the capital expenditure for the PNG LNG
  project. In addition to GoPNG through
  IPBC mortgaging the Oil Search Shares, all SOEs were also
  mortgaged to secure the IPIC loan.

  In addition to GoPNG through IPBC mortgaging the Oil Search
  Shares, all SOEs were also mortgaged

• Page 38 of 475

• to secure the IPIC loan.
  3. 1 July, the IPA registered Pertusio Capital Partners Ltd whose
  Shareholders also include Mr Dairi Vele.

  2012

  In March, Mr. Dairi Vele ceases to be a Director and Shareholder
  of Pertusio Capital Partners Ltd.

  5 December Norton Roase Fulbright was retained by IPBC to provide
  legal advice on the IPIC Bond
  Project. The work expressly included
  Reviewing the terms and conditions of the IPIC Bond,

  Chronology of Events Page xxviii

  Reviewing and advising options available to IPBC for refinancing
  of the loan and or restructure of the
  terms of the existing loan.

  Specifically it was recognised in the scope of work that ―a
  significant aspect of this scope of work
  would involve meeting the objectives regarding the ownership of
  the Oil Search shares.

  2013
  (Omitted) 5 April 2013,
  Cabinet Decision No. 117/2013.
  On 5th April 2013, Council:
  Noted the strategic investment positive and negative implications
  of not retaining the Oil Search
  Shares currently pledged in the IPIC Bond Transactions;
  Approved for the Minister for Public Enterprise and the State
  Investments to direct the Board and
  Management of IPBC and its successive organisations to explore
  the following;
  To raise funds in the capital market (estimated to be AUD1.8
  billion) to repurchase Oil Search shares
  through the Redemption of IPIC Bonds and negotiate the best
  interest rates with favourable
  conditions to PNG to the term of the loan/bond not to exceed 10
  years but preferably at 7 years;
  IPBC should minimize cost associated with raising funds through
  direct negotiations with potential
  financier and use of IPBC Management;
  Provide appropriate security options to meet financiers security
  requirements;
  To raise funds needed for Train 3 of the PNG LNG Project
  expansion estimated to be AUD 1.2 billion;
  and

• Page 39 of 475

• Consider USD (United State Dollar) as a form of currency during
  the fund raising preferred by the
  financiers.
  Directed the Minister for Public Enterprise and State Investments
  and the Acting Managing Director
  for IPBC to report back to the NEC of potential financiers and
  their team sheets immediately for NEC
  approval.
  2013
  (Omitted 5th April 2013
  Cabinet Decision No. 119/2013
  On 5th April 2013, Council:
  Appointed Mr. Wasantha Kumarasiri, OBE as the Managing Director
  of IPBC and its successive
  organisation for period of four (4) years effective from the date
  of this Decision in accordance with
  Section 23 of the IPBC Act (as amended).
  Note that until the establishment of ―Kumul Petroleum Holding
  Limited‖ in line with the NEC
  decision and the appointment of its Managing Director, during the
  interim period, the Managing
  Director of IPBC shall manage all affairs necessary on Abu Dhabi
  based IPIC Transaction and any
  refinance requirements and negotiations and also oversee NPCP as
  part of the General Business Trust.
  4. 25 June, the Prime Minister Hon Peter O‘Neill, MP advised Hon
  Kerenga Kua, MP, the then Attorney-
  General that a brief –out legal services should be publicly
  tendered, which Mr. Kua failed to do for
  ANY legal brief out whatsoever during his time as Attorney-
  General.

  (Omitted) 9 July 2013
  Cabinet Decision No. 241/2013

  Chronology of Events Page xxix

  On 09th July 2013, Council:

  noted the content of Policy Submission No. 176/2013;

  noted the refinancing options presented in the submission to redeem
  the International Petroleum
  Investment Company (IPIC) Exchangeable Bonds;
  Appointed the following as members of the IPIC Exchangeable Bond
  Review Committee:

  Director, Gas Project Coordination Office – Chairman; (Mr Vele)
  Secretary, Public Enterprise – Deputy Chairman;
  Secretary, Treasury or his nominee – Member;
  State Solicitor or his nominee – Member;
  Managing Director, IPBC – Member.

• Page 40 of 475

• Include the following in Terms of the Reference for the Review
  Committee to look at:

  ―Bidding internationally for the engagement of international experts
  to provide up market and up to date
  advice to the Government on petroleum and gas issues‖.

  approved the Terms of Reference for Committee;

  approved to repeal clause 3 of the NEC Decision No. 119/2013 in its
  entirety;

  Directed the Minister for Public Enterprise and State Investments to
  take carriage of all matters pertaining
  to the redemption of IPIC Exchangeable Bond and the retention of Oil
  Search Shares and that this NEC
  Decision supersedes all previous NEC Decisions, namely NEC Decision
  117/2013 or such other decisions
  pertaining to the IPIC Bond issue; and

  Directed that the IPIC Exchangeable Bond Review Committee reports
  its findings back to the Minister for
  Public Enterprise and State Investments before 31st August 2013 with
  a clear path towards completing IPIC
  Exchangeable Bond transaction.

  The Terms of Reference for the IPIC Exchangeable Bond Review
  Committee were as follows:

  ―Under the Direction of the Minister of Public Enterprise and State
  Investments, Hon Ben Micah, MP, and
  the Chairman of Dr. Thomas Webster, Chairman IPBC, the Committee is
  directed to:

  Meet as required by the Chairman to consider and review proposals
  for the State to refinance the IPIC
  Exchangeable Bond.

  The chairman is to report the final recommendation of the Committee
  to the Minister by 31 August 2013.

  All information you require with regard to the original IPIC
  funding, other related matters and the current
  position and negotiations with IPIC are to provide to the Chairman
  of the Committee immediately on
  request of any relevant party.

  Proposals must meet the following requirements:
  4.1 The amount to be raised is estimated to be AU$1.681B plus
  interest of approximately another
  AU$84M.

  4.2 If the Oil Search shares are to be used as collateral for new

• Page 41 of 475

• funding, those shares are to be secured
  as a stand-alone asset and are not be conditional on any
  other asset.

  4.3 As stand-alone security, Oil Search equity must be the only
  security available for any proposal
  which includes the Oil Search equity on a basis which has no
  recourse to any other asset.

  4.4 For any cash flow security component in any proposal,
  security recourse is to be the cash flow
  above. No security other than the potential cash receipt is
  available. Where cash flow is monetised
  or securitised by a lender, the control or de facto ownership
  of the underlying asset is not available
  to the lender.

  4.5 The underlying control interest of Oil Search shares must be
  vested with IPBC and all dividends
  during the term of the refinance transaction must be paid to
  IPBC.

  4.6 Neither the whole of nor any part of NPCP‘s equity is
  available to support the refinancing. NPCP‘s
  equity is not available as security or for sale nor will any
  dilution of its current equity to any party

  Chronology of Events
  Page xxx

  to be accepted except the 4.20% mandatory acquisition by
  landowner company as provided under
  the benefit-sharing arrangements.
  4.7 First interest payment should not be earlier than December
  2015 to align and prepare with cash
  inflows from PNG LNG Project.

  4.8 No State guarantee should be a condition requirement.
  4.9 Transaction fees on success must be kept at minimal or zero
  if possible.

  4.10 Meet Regulatory Transaction Certification requirements
  through Certified Agent in the
  appropriate Financial Markets complying post Global
  Financial Crisis (GFC) Financial Transaction
  Regulatory Requirements.

  5. Timing of finalising this refinancing is critical. A
  successful proposal must demonstrate funding to
  be complete after the 31 August, which absolute certainty.

  As Chairman of the IPIC Exchangeable Bond Review Committee,

• Page 42 of 475

• under the direction of IPBC, Mr. Vele
  utilised the services of Norton Rose Fulbright in accordance
  with their retainer by IPBC for the purposes
  of the achievement of the Committee‘s Terms of Reference.

  5. 6 August, the National Executive Council appointed Mr. Dairi
  Vele, as the Acting Secretary for
  Department of Treasury (DoT).

  8 August, a recommendation by Gas Office and Chairman of the
  IPIC Exchangeable Bond Review
  Committee that Financial Advisers be appointed and position/
  discussion paper drafted by Mr. Vele.

  6. 12 August, the DoT officials Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review Committee
  Member and Acting Secretary for Treasury and met with Union Bank
  of Switzerland,
  Aktiengesellschaft, Australia Branch (UBS AG) officials at
  Sydney, Australia.

  15. 13 August, the DoT officials Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review Committee
  Member and Acting Secretary for Treasury met with Morgan Stanley
  officials in Sydney, Australia.

  16. 14 August, the DoT officials Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review Committee
  Member and Acting Secretary for Treasury met with JP Morgan
  officials at Sydney, Australia.

  17. 15 August, the DoT officials Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review Committee
  Member and Acting Secretary for Treasury held a second meeting
  with UBS AG officials at Sydney,
  Australia.

  7. 16 August, the DoT officials Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review Committee
  Member and Acting Secretary for Treasury met with Credit Suisse
  officials at Sydney, Australia.

  8. 19 December 2013, the National Executive Council (NEC) during a
  Special Meeting No: 37/2013 in its
  Decision No: 479/2013 noted the submission that UBS AG was the
  preferred financial adviser and
  arranger by IPBC and the IPIC Committee but approved and
  directed that the BPNG provide final
  evaluations on the proposals to be obtained from Citi Bank and
  UBS AG to re-finance the International
  Petroleum Investment Company (IPIC) Exchangeable Bond and to
  retain the interest of the State in
  Oil Search.

• Page 43 of 475

• 12. 20 December, Hon Ben Micah, MP, Minister for State Enterprises
  and State Investment (SE&SI) wrote
  to Mr Loi Bakani, the Governor of Bank of Papua New Guinea
  (BPNG) and requested the BPNG to
  evaluate the potential financiers‘ proposals to re-finance the
  IPIC Exchangeable Bond.

  13. 22 December, Mr Bakani advised Minister Micah that the four
  financiers should have been provided all
  the information and requested to bid for the Exchangeable Bond
  re-financing facility.

  14. 27 December, Minister Micah requested Mr Bakani for
  clarification on the BPNG‘s advice.

  2014

  Chronology of Events Page xxxi

  15. 7 January, Mr Bakani advised Minister Micah that the State re-
  negotiate the funding structure of the
  proposals with the two Financiers the UBS AG and Citi Bank.

  16. 9 January, Mr Bakani forwarded the BPNG‘s recommendations to
  Minister Micah as requested.

  Mr Bakani requested the Prime Minister to allow the BPNG the
  mandate to assist the State in meeting
  the basic re-financing requirements in the negotiation process.

  17. 14 January, Mr Wasantha Kumarasiri for Independent Public
  Business Corporation (IPBC), requested
  Mr Bakani to correct his advice to Minister Micah as it was
  incorrect and misleading.

  18. 15 January, Minister Micah wrote to Mr Bakani and requested that
  the BPNG provide its final
  recommendations on the two Banks, UBS AG and Citi Bank.

  19. 16 January, Mr Bakani requested all parties including the BPNG,
  Minister Micah, IPBC, and the DoT to
  draft the Terms of Reference to be used during negotiations with
  potential Financiers.

  20. 17 January, Mr Bakani wrote to and advised Mr Kumarasiri that
  the BPNG‘s evaluations and
  recommendations were based on information provided in accordance
  with the NEC Decision No:
  479/2013 in its Special Meeting No: 37/2013.

• Page 44 of 475

• Mr Bakani requested Ms Natalie Yacoubian of PNP Paribas to
  resubmit PNP Paribas proposal
  incorporating the refined terms.

  Mr Bakani requested Mr Mitchell Turner of UBS AG to resubmit UBS
  AG proposal incorporating the
  refined terms.

  Mr Bakani requested Mr Philip Graham to resubmit Citi Bank‘s
  proposal incorporating the refined
  terms.

  Minister Micah advised Mr Bakani that he expected a
  recommendation by Wednesday 22 January
  2014.
  21. 23 January, Mr Bakani recommended to the NEC to request the Abu
  Dhabi Government for an
  extension of six months, to allow time to improve on the
  proposal by BNP Paribas, the superior
  proposal, as well as the UBS AG, Citi Bank and ANZ/Barclays.

  22. 27 January, Hon Don Polye, Minister for Treasury wrote to Mr
  Bakani and requested for a full brief on
  the implementation of the NEC‘s Decision No. 479/2013 regarding
  the re-financing of IPIC
  Exchangeable Bond.

  23. Even though the BPNG‘s assessment on the four proposals was
  inconclusive, Mr Bakani, however,
  recommended the UBS AG over BNP Paribas to Minister Micah to
  refinance the IPIC Exchangeable
  Bond.

  24. 30 January, Mr Bakani wrote to the Director of Investment
  banking UBS AG regarding the re-financing
  of the IPIC Loan and advised that the State accepted its
  proposal to re-finance the IPIC Loan and
  advised that the State accepted its proposal to re-finance the
  IPIC Exchangeable Bond by a combined
  structure of a Rollover Collar and term Loan. Mr Bakani also
  requested the UBS AG to confirm in
  writing its commitment to fund the AUD$1.7 Billion IPIC
  Exchangeable Bond.

  30 January, Mr Vele engaged UBS AG to act as the sole Financial
  Advisor and Lead Arranger, in
  relation to the management of the investment of the State in Oil
  Search Ltd. This is completely
  incorrect. Mr Vele did not engage UBS AG on 30 January 2014 or
  any other time prior to 6 March 2014.
  UBS AG were only actually engaged by the State following Cabinet
  Decision no 79/2014. Following the
  advice from BPNG that the State had accepted UBS AG proposal, as

• Page 45 of 475

• essentially project manager of the
  IPIC Bond matter, Mr Vele commenced negotiations and dealing
  with UBS AG, but their retainer was
  contingent on the Cabinet Decision of 6 March 2014.
  Mr Bakani informed the Directors for Investment Banking, UBS AG
  that the State had accepted its
  proposal to re-finance IPIC Exchangeable Bond worth AU$1.7
  Billion.

  Chronology of Events Page xxxii

  Minister Micah noted Mr Bakani‘s recommendations but he advised
  that the six months extension
  recommended would incur costs and was not possible.
  25. 3 February, Minister Micah informed Mr Frank Kramer, Chairman
  for National Petroleum Company of
  PNG Ltd (NPCP) Board regarding the Exchangeable Bond and the
  appointment of UBS AG.

  Hon Minister Micah accepted the BPNG‘s recommendations and the
  NPCP‘s lead to re-finance IPIC
  Exchangeable Bond process on behalf of the Independent State of
  Papua New Guinea (State).

  26. 4 February, the Prime Minister advised HH Sheik Mansour bin
  Zayed Al Nahyan that the State
  wanted to retain its shares in Oil Search Ltd.

  27. 7 February, Mr Bakani re-assured Minister Micah on its
  recommendation to use UBS AG to re-finance
  IPIC Exchangeable Bond.

  28. 13 February 2014, team of Foreign Affairs Minister, Governor of
  BPNG, Acting Secretary for Treasury,
  representatives of UBS, Peter Botten of Oil Search and Anthony
  Latimer of Norton Rose Fulbright
  prepared to travel to Abu Dhabi commencing 15 February to return
  on 20 February to meet with IPIC
  leaders in relation to the Bond and Shares as no indication had
  been given as to the method of re-
  payment preferred to retain the Oil Search Shares.

  13 February, a Mandatory Exchange Notice to Deutche Bank AG,
  London Branch (Exchange Agent)
  indicated that the IPIC did not want to sell its shares to
  Government of Papua New Guinea (GoPNG).

  Mr John Leahy, Head of Business Assurance & Asset Serving,
  National Nominees Limited, consented
  and became a member of Oil Search Ltd and undertook trading of
  Shares on the Australian Stock
  Exchange.

• Page 46 of 475

• Consideration was given by the State team that other methods of
  acquiring shares in Oil Search
  needed to be explored, to replace the shares to be retained by
  IPIC.

  Market rumours were of a placement of Shares by Oil Search to
  raise capital to purchase an interest in
  the Elk Antelope Project and if this happend post purchase the
  share price would rise significantly and
  it would be much more expensive for the State to buy shares from
  the market. The Oil Search share
  price was very closely linked to projects they had under
  development. If a share purchase was to be
  done by the State it therefore needed to be done from the share
  placement or before the share
  placement – it was a commercial reality that time was of the
  essence.

  20 February 2014, Mr Vele and Mr Latimer meet with UBS AG in
  Sydney to discuss whether UBS AG
  could give an indication whether they would agree to provide
  funding to purchase part of a share
  placement by Oil Search, as any submission to NEC would need to
  have some Certainty that funding
  would be available to purchase the Oil Search shares.
  20 February 2014, Mr Vele seeks instructions from Prime Minister
  Hon Peter O‘Neill, MP as to
  whether the State would consider buying a placement of shares
  from Oil Search given IPIC was to
  retain the State‘s shares in Oil Search and the Prime Minister
  Hon Peter O‘Neill, MP instructed that it
  was a NEC decision to retain shares in Oil Search so Mr Vele
  should proceed to put together a draft
  deal to be considered by NEC.
  21 February 2014, Mr Vele met with Mr Botten in Sydney and
  advised that the State may be interested
  in buying shares in Oil Search and asked for the State to be
  informed of any plans to issue additional
  shares and informs Botten that the State would be able to obtain
  funding from UBS AG.
  21 February 2014, Mr Vele in constant communication with Prime
  Minister Hon Peter O‘Neill, MP for
  instructions.
  21 February, Oil Search share price was AU $8.46.
  22 February 2014, Mr Botten flies to Papua New Guinea and seeks
  to meet with Prime Minister Hon
  Peter O‘Neill, MP and does meet with the Prime Minister and has
  preliminary discussions about price
  but the Prime Minister informs Mr Botten that any specific
  negotiations must be done with Mr Vele as
  he was preparing the draft deal.

  Chronology of Events Page xxxiii

• Page 47 of 475

• 23 February 2014, Mr Vele returns to Papua New Guinea.
  29. 23 February, the Prime Minister, Hon Peter O‘Neill, MP, Mr Peter
  Botten, MD of Oil Search Ltd, Mr
  Gerea Aopi, Board Chairman for Oil Search Ltd and Mr Vele met at
  Grand Papua Hotel and decided for
  the State to buy 149, 390, 244 shares which translated to 10.01
  % shareholding in Oil Search Ltd. and
  discussed the availability of a placement of Oil Search shares.
  There was a discussion on price but the
  Prime Minister advised Mr Botten to speak to Mr Vele about price
  in further negotiations to take
  place. The Prime Minister and Mr Vele expressed to Oil that the
  State had an interest in buying Oil
  Search Shares. No agreement or commitment was made on behalf of
  the State, the share price was not
  settled on and it was the position negotiations would be ongoing
  before a submission would be put to
  NEC.

  30. 24 February, Hon Rimbink Pato, MP, Minister for Foreign Affairs
  and Immigration (FAI) advised HH
  Sheikh Abdullah bin Zayed Al Nahyan, the Minister for FAI, Abu
  Dhabi, United Arab Emirates, that
  the GoPNG wanted to retain ownership of the Oil Search Ltd
  shares.

  24 February 2014, Mr Botten and Mr Vele have numerous
  discussions on a possible price that the State
  could pay. Mr Botten informed that Oil Search wanted $8.50 per
  share and that although they could
  discuss a price, any proposed price would have to be put to the
  Board of Oil Search. Mr Vele advised
  Mr Botten that he would need to speak to the Prime Minister
  about the price and then any proposed
  deal would need to be put to and approved by cabinet.
  24 February 2014, Mr Vele met with the Prime Minister Hon Peter
  O‘Neill, MP and the Prime Minister
  instructed that the State would only be prepared to pay AUD$8.20
  per share as that was the price Mr
  Botten had indicated on 22 February 2014.
  24 February 2014, Mr Vele advises Mr Botten that he had been
  instructed that the State would only
  consider a price of $8.20.
  24 February 2014, UBS AG advised that $8.20 was an unrealistic
  price and that the State would need
  to pay $8.50 a share but Mr Vele stated he had a clear
  instruction that $8.20 was the price the State
  would consider paying.
  31. 25 February 2014, UBS AG write to Mr Vele and outlined the
  proposed terms of engagement including
  fees charged in relation to the role as financial advisor and
  lead arranger as well as financial modelling.

• Page 48 of 475

• 25 February, UBS AG wrote to Mr Vele and outlined the terms of
  engagement of UBS AG as the Sole
  Financial Advisor and Sole Lead Arranger that was effected on 30
  January 2014, in relation to the
  management of the investment of the State in Oil Search Ltd and
  associated matters flowing from the
  issuance in 2009 of Exchangeable Bond in respect of the State‘s
  196.6 million shares in Oil Search Ltd
  to the IPIC of Abu Dhabi. These terms were agreed to when the
  GGPNG signed the document that
  was witnessed by Mr Okuk.
  Trading in Oil Search Ltd shares halted ahead of its
  announcement issuing shares to existing
  shareholders and interested buyers.
  His Excellency Grand Chief Sir Michael Ogio, G.C.L, G.C.MG,
  K.St.J the Governor-General of Papua
  New Guinea (GGPNG) signed the document agreements which were
  witnessed by Mr Carl Okuk as a
  Commissioner for Oath witnessing the agreement on the terms and
  conditions of engagement of UBS
  AG.
  32. 26 February, Prime Minister wrote to Mr Botten regarding the
  State‘s willingness to buy shares in Oil
  Search Ltd.

  26 February 2014, KPMG was brought in to review the terms
  offered be UBS AG to make sure that the
  offer was on proper commercial terms. No retainer agreement was
  given to KPMG as they were aware
  their advice was only relevant as part of the draft deal if
  approved by NEC, but it was essential that
  figures were checked prior to a NEC submission.
  26 February 2014, advice was being provided on legal matters
  from Norton Rose Fulbright as a result
  of their retainer by IPBC. As Acting Secretary for Treasury Mr
  Vele was still a member of the IPIC
  Bond Committee and that was under the direction of IPBC.

  Chronology of Events Page xxxiv

  Mr Vele was not receiving advice from the State Solicitor as Mr
  Vele was informed he was busy and a
  derivative transaction of this type was complicated not something
  that the State Solicitor had any
  experience in or expertise and therefore the State required
  specialist advice. Norton Rose Fulbright
  retained Pacific Legal Group as their local counsel to assist in
  Papua New Guinea. The State did not
  retain Pacific Legal Group.
  26 February 2014, as Ashurts were the local Counsel of UBS AG
  they drafted documents relevant to the

• Page 49 of 475

• proposed deal, but on the basis that Cabinet was still to approve
  the transaction. They were retained
  by UBS AG and not the State.
  26 February 2014, UBS AG and Oil Search enter into separate
  underwriting agreement whereby if the
  State through Cabinet did not approve and go through with the
  deal to buy Oil Search Shares, then
  UBS AG could buy the Oil Search Shares for their own investment
  purposes.
  33. 27 February, four days after the meeting, the Prime Minister
  wrote to Mr Guy Fowler, the MD for UBS
  AG proposal to provide funding facilities to the State in
  connection with the subscription by the State
  for approximately 149.39 million shares Ltd at AU$8.20 per share.

  27 February 2014, Mr Vele receives a commitment letter from UBS
  AG regarding the Oil Search shares
  loan.
  Subscription Agreement was signed between UBS AG (the Equity
  Derivative Financier) and Oil Shares
  Limited.
  Oil Search Ltd shares trading were suspended ahead of its
  announcement.
  Oil Search Ltd announced that it had agreed to acquire a 22.835%
  gross interest in PRL 15 (Elk
  Antelope) from the Pac LNG Group Companies for US$900 million to
  be funded through a placement
  of new shares to the State.
  UBS AG forwarded a Commitment Letter that was signed by the GGPNG
  which was witnessed by Mr
  Okuk.
  28 February 2014, Consolation between Mr Vele as Secretary for
  Treasury and in his capacity as
  member of IPIC Exchangeable Bond Review Committee and BPNG being
  the Governor and Dr Jakob
  Weiss on the terms and conditions of the UBS AG proposal. Paddy
  Jike of UBS AG was available at the
  meet to assist. The proposal for the loan to purchase Oil Search
  shares on market that UBS was making
  was not substantially different to what had previously been
  proposed in their previous advice
  regarding refinancing the IPIC loan. The terms and conditions
  therefore cannot in any way be said to
  be prejudicial to the State.
  28 February 2014, both Treasurer and Prime Minister were updated
  regularly by Mr Vele as to the
  meetings and negotiations.
  34. 4 March, Ashurst Lawyers forwarded draft documents for its
  client UBS AG to the State that outlined
  the financial package that UBS AG was offering the State.

  Mr David Heathcote of KPMG presented KPMG‘s analysis on the
  monetised collars relating to
  financing the purchase of Oil Search Ltd shares.

• Page 50 of 475

• 35. 5 March, Mr Fowler requested the Prime Minister to intervene in
  resolving the IPIC Exchangeable
  Bond, PNG LNG direction-to-pay and Sovereign Bond take-out of the
  Bridge Loan.

  5 March 2014, which was as soon as the documents were provided to
  Mr Vele from the Counsel to UBS
  AG being Ashursts, Mr Vele requested Mr Daniel Rolpagarea, the
  State Solicitor to give legal clearance
  on the documents relating to the transaction for the State to
  acquire 149,390,244 shares in Oil Search
  Ltd.

  Mr Rolpagarea requested Mr Vele to provide to him details of
  confirmation and clear instructions on
  the engagement of Pacific Legal Group and the breach of Section
  209 of (Parliament Responsibility) of
  the Constitution by the NEC. This is incorrect. Mr Rolpagarea
  actually noted
  Correctly that the documents were delivered to his office by
  Pacific Legal Group

  Chronology of Events Page xxxv

  Incorrectly that Norton Rose Fulbright and Pacific Legal Group
  had been retained by Mr Vele or by Treasury
  (NRF had been retained by IPBC and PLG had been retained by NRF)

  Correctly that the documents required his urgent consideration
  and issuance of the legal clearance to NEC‘s
  consideration if appropriate

  Correctly the NEC‘s decision and background information and the
  State‘s intention to acquire a 10.1% interest in
  Oil Search

  And advised Mr Vele that
  The documents are a reflection of the State‘s negotiated position
  and as such are acceptable to the State.

  That the documents which were Minutes and Certificates that were
  not as yet signed by representative
  individuals or Company Boards were in order for Mr Vele to
  facilitate such signatures and/or Board meetings.
  (This includes IPBC Board meeting minutes, the IPBC shareholders
  resolution and the NPCP minutes and POA –
  Mr Vele forwarded these documents to IPBC on the express advice
  and clearance of the State Solicitor contrary to
  OC assertions of wrongdoing)

  And Commented
  That his advice was that many recommendations for NEC approvals

• Page 51 of 475

• require approvals/authorisations specifically
  from the State agencies acting independently but taking into
  account the NEC decision and advised further that
  the relevant approvals should be sought by Mr Vele from the
  State‘s relevant agencies after NEC consideration
  and approval of the financing transactions, including
  recommendation of the COI from CSTB

  That Section 209 of the Constitution required parliament‘s
  approval for the Bridge and Collar loans and advised
  that Mr Vele take the appropriate steps to facilitate the process

  That Mr Vele may proceed to NEC taking into account his advice

  That after NEC approval, Mr Rolpagarea would then prepare an
  advice to the Head of State to execute the
  transaction documents.

  NPCP Board Chairman submitted a proposal to the IPBC Board
  advising of the State‘s acquisition of
  149,390,244 shares in Oil Search Ltd and that UBS AG required
  NPCP to enter into a payment
  direction between NPCP, PNGLNG Global Company LDC (GloCo).

  Mr Rolpagarea advised Mr Vele that the NEC Submission needed
  approvals from the relevant
  Agencies‘ Boards and the Parliament for the Bridge and Collar
  loans totalling AU$1.239 Billion and that
  Mr Vele was to facilitate the said approvals after the NEC
  decision.

  36. 6 March, the UBS AG issued a Bridge Takeout Letter to Mr Vele
  that outlined the terms of the fees
  payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was signed by the
  GGPNG and witnessed by Mr Okuk.

  The UBS AG as the Facility Agent for the loan wrote to Mr Vele
  and requested for the State to pay
  the Facility Agent fees as per the Bridge Facility Agreement that
  was signed by the GGPNG and
  witnessed by Mr Okuk.

  UBS AG as the Security Trustee for the loan wrote to Mr Vele and
  requested for the State to pay the
  Security Trustee fees as per the Bridge Facility Agreement that
  was signed by the GGPNG and
  witnessed by Mr Okuk.

  The Prime Minister submitted an NEC Policy paper No: 67/2014 to
  the NEC.

  The NEC in its Decision No: 79/2014
  Noted the transaction documents, approved Petromin as the

• Page 52 of 475

• eventual subscriber but that the State
  would be the initial subscriber, noted the certificate of
  correctness from the State Solicitor and
  confirmed the authority of the Minister for Treasury to finalise
  any documents that were not included
  in the cabinet submission prior to submission of the transaction
  documents to the Head of State for
  Execution,

  approved to advise the Head of State to approve the borrowing for
  the purchase of shares and to execute the
  transaction documents for the State.

  Chronology of Events Page xxxvi

  approved to advise the Minister for Treasury to sign such
  documents, instruments and certificates as the
  transaction required. He was not given the discretion to refuse
  to sign by Cabinet. It was a Cabinet decision to go
  ahead with the transaction and he was to implement parts of that
  decision.

  noted other approvals were required from other State Agencies
  and endorsed all of them including but not limited
  to a Certificate of Inexpediency be issued by CSTB, an authority
  to pre-commit by the Secretary for Finance and a
  certificate by the Secretary for Treasury certifying the extent
  of overseas commercial debt, execution of a payment
  deed by NPCP, and the payment direction by IPBC.

  noted that the approval by Cabinet was specifically to cover any
  processes that had to occur either before or after
  the decision by Cabinet so that the transaction could proceed in
  a commercial time frame.

  This distribution list of the Cabinet Decision included the
  Minister for Justice and Attorney-General, the Minister
  for Treasury, the Minister for Public Enterprises, the Minister
  for Finance, the Departments of Finance, Treasury,
  Justice & Attorney-General, IPBC, the State Solicitor, BPNG,
  NPCP and Petromin.

  Mr Polye was present throughout the NEC Meeting and during the
  making of NEC Decision 79/2014

  On 5 March 2014 (and not on 6 March 2014) Mr Vele advised
  Minister Polye that the loan would not
  affect the State‘s debt program and that Petromin would be the
  eventual subscriber and nominee and
  Mr Vele explained why it was considered it to be in the best

• Page 53 of 475

• interests of the State. Mr Vele explained
  that usually there is an equity cushion which is needed in order
  to secure borrowings. As the State was
  the only equity that could get an equity cushion, it was the
  only entity that could secure the $300
  million bridging loan. Therefore Mr Vele advised him that it was
  not possible in the first instance for a
  State owned entity like Petromin or ICPC to secure the loan but
  that it could be transferred to them at
  a later time, but within the financial year. The Treasurer said
  to Mr Vele that, he was concerned that
  the loan would be in breach of debt to GDP ratios. Mr Vele
  explained to Mr Polye that this could only
  be determined at the end of the 2014 financial year and that
  there were provisions to correct any such
  issues in the 12 month period after the end of the financial
  year. Nonetheless the Treasurer was explicit
  that he wanted the transaction off the balance sheets. This was
  simply not possible, however.
  Petromin however would have been unable to secure funding in its
  own right but rather would need
  the State to secure the loan and then transfer it to Petromin.
  UBS had made it quite clear to Mr Vele
  that they would not loan directly to Petromin in relation to the
  bridging loan.

  Mr Vele requested Mr Philip Eludeme, the Chairman for CSTB to
  approve the request for COI at the
  earliest to cover the advisory costs, in accordance with and for
  the purposes of implementing Cabinet
  Decision No 79/2014.

  Prime Minister advised the GGPNG, that the NEC approved the
  borrowing of a loan for the purpose of
  purchasing shares in Oil Search Ltd and for the purpose of
  meeting the expenses of the borrowing
  itself.

  Mr Okuk representing Mr Vele delivered 28 documents pertaining
  to the UBS AG loan to Mr
  Rolpagarea for his legal clearance.

  37. 7 March, Mr Vele explained to Mr Eludeme that the COI was needed
  to access funds to pay for fees
  pertaining to the State‘s acquisition of the shares in Oil
  Search Ltd, in accordance with and for the
  purposes of implementing Cabinet Decision No 79/2014.

  Mr Vele requested Mr Rolpagarea to issue legal clearance on the
  submission regarding the State‘s
  borrowing of loan arrangements, in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014 and in
  accordance with and for the purposes of implementing Cabinet
  Decision No 79/2014.

• Page 54 of 475

• The Prime Minister Hon Peter O‘Neill, MP informed IPBC of the
  government‘s decision to enter into
  the agreement, in accordance with and for the purposes of
  implementing Cabinet Decision No 79/2014.

  Mr Isaac Lupari, the Chief of Staff to the Prime Minister,
  advised Mr Kumarasiri that the NEC
  approved the State‘s intent to borrow from UBS AG to fund its
  acquisition of shares in Oil Search Ltd,
  in accordance with and for the purposes of implementing Cabinet
  Decision No 79/2014.

  Minister Micah directed the Board of IPBC to approve the Payment
  Direction Deed and to sign the
  Payment Direction Deed on or before 09 March 2014, in accordance
  with and for the purposes of
  implementing Cabinet Decision No 79/2014.

  Chronology of Events Page xxxvii

  38. 8 March, Mr Vele requested Dr Thomas Webster, the then Chairman
  for IPBC Board, to progress the
  documents to the IPBC Board for its consideration and approval in
  accordance with Mr Rolpagarea‘s
  advice of 5 March 2014 and in accordance with and for the
  purposes of implementing Cabinet Decision
  No 79/2014.

  Mr Kumarasiri advised Dr Webster to issue instructions to the
  management of IPBC Management to
  prepare documents in anticipation to receive requests from the
  Board of NPCP with their resolutions,
  in accordance with and for the purposes of implementing Cabinet
  Decision No 79/2014.
  39. 9 March, Mr Erastus Kamburi, the Chief Legal Officer for IPBC,
  requested the IPBC Directors to meet
  and discuss on the directives from the Minister Micah and Mr
  Lupari and the NEC Decision No:
  79/2014, in accordance with and for the purposes of implementing
  Cabinet Decision No 79/2014.

  An Explanatory Note was prepared with the Board Circular
  Resolution outlining the purpose of the
  Special Board Meeting.
  The NPCP Special Board of Directors Meeting No: 02/2014 resolved
  that the Company enter into any
  Transaction Document to give effect to the Payment Direction Deed
  and authorised Mr Sonk and Mr
  Wato with the Power of Attorney in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014 and in

• Page 55 of 475

• accordance with and for the purposes of implementing Cabinet
  Decision No 79/2014.
  The NPCP Board empowered Mr Sonk and Mr Rogen Wato, the Company
  Secretary for NPCP with
  the Power of Attorney in accordance with Mr Rolpagarea‘s advice
  of 5 March 2014 and in accordance
  with and for the purposes of implementing Cabinet Decision No
  79/2014.
  Mr Sonk verified copies of the Shareholder resolutions of the
  NPCP dated 09 March 2014, Minutes of a
  Meeting of the Board of Directors and Power of Attorney of the
  NPCP in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014 and in accordance with and
  for the purposes of implementing
  Cabinet Decision No 79/2014.
  Mr Wapu Sonk, Managing Director for NPCP forwarded to Mr
  Kumarasiri an Extract of the Board
  Meeting Minutes.
  Mr Rolpagarea advised Mr Vele that the Treasurer was the
  authorised person to execute loan
  agreements on behalf of the State strictly in accordance with
  Section 2(7) of the Loans (Overseas
  Borrowing) (No.2) Act 1976. Section 209 (Parliament
  Responsibility) of the Constitution [VERY
  IMPORTANT Mr Rolpagarea did not mention Section 209 (Parliament
  Responsibility) of the
  Constitution in that sentence or context – this is wrong].
  Norton Rose Fulbright wrote to the GGPNG and the Minister for
  Treasury regarding financing of the
  acquisition of the shares and possible options to re-finance
  following completion.
  Mr Kumarasiri wrote to Hon James Marape MP, Minister for Finance
  and requested him to approve
  the Memorandum of Approval to enable NPCP to enter into the
  Transaction Documents in accordance
  with Mr Rolpagarea‘s advice of 5 March 2014 and in accordance
  with and for the purposes of
  implementing Cabinet Decision No 79/2014.
  Minister Polye advised Mr Vele that he will not sign the
  documents that enabled the State to borrow
  the said UBS AG loan contrary to the NEC Decision No 79/2014 of
  which he was a part.
  Minister Marape approved the Memorandum of Approval that enabled
  NPCP to enter into the
  Transaction Documents in accordance with Mr Rolpagarea‘s advice
  of 5 March 2014 and in accordance
  with and for the purposes of implementing Cabinet Decision No
  79/2014.
  Mr Rolpagarea advises GGPNG to sign transaction documents.
  The GGPNG signed the document enabling the State to borrow AU$335
  million from UBS AG for the
  purpose of the purchase of shares in Oil Search Ltd and for the
  purpose of meeting the expenses of the
  Borrowing and for the services of the State, in accordance with

• Page 56 of 475

• Mr Rolpagarea‘s advice of 5 March
  2014, his advice following the Cabinet meeting and in accordance
  with and for the purposes of
  implementing Cabinet Decision No 79/2014.

  Chronology of Events Page xxxviii

  40. 10 March, IPBC Board resolved that NPCP Directors enter into the
  Transaction Documents and
  recommend to the Minister for Finance to approve a proposal by
  NPCP to enter into Agreement to
  execute all documents that gave effect to the Payment Direction
  Deed.

  The NPCP Board deliberated and resolved and authorised Board to
  enter into Agreement to execute
  the Transaction Documents.

  Mr Eludeme advised Mr Vele that the CSTB resolved and approved
  the issuance of the COI for the
  awarding of contracts to both local and international Consulting
  Firms, in accordance with the PFMA
  1995 and in accordance with Cabinet Decision No79/2014.

  Mr Rolpagarea advises Mr Vele that the GGPNG and Minister for
  Treasury were to execute the
  transaction documents to purchase Oil Search Ltd shares on behalf
  of the State.

  Mr Vele confirmed with Mr Rolpagarea that the GGPNG and Minister
  for Treasury were to execute
  the transaction documents to purchase Oil Search Ltd shares on
  behalf of the State.
  Mr Kumarasiri certified the Circular Resolution of the Board of
  Directors of IPBC that authorised the
  execution of the Payment Direction Deed by NPCP.
  Mr Kumarasiri wrote a Memorandum of Recommendation recommending
  Minister Marape to approve
  the NPCP to enter into the Transaction Documents.
  Following discussion between the Prime Minister and Mr Polye, the
  Prime Minister decommissioned
  Hon Polye as the Minister for Treasury.
  Hon Polye accepted his decommissioning as Minister for Treasury
  by the Prime Minister Hon Peter
  O‘Neill, MP. This is incorrect. Mr. Polye challenged his
  decommissioning in the National Court – in
  proceedings as OS No. 142 of 2014 filed 25 March 2014. They were
  dismissed however on 8 May 2014.
  The National Gazette No: G83 and G89 of 10 March 2014 confirmed
  the decommissioning and
  replacement of Hon Polye as the Minister for Treasury by the

• Page 57 of 475

• Prime Minister.
  The Determination of titles and responsibilities of the Prime
  Minister also changed to allow him to act
  as the Minister for Treasury.
  Mr Vele requested Dr Ken Ngangan, Acting Secretary for DoF to
  approve the payment to UBS AG in
  relation to the acquisition of the shares, in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014,
  his advice following the Cabinet meeting and in accordance with
  and for the purposes of
  implementing Cabinet Decision No 7/2014.
  Mr Rolpagarea advised the GGPNG that all documentations relating
  to the borrowing were in order
  and that Mr Vele was satisfied with the Terms of the Transaction
  Documents.
  The State and Oil Search Ltd signed and exerted the subscription
  Agreement.
  Mr Vele advised Mr Eludeme that the local and international
  financial and legal Advisors should be
  paid for services rendered in accordance with and for the
  purposes of implementing Cabinet Decision
  No 79/2014.
  DoT deposited K1,250,000.00 into Pacific Capital Ltd Managed
  Account with ANZ bank (PNG) Ltd.
  41. 11 March, Mr Kamburi advised Mr Kumarasiri that the Certificate
  did not include the Shareholder
  Resolution which was signed and hence he sent an amended and
  verified Certificate for Mr
  Kumarasiri‘s signature.

  Minister Marape gave his approval for the NPCP to enter into
  Payment Direction Deed in accordance
  with and for the purposes of implementing Cabinet Decision No
  79/2014.

  Dr Ngangan and Mr Vele signed and approved the APC form to
  release AU$14,555,759.00 to be paid to
  the Consultants relating to the purchasing of Oil Search Ltd
  shares, in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014, his advice following the
  Cabinet meeting and in accordance with
  and for the purposes of implementing Cabinet Decision No 7/2014.

  Chronology of Events Page xxxix

  42. 12 March, Mr Babaga R. Naime, Acting Board Secretary for CSTB,
  advised Mr Rolpagarea that the
  CSTB awarded the Contract to both local and International
  Consulting Firms, in accordance with the
  PFMA 1995 and the powers of the CSTB under such Act and in
  accordance with and for the purposes
  of implementing Cabinet Decision No 79/2014.

• Page 58 of 475

• Mr Eludeme certified that the inviting of tenders for the
  provision of financial, legal and technical
  advisory services was impractical or inexpedient, in accordance
  with the PFMA 1995 and the powers
  of the CSTB under such Section 40 of such Act and in accordance
  with and for the purposes of
  implementing Cabinet Decision No 79/2014.
  Dr Ngangan approved the application for the Department to
  complete and issue the APC for the above
  Procurement, in accordance with the provision by CSTB of the COI
  and in accordance with Mr
  Rolpagarea‘s advice of 5 March 2014, his advice following the
  Cabinet meeting and in accordance with
  and for the purposes of implementing Cabinet Decision No 79/2014.
  The State, NPCP and UBS AG agreed to the terms and conditions
  upon signing the Payment Direction
  Deed that directed PNG Liquefied Gas Global Company (GloCo) to
  pay immediately available funds
  due to NPCP to UBS AG.
  UBS AG confirmed with Mr Vele the terms and conditions of the
  financing transaction that were
  entered into between the State and UBS AG in respect of Oil
  Search Ltd shares.
  The Prime Minster, Hon Peter O‘Neill, MP as Treasurer and Mr Vele
  in accordance with Mr
  Rolpagarea‘s advice of 5 and 10 March 2014, his advice following
  the Cabinet meeting and in
  accordance with and for the purposes of implementing Cabinet
  Decision No 79/2014, UBS AG (the
  Arranger), UBS AG (the Facility Agent) and UBS Nominees Pty Ltd
  signed the Bridge Facility
  Agreement.
  The GGPNG witnessed by Mr Okuk signed the Specific Security Deed
  (CHESS Securities – Collar) with
  UBS AG that provided security to the loan acquisition.
  The GGPNG, witnessed by Mr Okuk signed the Security Trust Deed
  with UBS Nominees Pty Ltd that
  provided security to the loan acquisition.
  The GGPNG, witnessed by Mr Okuk signed the Participant
  Sponsorship Agreement with UBS Nominees
  Pty Ltd.
  The Prime Minster, Mr Vele, UBS AG (the Arranger), UBS AG (the
  Facility Agent) and UBS Nominees Pty
  Ltd signed the Confirmation Side Letter.
  The GGPNG witnessed by Mr Okuk signed the Nominee Deed with UBS
  AG, UBS Nominees Pty Ltd and
  UBS Securities Australia for the Nominee (UBS Nominees Pty Ltd).
  The Substantial shareholders notice prepared and lodged with Port
  Moresby Stock Exchange (POMSox)
  and ASX lodged on 17 March 2014.
  The State (Subscriber) represented by the GGPNG witnessed by Mr
  Okuk signed the Subscription
  Agreement with Oil Search Limited (Issuer).
  Mr Stephen Gardiner, the Chief Financial Officer for Oil Search

• Page 59 of 475

• Ltd, advised that Goldman Sachs
  Financial Markets Pty Ltd with a Bank Account number
  011-112034-041 was the recipient of the
  Subscription.
  Oil Search Ltd announced completion of share placement and file
  appendix 3B, Cleansing Notice and
  Completion Letter.
  43. 14 March, the Substantial shareholder notice prepared and lodged
  with POMSoX and ASX (lodged on 17
  March 2014).

  44. The Commission issued directives under Section 27(4) of the
  Constitution determined that it was
  necessary to issue a direction under Section 27(4) of the
  Constitution to freeze all further progress on the
  PGK3 Billion loan and requested for collective cooperation from
  the Prime Minister; and the members
  of the NEC; the Chief Secretary; the Minister for Treasury and
  the Minister for Finance; the Secretary,

  Chronology of Events Page xl

  DoF; and the Secretary, DoT; the Attorney-General; and the
  Secretary, DJAG; the Governor of BPNG;
  Petromin; and IPBC; and Port Moresby Stock Exchange Limited; and
  Oil Search (PNG) Limited; and UBS
  Nominees Pty Ltd, despite the fact that the Transaction was
  complete and the purchase settled.

  45. 20 March, Mr Rolpagarea advised Mr Naime on his legal opinion on
  the request for the issuance of
  Legal Clearance – CSTB COI 02/04, which is that he states that
  the COI was issued in accordance with
  PFMA Section 40, not issued in accordance with Financial
  Instructions and was improper. He stated
  that all the Consultants of they had provided work should be paid
  on a Quantum Merit basis on the
  basis of their work actually performed and the person who would
  be in the best position to decide
  what the quantum for payment would be was Mr Vele. His legal
  opinion on the COI is incorrect – the
  COI was correctly issued as the COI was issued in accordance with
  the discretion and powers given to
  CSTB by S40 PFMA. The Finance Manual restriction on that
  discretion and those powers is
  inconsistent and therefore void pursuant to S117 PFMA.

  25 March 2014, Mr Polye commences OS142 against the State seeking
  to have the loan transaction
  declared void on the basis of a breach of S209 of the
  Constitution and for himself to be re-instated as
  Treasurer.
  Mr. Vele responded to the Ombudsman Commission‘s Summons in which

• Page 60 of 475

• he forwarded a copy of the
  KPMG‘s analysis of the proposed monetised collars in relation to
  financing the purchase Oil Search
  Limited shares. He also stated that the Parliamentary Approval of
  the Bridge and Collar loans totalling
  A$1.225 Billion through the Budgetary process had not been
  obtained on the basis of the advice from
  the State Solicitor. The Department was advised by the State
  Solicitor that this Transaction must now
  be tabled at the next sitting of Parliament in May 2014, and for
  which the Treasurer will do. In specific
  reference to Point 6, the structure of the Sovereign Wealth Fund
  (SWF) has not yet been finalised and
  Treasury as the Lead Agency in consultation with the State
  Technical Working Group (comprising the
  Department of Justice and Attorney-General, the Central Bank, the
  Department of National Planning
  & Monitoring and Treasury) and the Secretaries Committee
  (comprising myself as the Chairman and
  the Governor Loi Bakani, Secretary Dr. Lawrence Kalinoe and
  Acting Secretary Juliana Kubak) have
  made several adjustments which will be tabled for Parliament in
  the May session.
  46. 26 March, Mr Rolpagarea stated that he was not given enough time
  to thoroughly go through the
  documents and that he was not present at the CSTB meeting that
  approved the issuance of the COI.
  For the State Solicitor to give out legal advice and them claim 2
  weeks later that he not had enough
  time and that there is an issue with the advice is negligence on
  his part. It is proper and reasonable for
  all persons who relied upon Mr Rolpagarea‘s advice, to have
  relied upon his advice given. It is
  professional negligence for a senior lawyer to advise his clients
  and then claim his advice was faulty as
  he did not have enough time, after his clients have relied upon
  his advice. This may be misconduct on
  behalf of the State Solicitor but no on behalf of those that
  relied upon his advice such as Mr Vele.

  47. 28 March, Mr Eludeme advised Mr Vele that the State Solicitor
  declined the issuance of legal clearance
  of the COI but the Consultants could be paid on a Quantum Meruit
  basis and such quantum was to be
  determined by Mr Vele.

  Mr Kumarasiri advised the Commission that the IPBC gave its
  approval for NPCP to go ahead with the
  transaction and referred the matter to the Minister for Finance
  to execute.
  48. 10 April, Mr Eludeme advised Mr Vele that the Board effectively
  nullified the issuance of the COI for
  the engagement of private Consultants.

• Page 61 of 475

• 49. 11 April, Mr Sonk directed Mr Peter Graham, MD for GloCo to
  divert all distributions of payments
  payable to NPCP to be paid to UBS AG (Singapore Branch).

  Mr Sonk and Mr Wato of NPCP directed Mr Graham of Esso Highlands
  to immediately pay all
  available funds to UBS AG.
  50. 22 April, Ashurst Lawyers advised Norton Rose Fulbright of
  Australia that non-compliance with
  payment obligations would constitute in an Event of Default and
  UBS AG can commence enforcement
  processes without further reference to the State.

  Chronology of Events Page xli

  51. 28 April, Mr Polye reiterated to Hon Theodore Zurenuoc, the
  Speaker of Parliament, his position that
  the government‘s borrowing UBS AG loan was bad. This is
  irrelevant to a chronology – Mr Polye‘s
  opinion.

  52. 30 April, Mr Polye stated that the loan was an unplanned
  activity and it was not a prudent thing to do
  and it breached the 2014 Budget Appropriation Bill and the
  Fiscal Responsibilities Act.

  Ms Tessa Hoser of Norton Rose Fulbright of Australia advised Mr
  Vele that in the event of a default
  UBS AG would charge default interest on any unpaid interest.

  53. 2 May, Mr Vele stated that the State engaged UBS AG together
  with the other financial and legal firms
  as they were already providing the services.

  8 May, National Court dismissed Application by Don Polye, MP to
  declare loan void of breaching
  Section 209 of the Constitution and to be re-instated as
  Minister for Treasury, as an abuse of process.

  The National Court made the following findings of Fact on 8 May
  2014;

  i. In 2009 the State through IPBC and from IPIC had
  obtained a loan to purchase the State‘s interest in the
  PNGLNG project by virtue of the issue of an Exchangeable
  Bond. The loan had been secured by the
  State‘s shares in the Oil Search Limited and mortgaged
  over all the State owned Enterprises. The
  maturity date of the Bond was 5 March 2014. Under the
  terms IPIC could take on the maturity date in

• Page 62 of 475

• repayment of the loan either the shares, cash and shares
  or just cash. IPIC had to make an irrevocable
  election 2 weeks prior to maturity dates as to what it
  wanted in repayment.

  ii. At the same time, the government, advised by the
  (Central Bank) BPNG and Department of Treasury,
  organized with UBS – after seven months of searching for
  the right financing institute, to re-finance the
  IPIC loan – that is, to repay the loan with cash. The
  Arabs however on the date for notice advised they
  would take the shares in Oil Search in repayment of the
  loan. The government policy has been always to
  retain shares in Ol Search. So instead of paying the
  Arabs back with cash – a lesser amount was borrowed
  to purchase 10.1% shareholding in Oil Search. A 10.1%
  share in Oil Search prevents any foreign takeover of
  Oil Search. Oil Search is the biggest company in PNG and
  in the top 25 on the Australian Stock Exhange.
  To lose Oil Search to overseas interest and have then
  Oil Search leave would be devastating to the PNG
  economy due to the tax it pays and the jobs it creates.

  iii. Further all international analysts predict an increase
  in value of Oil Search given the investments and
  directions the company is entering into. Government
  policy was for Papua New Guinea not just received
  royalties and taxes but also participate in the
  extraction of resources for the betterment of the people of
  PNG.

  iv. On 5 March 2014, IPIC took possession and ownership of
  the Oil Search shares previously owned by
  government – being 13.17%.

  v. On 6 March 2014, NEC approved the borrowing of USD$1.249
  Billion to purchase 14.39 million shares,
  with such borrowing to be secured solely by the shares
  themselves. Initially the State itself would be the
  subscriber but within three months of the transaction
  Petromin is to take over as subscriber and the
  debt would be off balance sheet and refinanced. The
  shares were to be purchased for a price of $8.20
  instead of the market value on the day of $8.55 since
  this time the share price has risen. No state owned
  enterprises have been mortgaged and the State‘s debt
  exposure has not been reduced.

  vi. Despite Cabinet‘s approval and the fact the plaintiff
  was a Cabinet when the decision was made,
  Minister Polye refused to sign the requite documents.
  Unfortunately for the plaintiff, he failed to
  understand the trading deadlines on the Australian Stock
  Exchange (ASX) and the approvals for the

• Page 63 of 475

• State had already been given by UBS – and to start the
  whole process off with Petromin, the window for
  purchase would have been closed. Oil Search had
  announced a halt in trading on 4 March 2014 and the
  Rules allow only 48 hours of cessation of trading (to
  prevent insider trading) as it had to notify the Stock
  Exchange of a major purchase – so the deadline was 5pm
  on 6 March 2014 for Oil Search to have
  determined to purchase into Elk Antelope on the basis of
  the funds coming in from the sale of shares to
  the State.

  vii. Minister Polye was de-commissioned as a Minister on 10
  March 2014 by the Head of State (and duly
  gazetted) and the treasury portfolio reverted to the
  Prime Minister.

  viii. The transaction of the purchase of the Oil Search shares
  and the UBS loan was completed on 12 March
  2014 and announcements were made by Oil Search to the
  Australian Stock Exchange (ASX0 in this
  regard. The deal was done and all documents completed
  and registered.

  Chronology of Events
  Page xlii

  ix. On 14 March 2014 the Ombudsman Commission determined to
  investigate into the loan and the
  transaction. It issued a directive to stop work on the USB
  loan. The Ombudsman Commission had not
  realized that the deal had already been finalized. All
  documentation has been provided to the
  Ombudsman Commission on the loan and transaction and now
  there is a current investigation into the
  deal that has been done. There was therefore nothing left
  for the Ombudsman Commission direct to
  stop.

  54. 9 May, Mr Anthony Yauieb, Deputy Secretary for DoT, stated that
  the NEC Policy Submission on the
  UBS AG Loan to purchase Oil Search Ltd shares was prepared
  outside by Mr Vele. This statement is
  incorrect. Mr Vele as Acting Secretary for Treasury and as
  essentially the Project manager for the
  matter prepared the submission with the assistance and advice of
  the Consultants, as would be
  expected given legal and financial positions were required in the
  submissions. Mr Yauieb was the only
  other person who had applied for the substantive Secretary of
  Treasury‘s position. His statement
  tainted is with personal interest.

• Page 64 of 475

• 55. 14 May, Mr Vele advised the Commission that the State is
  required to make periodic interest payments
  to UBS AG.

  Finance Forms number 3 & 4 (FF3& FF4) indicated AU$2,261,938.36
  which is about K5,543,966.57
  was paid to UBS AG.

  56. 15 May, Mr Luke Goldsworthy and Ms Celle Raguine,
  Representatives of UBS AG pointed out to Mr
  Vele that failure to pay interest breached clause 5.1(b) of the
  Agreement, that is all payments to be
  made under the Commitment Documents that stipulated that all
  payments shall be made in full and
  without deductions.

  15 May OC advises Mr Vele, that it has received Mr Vele‘s letter
  on the interest payment and advised
  its position in a few days.

  15 May, Mr Vele urgently requested clearance from Commission on
  the interest payment to UBS AG
  and informs the OC of the risks to the State and its economy if
  interest is not paid and default
  provisions are triggered in the UBS loan and other loans to the
  State such as the World Bank and
  advises the OC interest must be remitted by 4pm 16 May 2014.

  57. 16 May, Mr Vele instructed Mr Bakani to immediately process and
  remit funds to the UBS AG.
  Mr Vele advised Mr Bakani that interest payment must be paid
  to UBS AG.

  Ms Betty Palaso, Commissioner-General for Internal Revenue
  Commission (IRC) issued a Tax
  Clearance Certificate to the DoT to transfer or remit moneys for
  the purpose of payment of interest on
  UBS AG Loan.

  A copy of the Notification (transmission) of Original indicated
  that the BPNG transferred
  AU$2,261,938.36 to the Reserved Bank of Australia.

  19 May 2014, Mr Polye commences SCCOS 4 of 2014, an application
  in the Supreme Court to question
  compliance of the loan procedure against Section 209 of the
  Constitution and to have the loan declared
  invalid and unenforceable.

  23 May 2014, OC write to Mr Vele informing him that it
  investigating into the loan, that it
  isconcerning to ensure no breaches of the Leadership Code, and
  states that Mr Vele‘s request for the

• Page 65 of 475

• State to pay interest was irregular and inappropriate and refused
  to allow payment of interest. The OC
  paid no attention to and made no comment about the seriously
  adverse financial consequences to the
  State if interest was not paid.

  58. 27 May, Dr Clement Waine, Acting Secretary, Department of Public
  Enterprise (DoPE) explained that
  neither he nor his Department were involved in the matter been
  investigated.

  59. 3 June, Mr Kramer stated that NPCP was involved in the execution
  of the Payment Direction Deed as
  per the IPBC Board request and direction.

  60. 5 June, Mr Eludeme confirmed that CSTB approved a request for
  application for COI from Mr Vele.

  Chronology of Events Page xliii

  5 June 2014, Mr Vele writes to OC setting out 12 page response
  to legal issues raised in OC letter of 23
  May 2014setting out that the issues raised had no basis and that
  the OC did not have jurisdiction to
  essentially injunct the State from paying interest.
  61. 6 June 2014, the Prime Minister and Mr Vele commence proceedings
  in the National Court for Judicial
  Review of the decision of the OC to issue directions on 12 March
  2014 and to refuse to allow interest to
  be paid.

  6 June, Mr Vele filed his affidavit in the National Court
  proceedings OS (JR) 383 of 2014 against the
  Commission and the State.

  62. 12 June, Dr Lawrence Kalinoe, Secretary for DJAG, advised the
  Commission that neither he nor his
  Department were involved in the UBS AG Loan transaction. This is
  incorrect. Dr Kalinoe is a Member
  of the IPBC Board – he was present at the IPBC Board meetings
  and participated in the decisions and
  gave the Board advice on the position.

  63. 13 June, Hon Kua categorically denied the allegations that he
  was personally involved in giving
  clearance for the UBS AG loan and that he was not present in the
  NEC Special Meeting No 37/2013
  that approved the UBS AG loan. This is mischievous. Mr Kua had
  not raised any issue about legal
  clearance or engagement of Consultants even though at all

• Page 66 of 475

• material times he was aware of the
  transaction. He was on the Distribution List of NEC Decision
  79/2014 of 6 March 2014 and it was
  incumbent upon him to implement the decision. If he had an issue
  with any matter, he ought to have
  raised it with the Chairman of NEC. Mr Kua is a very senior
  lawyer and would know the procedure he
  should take if he had an issue. Mr Kua had been removed in June
  2014 as Attorney-General for reasons
  unrelated to the UBS/Oil Search Matter. His statement and
  position is tainted by personal interest.

  64. 4 July, Mr Vele advised the Commission that the UBS AG loan
  transaction was constitutional and had
  been lawfully undertaken by the State and its related parties in
  every aspect.
  65. 7 July, Mr Ilagi Veali, MPS, Secretary to the NEC forwarded
  copies of the NEC Special Meeting No:
  08/2014 together with the list of Cabinet Ministers who were
  present or absent at the Special Meeting.

  Chronology of Events Page xliv

• Page 67 of 475

• EXECUTIVE SUMMARY

  This is the Final Report by the Ombudsman Commission of an Own
  Initiative
  investigation under Section 219(1)(a) (Functions of the Commission)
  of the Constitution
  and Section 13 (Functions of the Commission) of Organic Law on the
  Ombudsman Commission
  conducted into the alleged improper borrowing of AU$1.239 billion
  loan from the UBS AG
  by the Government to purchase 149,390,244 shares in Oil Search
  Limited (Ltd) and
  improper tender and procurement of consultants in relation to the
  borrowing.

  On 6 March 2014, Mr Vele with the assistance of financial and legal
  firms both local and
  international based prepared an National Executive Council (NEC)
  Policy Submission No:
  67/2014 for the Minister for Treasury in regard to the borrowing of
  AU$1.239 Billion loan
  from UBS AG.

  Serious allegations were raised against Prime Minister Hon Peter
  O‘Neill, CMG, MP and
  Minister Micah, Minister Marape and Mr Vele, Mr Eludeme and Dr
  Ngangan as a result of
  what transpired prior to and after the NEC Decision had been made.

  The Ombudsman Commission investigated the following issues:

  (a) The entire decision making process by NEC Special Meeting No:
  8/2014 and
  subsequent NEC Decision No: 79/2014 that led to the borrowing of
  AU$1.239 Billion
  loan from UBS AG was in breach of Section 209 (Parliamentary
  Responsibility) and
  Section 255 (Consultation) of the Constitution.

  (b) The whole action of Prime Minister in misleading the NEC Special
  Meeting No:
  8/2014 and the subsequent NEC Decision No: 79/2014 to approve the
  UBS AG Loan
  of AU$1.239 Billion which NEC does not have the power except the
  Parliament
  under Section 209 (Parliamentary Responsibility) of the
  Constitution may be wrong
  and improper.

  (c) The action of Minister Micah in collaborating with the Prime
  Minister in misleading

• Page 68 of 475

• the NEC Special Meeting No: 479/2013 and the subsequent NEC
  Special Meeting
  8/2014 and directing Mr Kumarasiri, Mr Sonk, Mr Kramer and Mr
  Bakani to effect
  the AU$1.239 Billion loan from UBS AG may be wrong and improper
  and contrary to
  Section 209 (Parliamentary Responsibility) of the Constitution.

  (d) The conduct of Minister Marape in collaborating with Prime
  Minister and Minister
  Micah in misleading the NEC relating to the approval of UBS AG
  Loan of AU$1.239
  Billion contrary to Section 209 (Parliamentary Responsibility) of
  the Constitution.

  (e) Mr Vele improperly engaged the UBS AG to be the arranger,
  advisor and the lender
  of AU$1.239 Billion to the State to purchase 149,390,244 shares
  in Oil Search Ltd,
  without the then Minister for Treasury‘s knowledge and approval.

  (f) Mr Eludeme‘s conduct in issuing the Certificate of Inexpediency
  (COI) and
  improperly awarded the contract to Pacific Legal Group Lawyers,
  Pacific Capital

  Executive Summary Page xlv

  Ltd, UBS AG, Ashurst Lawyers, Norton Rose Fulbright of Australia
  and KPMG to
  provide financial and legal services relating to the State‘s
  borrowing of AU$1.239
  Billion to the DoT without the legal clearance from Mr
  Rolpagarea.

  (g) Dr Ngangan‘s conduct in approving the APC Form to release K9
  million to Pacific
  Legal Group Lawyers and Pacific Capital Ltd and AU$14,555,759.00
  to the UBS AG,
  Ashurst Lawyers, Norton Rose Fulbright of Australia and KPMG, was
  excessive and
  wrong in the circumstances.

  (h) Amb Isaac Lupari‘s conduct in collaboration with Minister Micah
  when they issued
  specific political directives and instructions to Independent
  Public Business
  Corporation (IPBC) Board and Management and also to National
  Petroleum
  Company of Papua New Guinea (NPCP) Board and Management to
  approve and
  facilitate the interest payment to UBS AG.

• Page 69 of 475

• (i) The conduct and misrepresentation of Mr Okuk in signing and
  witnessing all
  documents pertaining to UBS AG loan of AU$1.239 Billion with
  GGPNG, as a
  Commissioner of Oaths, when he was not a registered lawyer with
  PNGLS, or a
  Commissioner of Oaths under Oaths and Affirmation Act, rendering
  entire contract
  documents questionable, wrong and improper.

  The Ombudsman Commission conducted its investigation into the above
  allegations and
  outlined below are its findings.

  Principal Findings

  The main findings of the Report are:

  1. In the opinion of the Ombudsman Commission, the conduct of the
  Prime Minister
  was wrong and improper when he committed the State to purchase
  149,390,244
  shares in Oil Search Ltd without prior approval from the National
  Executive
  Council.

  2. In the opinion of the Ombudsman Commission, the conduct of the
  Prime Minister
  was wrong and improper in that he failed to present the
  Government‘s proposal on
  the borrowing of a loan from UBS AG (Australia Branch) on the
  floor of Parliament
  for debate and approval as required by Sections 209(1), 211 and
  212 of the Constitution.

  3. In the opinion of the Ombudsman Commission, the conduct of the
  Prime Minister
  was wrong and improper when he personally sponsored and submitted
  NEC Policy
  Submission No: 67/2014 and misled the National Executive Council
  to approve the
  borrowing of AU$1.239 Billion from UBS AG to buy shares in Oil
  Search Ltd.

  4. In the opinion of the Ombudsman Commission, the conduct of the
  Prime Minister
  was wrong and improper when he failed to consult Petromin
  Holdings Ltd to be the
  State‘s subscriber and nominee to acquire shares in Oil Search
  Ltd.

  5. In the opinion of the Ombudsman Commission, the existence of the
  National

• Page 70 of 475

• Petroleum Company of Papua New Guinea is questionable as it is
  not legally

  Executive Summary Page xlvi

  established as the proposed Papua New Guinea Petroleum Company
  (Kroton) Act
  has not been certified by the Governor-General in order to be
  fully in force.

  6. In the opinion of the Ombudsman Commission, there was a conflict
  of interest
  situation in regard to Mr Frank Kramer, the Chairman for the
  National Petroleum
  Company of Papua New Guinea Board, when he is a Director and
  Shareholder of
  Pacific Capital Ltd, a company that was engaged by Mr Dairi Vele
  to provide
  financial consultancy services to the State for the borrowing of
  A$1.239 Billion UBS
  AG Loan to purchase shares in Oil Search Ltd.

  7. In the opinion of the Ombudsman Commission, the conduct of
  Minister Micah was
  wrong and improper when he issued directives and instructions to
  the Independent
  Public Business Corporation Board and Management to approve the
  payment
  Direction Deed to facilitate the interest payment to UBS AG.

  8. In the opinion of the Ombudsman Commission, the conduct of
  Ambassador Isaac
  Lupari was wrong and improper when he advised the Independent
  Public Business
  Corporation Managing Director of the NEC Decision No: 79/2014 for
  the State to
  acquire shares in Oil Search Ltd.

  9. In the opinion of the Ombudsman Commission, the conduct of Mr
  Dairi Vele was
  wrong and improper when he engaged UBS AG as the Sole Financial
  Advisor and
  Lead Arranger in relation to the management of the investment of
  the State in Oil
  Search Ltd without the National Executive Council approval.

  10. In the opinion of the Ombudsman Commission, the conduct of Mr
  Dairi Vele was
  wrong and improper when he misinformed and misled the National
  Executive
  Council regarding the NEC Policy Paper No: 67/2014 that it was in
  order.

• Page 71 of 475

• 11. In the opinion of the Ombudsman Commission, the conduct of Mr
  Dairi Vele was
  wrong and improper when he issued directions and instructions to
  the Independent
  Public Business Corporation Chairman and Management.

  12. In the opinion of the Ombudsman Commission, the conduct of Mr
  Dairi Vele was
  wrong and improper when he requested the Central Supply & Tenders
  Board for a
  Certificate of Inexpediency to be issued for the engagement of
  Consultants and that
  it should be applied retrospectively which was contrary to the
  Public Finance
  (Management) Act 1995 and the Finance Management Manual.

  13. In the opinion of the Ombudsman Commission, the conduct of Mr
  Dairi Vele was
  wrong and improper when he failed to formally request the
  Attorney-General for a
  Brief-Out of legal services to engage private law firms as
  required under Section 8(4)
  of the Attorney-General Act 1986.

  14. In the opinion of the Ombudsman Commission, the conduct of Mr
  Philip Eludeme,
  Chairman of Central Supply & Tenders Board was wrong and improper
  when he
  approved the issuance of the Certificate of Inexpediency for the
  engagement of the
  Consultants.

  Executive Summary Page xlvii

  15. In the opinion of the Ombudsman Commission, the conduct of Mr
  Loi Bakani was
  wrong and improper when he failed to independently provide due
  diligence check in
  the process of selecting financiers for the IPIC Exchangeable
  Bond buy back and
  advice against the UBS AG appointment as the Lender of the loan.

  16. In the opinion of the Ombudsman Commission, the conduct of Mr
  Loi Bakani was
  wrong and improper when he informed UBS AG that the State had
  engaged UBS AG
  as the Lender of the Loan to refinance the IPIC Exchangeable
  Bond, without NEC‘s
  approval.

  17. In the opinion of the Ombudsman Commission, the conduct of Dr

• Page 72 of 475

• Ken Ngangan was
  wrong and improper when he signed and approved the APC Forms
  committing
  funds that were not appropriated in the 2014 Budget for the
  payment of Financial,
  Legal and Technical Consultants.

  18. In the opinion of the Ombudsman Commission, the conduct of Mr
  Carl Okuk was
  wrong and improper when he commissioned the documents on the
  borrowing of the
  UBS AG Loan by the Governor-General of Papua New Guinea.

  19. In the opinion of the Ombudsman Commission, the conduct of Hon
  James Marape,
  MP, Minister for Finance was wrong and improper when he approved
  the Payment
  Direction Deed for NPCP when it was not properly established by
  law.

  20. In the opinion of the Ombudsman Commission, the establishment of
  National
  Petroleum Company of Papua New Guinea (Kroton) Ltd and its
  engagement by the
  NEC was wrong and improper.

  Irregularities

  This investigation revealed that there were many irregularities and
  wrong and improper
  conducts committed by the Prime Minister, Minister Micah, Minister
  Marape, Mr Bakani,
  Mr Vele, Mr Eludeme, Dr Ngangan, Amb Isaac Lupari and Mr Okuk in
  facilitating the
  engagement of the UBS AG to lend AU$1.239 Billion as well as the
  engagement of private
  Financial and Legal Consultants on the borrowing.

  The irregularities and improprieties that were identified included
  the following:

  1. The lack of proper and wide consultation with State Agencies and
  by-passing of the
  National Parliament‘s approval of the borrowing as required by
  Sections 209, 212
  and 255 of the Constitution.

  2. The loan exceeded the State‘s Gross Domestic Product (GDP) to
  Debt ratio
  threshold of 35%. Hence, the PNG Fiscal Responsibilities Act 2006
  being an Act to
  promote economic and financial transparency and accountability in
  the interests of a

• Page 73 of 475

• stable macroeconomic environment may not have been complied with.

  3. The borrowing exceeded the 125% of the total value of overseas
  commercial debt to
  the estimated internal revenue for the Fiscal Year 2014 thereby
  breaching Sections
  2(3) of the Loans (Overseas Borrowing) (No.2) Act (Chapter 133A).

  Executive Summary Page xlviii

  4. The engagement of Private Law Firms without the approval of the
  Attorney-General
  as required under Section 8(4) of the Attorney-General Act 1989.

  5. The public tendering of contracts pursuant to Sections 39 and 40
  of the Public Finance
  (Management) Act 1995 were breached in relation to the engagement
  of Financial and
  Legal Consultants.

  6. The improper engagement of the Petromin Holdings Ltd to be the
  subscriber and
  nominee for the transaction.

  7. The improper engagement of NPCP to execute the Payment Direction
  Deed for the
  transaction.

  8. The issuance of a COI by CSTB to engage and pay the Financial,
  Legal and Technical
  Consultants was done without clearance of the State Solicitor.

  9. The engagement of Financial, Legal and Technical Consultants by
  Mr Vele was
  wrong.

  10. The Governor-General signed all UBS AG loan documents without
  the presence of
  other Parties to the Agreement (Counterpart Clause).

  11. The execution of all documents by the Governor-General and
  witnessed by Mr
  Okuk, Lawyer, is not proper as Mr Okuk was not a registered
  lawyer as required
  under Section 35 of the Lawyers 1986 Act and improperly acted as
  a Commissioner of
  Oath which was contrary to Section 12A of the Oaths, Affirmations
  and Statutory
  Declarations Act (Chapter 317).

  12. The inclusion of counterpart provisions in the contract
  agreements and governing
  laws and jurisdictions should be tailored to bring all parties

• Page 74 of 475

• together and formalised
  under parties‘ jurisdictions.

  13. The State‘s sovereignty was compromised when the Prime Minister
  and Mr Vele
  entered into the Loan Agreement with UBS AG to be the Lender,
  Facilitator and
  Arranger of the borrowing.

  14. The formalisation of the loan was done by State Institutions
  while the transactions
  were actually processed outside of PNG.

  Findings of Wrong Conduct

  The collective actions and conducts of the following leaders and
  persons implicated in this
  Final Report were wrong and erroneous because of the above mentioned
  irregularities and
  breach of the Constitution and the applicable laws.

  1. Hon Peter O‘Neill, CMG, MP Prime Minister
  2. Hon Ben Micah, MP, Minister for State Enterprises &State
  Investments
  3. Hon James Marape, MP, Minister for Finance
  4. Dr Ken Ngangan, PhD, CMA, CPA, Secretary for Department of
  Finance
  Executive Summary Page xlix

  5. Mr Dairi Vele, Secretary for Department of Treasury
  6. Mr Philip Eludeme, the then Chairman of CSTB
  7. Amb Isaac Lupari, CBE, Chief of Staff
  8. Mr Loi Bakani, CMG, CBE – Governor of Central Bank
  9. Mr Carl Okuk, Laywer and Consultant.

  The following legislation may have been breached by persons,
  government bodies and
  agencies implicated in relation to the borrowing of the UBS AG loan;

  1. Sections 26, 27, 209, 211, 212, 255 of the Constitution of the
  Independent State of Papua New
  Guinea

  2. Section 219 of the Organic Law on the Ombudsman Commission

  3. The Organic Law on the Duties and Responsibilities of Leadership

  4. Section 8 of the Attorney-General Act 1986

  5. Section 2(3) of the Loans (Overseas Borrowing) (No.2) Act
  (Chapter 133A)

  6. The Loans (Overseas Borrowings) Act (Chapter 133)

• Page 75 of 475

• 7. Section 2 of the Official Personnel Staff Act 1986

  8. Section 4 of the Papua New Guinea Fiscal Responsibility Act 2006

  9. Sections 46 and 59 of the Independent Public Business
  Corporation of Papua New Guinea Act
  2002

  10. Section 4 of the Petroleum Holdings Limited Authorisation Act
  2007

  11. Sections 35 and 108 of the Lawyers Act 1986

  12. Section 12A of the Oaths, Affirmations and Statutory
  Declarations Act (Chapter 317)

  13. Sections 5, 29, 39, 40, 42, 47B, 47C, 47D, Public Finance
  (Management) Act 1995

  14. Parts 11and 13 (Procurement–Framework and Principle)of the
  Finance Management
  Manual

  15. Section 110 of the Companies Act 1997.

  Executive Summary Page l

  Recommendations

  1. The Ombudsman Commission recommends that Hon Peter O‘Neill, CMG,
  MP,
  Prime Minister be referred to the Leadership Division of the
  Ombudsman
  Commission to be investigated under the Leadership Code.

  2. The Ombudsman Commission recommends that Hon James Marape, MP,
  Minister
  for Finance be referred to the Leadership Division of the
  Ombudsman Commission
  to be investigated under the Leadership Code.

  3. The Ombudsman Commission recommends that Amb Isaac Lupari, Chief
  of Staff be
  referred to the Leadership Division of Ombudsman Commission to be
  investigated
  under the Leadership Code.

• Page 76 of 475

• 4. The Ombudsman Commission recommends that Dr. Ken Ngangan, PhD,
  Acting
  Secretary for Department of Finance to strictly comply with the
  Public Finance
  (Management) Act 1995 when approving funds that had not been
  appropriated in the
  Budget to be released.

  5. The Ombudsman Commission recommends that Mr Dairi Vele, Acting
  Secretary for
  Department of Treasury to strictly comply with the relevant laws
  governing the
  borrowing a Loan of such magnitude and advice the Government
  appropriately.

  6. The Ombudsman Commission recommends that Mr Dairi Vele, Acting
  Secretary for
  Department of Treasury be referred to the Ombudsman Commission to
  be
  investigated under the Leadership Code.

  7. The Ombudsman Commission recommends that Mr Philip Eludeme, the
  then
  Chairman for the Central Supply & Tenders Board to strictly
  comply with the
  relevant laws governing the issuance of a Certificate of
  Inexpediency and its
  application.

  8. The Ombudsman Commission recommends that Mr Philip Eludeme,
  Chairman for
  the Central Supply & Tenders Board be referred to the Leadership
  Division to be
  investigated under the Leadership Code.

  9. The Ombudsman Commission recommends that Mr Wapu Sonk, the
  Managing
  Director for the then National Petroleum Company of Papua New
  Guinea (Kroton)
  Ltd and now Kumul Petroleum Holdings Ltd be referred to the
  Leadership Division
  to be investigated under the Leadership Code.

  10. The Ombudsman Commission recommends that Mr Carl Okuk be
  referred to the
  Papua New Guinea Law Society to be investigated.

  11. The Ombudsman Commission recommends that all government
  borrowings and
  related documentations including memorandums of agreements and or
  memorandums of understanding are to be signed by all concerned
  parties in Papua
  New Guinea.

• Page 77 of 475

• Executive Summary Page li

  12. The Ombudsman Commission recommends that the Secretary for the
  Department of
  Finance ensures that all Government Bodies and Agencies shall
  strictly comply with
  the Public Finance (Management) Act 1995 and Finance Management
  Manual when
  requesting and applying the Certificate of Inexpediency for the
  engagement of
  Contractors to implement Government sanctioned projects.

  13. The Ombudsman Commission recommends that all Government Bodies
  and
  Agencies strictly comply with the Attorney-General Act 1986 and
  Lawyers Act 1986
  when engaging private lawyers and or firms.

  Conclusion

  The Ombudsman Commission observed that the above mentioned leaders
  and persons
  failed to comply with the proper processes and procedures outlined
  in the above relevant
  laws relating to the borrowing of AU$1.239 Billion loan from the UBS
  AG by the
  Government to purchase 149,390,244 shares in Oil Search Ltd.

• Page 78 of 475

• Executive Summary Page lii

  1. JURISDICTION AND PURPOSE OF INVESTIGATION

  [1.1] INTRODUCTION

  This is the Final Report by the Commission of an Own Initiative
  investigation under
  Section 219(1)(a) (Functions of the Commission) of the Constitution
  and Section 13
  (Functions of the Commission) of the Organic Law on the Ombudsman
  Commission conducted
  into the alleged improper borrowing of AU$1.239 billion loan from
  the UBS AG by the
  Government to purchase 149,390,244 shares in Oil Search Ltd and
  improper tender and
  procurement of Consultants in relation to the borrowing.

  BACKGROUND
  The GoPNG was embarking on the LNG project with Exxon Mobil in or
  around the year
  2000. The project matured and the GoPNG needed to acquire 22.5%
  mandatory
  shareholding in the PNG LNG project.

  As a result the GoPNG‘s needed to secure funding to finance the
  acquisition of the
  mandatory 22.5% shares in the PNG LNG project. In the quest in
  looking for funding the
  GoPNG decided to mortgage or sell one or some of its State assets.
  At the end GoPNG
  decided to mortgage the State‘s 14.7% share in Oil Search Ltd.

  In 2009, the GoPNG mortgaged its shares in Oil Search Ltd with IPIC,
  Abu Dhabi and
  acquired the needed funding and financed the State‘s share of
  project capital expenditure
  for PNG LNG Project.

• Page 79 of 475

• An extract of the terms and condition of the IPIC Loan Agreement
  with GoPNG and IPIC
  are as follows:

  10.4 Restriction on assignment

  The Issuer may only transfer, assign or otherwise deal with of
  its right, powers and remedies
  under this deed poll with the consent of the Holders given by way
  of Extraordinary
  Resolution.

  10.5 Waiver of immunity

  The Issuer irrevocably waives, to the fullest extent permitted by
  applicable laws, with
  respect to itself in its capacity as trustee for and on behalf of
  the General Business Trust and
  with respect to the revenues and assets (irrespective of their
  use or intended use) of itself
  and the General Business Trust, all immunity on the grounds of
  sovereignty or other similar
  grounds from:

  (a) Suit;

  (b) Jurisdiction of any court;

  (c) Relief by the way of injunction, order for specific
  performance or for recovery of
  property;

  (d) Attachment of its assets (whether before or after
  judgment); and

  Jurisdiction & Purpose of Investigation Page 1

  (e) Execution or enforcement of any judgment to which it or its
  revenues or assets
  might otherwise be entitled in any proceedings in the courts
  of any jurisdiction, and
  irrevocably agrees, to the extent permitted by applicable law,
  that it will not claim
  any such immunity in any proceedings.

  The GoPNG initiated the processes to buy back the 14.7% shares by
  setting up a Committee
  chaired by Mr Wasantha Kumarasiri of Independent Public Business
  Corporation (IPBC),
  who wrote to potential bidders such as ANZ Barclay Consortium, UBS
  AG, Citi Bank,
  Hermsley to express their interest to finance the GoPNG‘s intention

• Page 80 of 475

• to buy back 14.7%
  shares.

  When the GoPNG sent a Team over to Abu Dhabi to negotiate with IPIC
  to buyback the
  14.7% shares that was mortgaged, it appeared that IPIC did not take
  any position on the
  issue. This made Oil Search Ltd future vulnerable to takeover by
  IPIC.

  The above scenario forced the Prime Minister, Mr Vele and Mr Botten
  to convene and
  thwarted IPIC‘s imminent takeover of Oil Search Ltd.

  Without going through the normal GoPNG procurement and tendering
  processes, the
  Prime Minister and Mr Vele used the process that had been done for
  the purpose of
  financing the buyback shares from IPIC Exchangeable Bond and
  eventually went into a loan
  arrangement with UBS AG and secured the AU$1.239 Billion to buy new
  shares in Oil
  Search Ltd.

  The Commission investigated the following issues:

  (a) The entire decision making process by NEC Special Meeting No
  8/2014 and
  subsequent NEC Decision No: 79/2014 that led to the borrowing of
  AU$1.239 Billion
  loan from UBS AG in breach of Section 209 (Parliamentary
  Responsibility) and
  Section 255 (Consultation) of the Constitution.

  (b) The whole action of Prime Minister misleading the NEC Special
  Meeting No: 8/2014
  and the subsequent NEC Decision No: 79/2014 may be wrong and
  improper to
  approve the UBS AG Loan of AU$1.239 Billion which NEC does not
  have the power
  except the Parliament under Section 209 (Parliamentary
  Responsibility) of the
  Constitution.

  (c) The whole action of Minister Micah in collaborating with the
  Prime Minister in
  misleading the NEC Special Meeting No: 479/2013 and the subsequent
  NEC Special
  Meeting 8/2014 and directing Mr Kumarasiri, Mr Sonk, Mr Kramer and
  Mr Bakani to
  effect the AU$1.239 Billion loan from UBS AG may be wrong and
  improper and
  contrary to Section 209 (Parliamentary Responsibility) of the
  Constitution.

• Page 81 of 475

• (d) The conduct of Minister Marape in collaborating with Prime
  Minister and Minister
  Micah in misleading the NEC relating to the approval of UBS AG
  Loan of AU$1.239
  Billion contrary to Section 209 (Parliamentary Responsibility) of
  the Constitution.

  (e) Mr Vele improperly engaged the UBS AG to be the arranger,
  advisor and the lender of
  AU$1.239 Billion to the State to purchase 149,390,244 shares in
  Oil Search Ltd,
  without then Minister for Treasury‘s knowledge and approval.

  Jurisdiction & Purpose of Investigation Page 2

  (f) Mr Eludeme‘s conduct in issuing the Certificate of Inexpediency
  and improperly
  awarded the contract to Pacific Legal Group Lawyers, Pacific
  Capital Ltd, UBS AG,
  Ashurst Lawyers, Norton Rose Fulbright of Australia and KPMG to
  provide financial
  and legal services relating to the State‘s borrowing of AU
  $1.239 Billion to the DoT
  without the legal clearance from Mr Rolpagarea.

  (g) Dr Ngangan‘s conduct in improperly approving the APC Form to
  release K9 million to
  Pacific Legal Group Lawyers and Pacific Capital Ltd and AU
  $14,555,759.00 to the
  UBS AG, Ashurst Lawyers, Norton Rose Fulbright of Australia and
  KPMG, which is
  excessive and wrong in the circumstances.

  (h) Amb Isaac Lupari‘s conduct in collaboration with Minister Micah
  and issued specific
  political directives and instructions to IPBC Board and
  Management and also to
  NCPCP Board and Management to approve and facilitate the
  interest payment to UBS
  AG.

  (i) The conduct and misrepresentation of Mr Carl Okuk in signing and
  witnessing all
  documents on the UBS AG loan of AU$1.239 Billion with GGPNG, as
  a Commissioner
  of Oaths, when he was not a registered lawyer with PNGLS, or a
  Commissioner of
  Oaths under Oaths, Affirmation and Statutory Declarations Act
  (Chapter 317), rendering

• Page 82 of 475

• entire contract documents questionable, wrong and improper.

  The purpose of this investigation was to determine whether there
  were any wrong conduct
  and administrative failures and to make appropriate recommendations.

  On 22 May 2014, the Commission issued Notice of its intention to
  investigate the
  borrowing of AU$1.239 Billion UBS AG loan to the following
  individuals:

  Table 1: List of individuals issued Section 17(1) of the OLOC.
  No NAME POSITION
  DEPARTMENT/AGENCY
  .
  1 Mr Dairi Vele Acting Secretary
  Department of Treasury
  2 Dr. Ken Ngangan, PhD CMA Acting Secretary
  Department of Finance
  CPA
  3 Dr. Lawrence Kalinoe, PhD Secretary
  Department of Justice &
  Attorney-
  General
  4 Dr. Clement Waine, PhD Secretary
  Department of State Enterprises
  & State
  Investments
  5 Mr Daniel Rolpagarea State Solicitor Office of
  the State Solicitor
  6 Mr Paul Nerau Board Chairman
  Independent Public Business

  Corporation
  7 Mr Frank Kramer Board Chairman National
  Petroleum Company of
  PNG
  (Kroton) Ltd
  9 Sir Brown Bai Kt Board Chairman Petromin
  Holdings Ltd
  10 Mr Loi Bakani, CMG, CBE Governor Bank of
  PNG
  11 Sir ManasupeZurenuoc, Kt, Chief Secretary
  Department of Prime Minister
  MPS to the &
  National Executive Council
  Government
  12 Mr Ilagi Veali, MPS Secretary National
  Executive Council

  Jurisdiction & Purpose of Investigation
  Page 3

• Page 83 of 475

• [1.2] JURISDICTION OF THE OMBUDSMAN COMMISSION

  The Constitution empowers the Commission to investigate on its own
  initiative or on
  complaint by a person affected by any conduct on the part of any
  governmental body or an
  officer or employee of a governmental body in the exercise of a
  power or function vested in
  it, him or her by law in cases where the conduct is or may be wrong,
  taking into account,
  amongst other things, the National Goals and Directive Principles,
  the Basic Rights and the
  Basic Social Obligations.

  Section 217(1) (the Ombudsman Commission) of the Constitution
  establishes the
  Commission. Section 217(1) of the Constitution states:

  There shall be an Ombudsman Commission, consisting of a Chief
  Ombudsman and two
  Ombudsmen.

  Section 217(5) of the Constitution states that in the performance of
  the Commission‘s
  functions, under Section 219 of the Constitution the Commission is
  not subject to direction or
  control by any person or authority.

  Section 217(6) of the Constitution states that the proceedings of
  the Commission are not
  subject to review in any way, except by the Supreme Court or the
  National Court on the
  ground that it has exceeded its jurisdiction.

  Section 217(8) of the Constitution defines conduct. Section 217(8)
  states:

  (a) any action or inaction relating to a matter of
  administration; and

  (b) any alleged action or inaction relating to a matter of
  administration.

  Section 218(a)(b) and (c) of the Constitution specifies the
  traditional role of establishing the
  Commission. Section 218(a)(b) and (c) of the Constitution states:

• Page 84 of 475

• The purposes of the establishment of the Ombudsman Commission are
  —

  (a) to ensure that all governmental bodies are responsive to the
  needs and aspirations
  of the People; and

  (b) to help in the improvement of the work of governmental bodies
  and the
  elimination of unfairness and discrimination by them; and

  (c) to help in the elimination of unfair or otherwise defective
  legislation and practices
  affecting or administered by governmental bodies.

  Section 219(1)(a)(ii) of the Constitution states the functions of
  the Commission. Section
  219(1)(a)(ii) of the Constitution states:

  Jurisdiction & Purpose of Investigation Page 4

  (1) Subject to this section and to any Organic Law made for the
  purposes of Subsection
  (7), the functions of the Ombudsman Commission are—

  (a) to investigate, on its own initiative or on complaint by a
  person affected, any
  conduct on the part of—

  (i) any State Service or provincial service, or a member of
  any such service;
  or

  (ii) any other governmental body, or an officer or employee
  of a
  governmental body.

  Section 13 of the Organic Law on the Ombudsman Commission (OLOC)
  also specifies the purpose
  of establishing the Commission. Section 13 of OLOC states:

  For the purposes of Section 219 (1) (a) (functions of the
  Commission) of the Constitution
  the functions of the Commission, in addition to the functions
  specified in Section 219 (1)
  (b) (c), (d) and (e) (functions of the Commission) of the

• Page 85 of 475

• Constitution, are to investigate,
  on its own initiative or on complaint by a person affected, any
  conduct on the part of –

  (a) any State Service or a member of any State Service; or

  (b) any governmental body, or an officer or employee of a
  governmental body; or

  (c) any other service or body referred to in Section 219 (a)
  (functions of the
  Commission) of the Constitution that the Head of State, acting
  with, and in
  accordance with, the advice of the Executive Council, by
  notice in the National
  Gazette, declares to be a service or body for the purpose of
  this section.

  For the purposes of Section 219 of the Constitution and Section 13
  of the OLOC, DJAG, Office
  of the State Solicitor, NEC, CSTB, DoT, DoF, DoSE&SI, IPBC, NPCP,
  BPNG and
  DPM&NEC are governmental bodies created by Acts of Parliament.

  The Commission therefore has jurisdiction to investigate into the
  actions of the above
  mentioned governmental bodies or its officers.

  [1.3] PURPOSE OF THE INVESTIGATION

  Pursuant to Section 219(1) of the Constitution the purpose of this
  investigation is to identify
  wrong conduct and defective administrative practices affecting the
  procurement and tender
  procedures in particular the awarding of major contracts by the
  State for the financing and
  engagement of Financial, Legal and Technical Consultants and
  borrowing of loan from UBS
  AG to buy shares in Oil Search Ltd.

  The Commission‘s purpose of investigation is drawn around the
  following terms of
  references:

  (a) Whether the contract was publicly tendered.

  (b) Whether the Minimum requirements of the tender procedures and
  processes were
  complied with or not.

  Jurisdiction & Purpose of Investigation Page 5

• Page 86 of 475

• (c) Whether the tender requirements under the Public Finance
  (Management) Act 1995 and
  the Finance Management Manual were complied with.

  (d) Whether requirements of other Laws were complied with.

  The Commission‘s objective(s) are:

  (a) To identify the wrong conduct and defective administrative
  practices by relevant
  government agencies or its employees.

  (b) To make appropriate recommendations to help alleviate the
  defective administrative
  practices affecting or administered by government bodies and to
  help in the
  improvement of their work.

  [1.4] METHOD OF INQUIRY

  1.4.1 Use of OLOC Provisions

  The Commission invoked the provision of Section 17(1) of the OLOC to
  conduct its inquiries.
  Section 17(1) states:

  Before investigating any matter within its jurisdiction, the
  Commission shall inform the
  responsible person of its intention to make the investigation.

  1.4.2 Obtain documents

  The Commission obtained documents from relevant government bodies
  and persons
  pursuant to Section 18(1) of the OLOC.

  Section 18 (1) states:

  Subject to the provisions of this section and of Section 20, the
  Commission may from time
  to time require any person who in its opinion is able to give any
  information relating to
  any matter that is being investigated by the Commission to furnish
  to it that information
  and to produce any documents, papers or things that, in the
  opinion of the Commission,
  relate to any matter being investigated by it and that may be in
  the possession or control
  of that person.

• Page 87 of 475

• 1.4.3 Summoning of key witnesses

  The Commission summoned key witnesses to appear before it pursuant
  to Section 18(3) of
  the OLOC.

  Section 18(3) states:

  The Commission may, by instrument in writing, summon any person
  who in its opinion is
  able to give any information relating to any matter that is being
  investigated by the
  Commission, to attend the Commission at a time and place specified
  in the summons for
  examination by it on oath or affirmation.

  Jurisdiction & Purpose of Investigation Page 6

  1.4.4 Conducted Interviews

  The Commission conducted interviews with key witnesses pursuant to
  Section 18(1) and
  18(3) of the OLOC.

  [1.5] WITNESSES WHO GAVE EVIDENCE BEFORE THE COMMISSION
  The following witnesses were interviewed and gave evidence before
  the Commission after
  they were issued letters under Section 18(1) of the OLOC:

  Table 2: List of Witnesses interviewed
  No. Witnesses Position/Department
  1 Mr Dairi Vele Acting Secretary for DoT
  2 Mr Philip Eludeme Chairman of CSTB
  3 Mr Loi Bakani, CMG, CBE Governor for BPNG
  4 Hon Kerenga Kua, MP Then Minister for Justice &
  Attorney- General
  5 Hon Don Polye, MP The then Minister for Treasury
  6 Mr Anthony Yauieb Deputy Secretary for DoT
  7 Mr Daniel Rolpagarea State Solicitor
  8 Mr Wasantha Kumarasiri, OBE CEO for IPBC

  [1.6] OMBUDSMAN COMMISSION NOT CONFINED TO REPORTING ON
  LEGALITY OF ADMINISTRATIVE CONDUCT
  When the Commission conducts an investigation, it is not confined to
  reporting on
  whether or not there have been breaches of the law. The Commission‘s
  constitutional
  mandate is broader than this. It is authorised to report on what, in
  its opinion, is ―wrong
  conduct‖, irrespective of whether that conduct has been in
  accordance with the law.

• Page 88 of 475

• Section 219(2) (Functions of the Commission) of the Constitution
  specifies that a conduct is
  wrong if it is—

  (a) contrary to law; or

  (b) unreasonable, unjust, oppressive or improperly discriminatory,
  whether or not it is in
  accordance with law or practice; or

  (c) based wholly or partly on improper motives, irrelevant grounds
  or irrelevant
  considerations; or

  (d) based wholly or partly on a mistake of law or of fact; or

  (e) conduct for which reasons should be given but were not,

  whether or not the act was supposed to be done in the exercise of
  deliberate judgment
  within the meaning of Section 62 (Decisions in “deliberate
  judgement”) of the Constitution.

  Jurisdiction & Purpose of Investigation
  Page 7

  [1.7] WHAT IS ―WRONG CONDUCT‖?

  The Constitution gives some guidance to the Ombudsman Commission,
  when it is deciding
  whether administrative conduct is ―wrong‖.

  Section 219(2) of the Constitution states:

  Subject to Subsections (3), (4) and (5), and without otherwise
  limiting the generality of
  the expression, for the purposes of Subsection (1)(a) conduct is
  wrong if it is –

  (a) contrary to law; or

  (b) unreasonable, unjust, oppressive or improperly
  discriminatory, whether or not it is
  in accordance with law or practice; or

  (c) based wholly or partly on improper motives, irrelevant
  grounds or irrelevant

• Page 89 of 475

• considerations; or

  (d) based wholly or partly on a mistake of law or of facts; or

  (e) conduct for which reasons should be given but were not,

  whether or not the act was supposed to be done in the exercise of
  deliberate judgment
  within the meaning of Section 62 (decisions in ―deliberate
  judgment‖).

  The above list is not exhaustive. The phrase ―and without otherwise
  limiting the generality
  of the expression‖ indicates that conduct which does not fit into
  any of the descriptions in
  paragraphs (a) to (e) may still be regarded as wrong. The Ombudsman
  Commission is
  entitled to regard conduct as wrong, even if the conduct does not
  appear in the list of
  descriptions given in Section 219(2) of the Constitution.

  [1.8] THE PROVISIONAL REPORT

  Whenever the Ombudsman Commission prepares a report of this nature,
  it has a duty to
  observe procedural fairness.

  The duty is imposed by Section 17(4)(b) of the Organic Law on the
  Ombudsman Commission.

  Section 17(4)(b) states:

  Nothing in this Law compels the Commission to hold any hearing and
  no person is
  entitled as of right to be heard by the Commission except that …

  (a) the Commission shall not make any comment in its report that is
  adverse to or
  derogatory of any person without –

  (i) providing him with reasonable opportunity to be heard; and

  (ii) fairly setting out his defence in its report.

  In order to discharge its duty of procedural fairness, the Ombudsman
  Commission
  distributed a Provisional Report of this investigation into the 8
  December 2014.

  Jurisdiction & Purpose of Investigation Page 8

• Page 90 of 475

• A Provisional Report allows persons who may be affected by the
  Commission‘s Final Report
  to respond to any adverse findings and correct any factual errors
  the Commission may have
  made.

  The purpose of a Provisional Report is to state the Ombudsman
  Commission‘s preliminary
  findings of fact and preliminary views on the matter under
  consideration and to seek
  comments and submissions from those affects.

  All the findings in the Provisional Report are qualified. That is,
  they are made subject to
  submissions received in response to the Preliminary Report.

  Accompanying the Provisional Report was a direction, pursuant to
  Section 21(1) of the
  Organic Law on the Ombudsman Commission, that all evidence,
  documents, papers and things
  referred to including all findings and opinions, shall not be
  published without the consent
  in writing of the Ombudsman Commission. Breach of this direction is
  a criminal offence.
  Copies of the Provisional Report were given the following persons:

  Table 3: List of Recipients of the Provisional Report.
  No Recipient Position/
  Department Date Received
  1 Hon James Marape, MP Minister for Finance
  11/12/2014
  2 Dr Ken Ngangan PhD, CMA, CPA Acting Secretary,
  Department of Finance 11/12/2014
  3 Mr Dairi Vele Acting Secretary,
  Department of Treasury 11/12/2014
  4 Mr Loi Bakani, CMG, CBE Governor of Central
  Bank 11/12/2014
  5 Hon Peter O‘Neill, CMG, MP Prime Minister
  12/12/2014
  6 Hon Ben Micah, MP Minister for State
  Enterprises and State 12/12/2014
  Investments
  7 Mr Philip Eludeme Chairman of CSTB
  12/12/2014
  8 Amb Isaac Lupari, CBE Prime Minister‘s Chief
  of Staff 12/12/2014
  9 Mr Carl Okuk Lawyer and Consultant.
  16/12/2014

  Copies were delivered to their offices on 11, 12 and 16 December
  2014 and they were invited
  to respond to the Ombudsman Commission within 21 days period. The
  letter stated that if
  they did not respond, the Ombudsman Commission would consider they

• Page 91 of 475

• have accepted the
  report‘s findings.

  The following persons responded;

  1. Hon Peter O‘Neill, CMG, MP, Prime Minister
  2. Mr Dairi Vele, Acting Secretary for Department of Treasury
  3. Mr Loi Bakani, CMG, CBE, Governor of Central Bank
  4. Mr Frank Kramer, Chairman of NPCP and former Chairman and
  non-Executive
  Director of Pacific Capital Ltd
  5. Dr Ken Ngangan, PhD, CMA, CPA, Acting Secretary for
  Department of Finance.

  Note

  Mr Frank Kramer was the Chairman of NPCP at that material time and
  he responded to the
  Commission‘s Provisional Report. Mr Kramer‘s response is included in
  subsection [2iii] of
  this Report.

  Jurisdiction & Purpose of Investigation
  Page 9

  [1.9] RESPONSE FROM THE PRIME MINISTER HON PETER O‘NEILL, CMG, MP,

  On 22 December 2014, the Prime Minister through his lawyers, Young &
  Williams Lawyers
  responded to the Ombudsman Commission‘s Provisional Report. Below is
  an extract of the
  letter from the Prime Minister:

  Dear Sir & Madam,

  Re: The Hon Peter O‘Neill CMG, MP – Investigations into the Prime
  Minister and
  Provisional Report.

  1. As you are aware, we act for and are instructed by the Prime
  Minister, the Hon Peter O‘Neill CMG,
  MP.

  Letter of 8 December 2014 enclosing Provisional Report

  2. We have been provided your letter dated 8 December 2014
  (received by our client‘s office on 12
  December 2014) for reply.

  3. Your abovementioned letter:

• Page 92 of 475

• a. encloses what is described as a ―Provisional Report‖ (―the
  Report‖) which purports to
  comprise a report of your investigation under the provisions
  of section 219 (1)(a) of the
  (―Constitution‖) and section 13 of the Organic law on the
  Ombudsman Commission (―the
  OLOC‖) ―into the alleged improper borrowing of AU$1.239
  billion loan from the Union
  Bank of Switzerland, Aktiengesellschaft (Australian Branch)
  to purchase 149,390,244 shares
  in Oil Search Limited and improper tender and procurement of
  consultants in relation to
  the borrowing‖; and

  b. requires our client to respond to the Report within 21 days
  from the receipt of your
  abovementioned letter (failing which the Ombudsman
  Commission advises, unfairly, that it
  will be ―deemed‖ that our client has accepted the findings).

  4. Paragraph 1.1 of the Provisional Report states:

  ―[1.1] INTRODUCTION

  This is the Provisional Report by the Commission of an Own
  Initiative investigation under Section
  219(1)(a) (Functions of the Commission) of the Constitution and
  Section 13 (Functions of the
  Commission) of an Organic Law on the Ombudsman Commission
  conducted into the alleged improper
  borrowing of AU$1.239 billion loan from UBS AG by the Government
  to purchase 149,390,244 shares in
  Oil Search Limited and improper tender and procurement of
  Consultants in relation to the borrowing.

  Jurisdiction of the Ombudsman Commission to conduct investigations
  under section 219(1)(a) of the
  Constitution and Section 13 OLOC

  5. The jurisdiction of the Ombudsman Commission to conduct
  investigations of this nature is prescribed
  under the provisions of the Constitution Section 219 (1) and
  Section 13 of the OLOC, and is limited and
  restricted to investigations of any conduct on the part of:

  a. Any State Service, or member of any State Service; or

  b. Any governmental body, or an officer or employee of a
  governmental body; or

  c. Any other service or body referred to in Section 219(a)
  (functions of the Commission) of the
  Constitution that the Head of State, acting with, and in

• Page 93 of 475

• accordance with, the advice of the
  National Executive Council, by notice in the National
  Gazette, declares to be a service or body
  for the purposes of this Section.

  6. It is not clear from your Report the conduct of which (if any)
  of the above services or bodies you are
  investigating. Could you please specify with particularity the
  conduct of which services, bodies,
  officers or employees referred to in Section 13 of the OLOC you
  are investigating. This, as you will
  appreciate, is a fundamental threshold issue in terms of your
  jurisdiction to make this investigation and
  publish any Report.

  The Prime Minister does not fall under any of the investigatory
  powers or jurisdiction of the Ombudsman
  Commission under Section 219(1)(a) of the Constitution and Section
  13 OLOC

  Jurisdiction & Purpose of Investigation Page 10

  7. It is clear, we contend, on the proper interpretation, that the
  Prime Minister is not included in the set
  of bodies and services specified in Section 13 of the OLOC. The
  Prime Minister is therefore NOT
  susceptible to a competent or constitutionally invalid
  investigation or Report under the OLOC.

  8. The conduct of the Prime Minister has been at the centre of
  your investigation in this matter. See your
  example:

  a. In your ―Executive Summary‖ at paragraph (b), where you
  specifically state you investigated,
  ―The whole action of the Prime Minister misleading the NEC
  Special Meeting No: 8/2014 and
  the subsequent NEC AG Loan of AU$1.239 billion which NEC does
  not have the power except
  the Parliament under Section 209 (Parliamentary
  Responsibility) of the Constitution…‖,

  b. In your Provisional Findings paragraph 1, where you find,
  ―In the opinion of the Ombudsman
  Commission, the conduct of the Prime Minister was wrong and
  improper when he committed
  the State to purchase 149,390,244 shares in Oil Search
  Limited…;

  c. Paragraphs 2, 3 and 4 of your findings make similar comments
  on the Prime Minister‘s conduct;

  d. Under the heading ―Irregularities‖ you make further findings

• Page 94 of 475

• of wrong conduct against the
  Prime Minister;

  e. Further statements of wrong conduct against the Prime
  Minister are made under the heading of
  ―Findings of Wrong Conduct‖;

  f. Similar statements of investigating the Prime Minister‘s
  conduct are made throughout the
  ―provisional report‖.

  9. The investigation in this matter and the Report on this basis
  are unconstitutional, at least insofar as
  they relate to the conduct of the Prime Minister. Given the
  extent of the Report into his conduct, it is
  not possible to sever the part of the Report which relates to
  the Prime Minister from the rest of the
  Report, and consequently the whole investigation is flawed from
  the outset.

  Failure of the Ombudsman Commission to satisfy the mandatory
  requirement of informing persons who
  will be the subject of the investigation

  10. In addition to the foregoing, we note that under the
  provisions of Section 17(1) of the OLOC, before
  commencing any investigation within its jurisdiction, (in this
  case the jurisdiction under Section 13 of
  the OLOC), the Ombudsman Commission is obliged to ―inform the
  responsible person of its intention
  to make such an investigation.‖ In this case, the ‗responsible
  person‘ is our client, the Prime Minister.
  This we contend is a fundamental requirement, compliance with
  which is necessary to ground the
  jurisdiction of the Ombudsman Commission to conduct such an
  investigation in relation to the
  conduct of a responsible person.

  11. In the present case, the Ombudsman Commission has published a
  list of the person in a Table (at page
  9 of the Report) to whom it gave such notice and we note that
  our client is not a person to whom such
  a notice was given.

  12. Failure to provide our client with a notice under Section
  17(1) renders your investigation, at least so far
  as he is concerned, invalid and unconstitutional because you
  have failed to ground your jurisdiction to
  undertake such an investigation into the conduct of our client
  and prepare any report. If the
  investigation has no constitutional mandate, any report
  published as a result of such investigation must
  also be in excess of jurisdiction, at least insofar as it makes
  any comments adverse to or derogatory of

• Page 95 of 475

• our client. Accordingly, you have acted in excess of your
  jurisdiction, and the provisional report is
  invalid and unconstitutional (as would any subsequent, final or
  otherwise).

  The Ombudsman Commission may not make any comment in its report
  which is adverse to or derogatory
  of any person

  13. We also respectfully contend without prejudice to the matter
  raised above and our client‘s rights
  generally, as set out below.

  14. As you are aware, under Section 17(4) of the OLOC, the
  Ombudsman Commission may not make any
  comment in its report which is adverse to or derogatory of any
  person without:

  • Providing that person with a reasonable opportunity to be
  heard; and
  • Fairly setting out the defence of that person in its report.
  (our underlining)

  Jurisdiction & Purpose of Investigation Page 11

  15. We submit that Section 17(4)(b) of the OLOC, on proper
  interpretation and application, applies to any
  comment of the Ombudsman Commission, whether final or not, in any
  report of the Ombudsman
  Commission, including what the Ombudsman Commission labels a
  provisional report.

  16. This we submit is to ensure that people the subject of
  investigations by the Ombudsman Commission
  are afforded natural justice at all stages of the investigation,
  including the state of ―provisional reports.‖
  The Supreme Court of Papua New Guinea has held this to the case
  in Nilkare v. Ombudsman
  Commission [1999] PNGLR 333 (―Nilkare‘s Case‖).

  17. In the present case, the Ombudsman Commission cannot be seen
  to be operating with any sense of
  fairness and impartiality because the report contains statements
  which are adverse to and derogatory
  of our client. They are expressed in the form of concluded
  findings and couched in final, unequivocal
  and condemnatory terms. For example, the whole of Section 4 of
  the report contains such language.

  18. A further and aggravated example can be seen in paragraph (b)
  of the Executive Summary of the

• Page 96 of 475

• Provisional Report, where the matter said to be investigated has
  as its premise that the Prime Minister
  misled the NEC (which is incorrect). Other examples are found at
  paragraph (c) and (d) in the
  Executive Summary.

  19. Having made such findings which are now committed to print and
  signed by the Ombudsman
  Commission (at page 153) in the form of a provisional report, the
  Ombudsman Commission cannot be
  seen to be impartial or independent because they have expressed a
  preconceived position in which they
  have already adversely prejudged our client and from which they
  cannot be expected to reply however
  compelling the evidence may be to do so. A reasonable observer
  could have no confidence that you will
  provide our client with any reasonable or meaningful opportunity
  to be heard.

  20. A reasonable observer would conclude that you have made your
  final decision which you have
  published under the heading of a ―Provisional Report,‖ and are
  merely executing a formality in
  purporting to give our client a belated right to be heard.

  21. In these circumstances, our client cannot expected the same
  institution which has made and published
  under these adverse and derogatory findings to be able to afford
  him any fair, independent, impartial or
  meaningful right to be heard.

  The right to be heard – denial of National Justice

  22. Further, our client is entitled to certain Constitutional
  rights at all stages of any investigation,
  including at the stage of the provisional report by the Ombudsman
  Commission. Section 59(2) of the
  Constitution specifies that ―the minimum requirement of natural
  justice is the duty to act fairly and, in
  principle, to be seen to act fairly‖.

  23. Generally speaking, the Ombudsman Commission has a duty ―to be
  seen to be impartial and
  independent without prejudice and preconception in it
  investigation decision and preliminary decision
  making process.‖ See Nilkare Case at p 335 (our underlining).

  24. It follows that any report, preliminary or otherwise, made by
  the Ombudsman Commission which is in
  breach of this duty, or does not comply with these mandatory
  requirements of OLOC and the
  Constitution, is made in excess of its jurisdiction, is
  unconstitutional and it otherwise unlawful.

• Page 97 of 475

• 25. It is part of the content of the Rules of Natural Justice that
  any right to be heard must be:

  a. Undertaken by an Ombudsman Commission which can be seen to be
  operate with a sense of
  fairness and impartiality;

  b. One where all relevant particulars and material documents
  have been disclosed to the person the
  subject of the investigation; and

  c. One which affords a hearing that enables it to be exercised
  fully and in a meaningful way.

  26. It is a breach of the Rules of Natural Justice to issue a
  provisional report in such biased and final
  language. Any reasonable observer could not help but come to the
  conclusion that you have prejudged
  the issues in circumstances where our client has not been
  afforded the procedural safeguards set out in
  the OLOC and the Constitution to which he is entitled, including:

  a. A reasonable opportunity to be heard in relation to the
  matters contained in the preliminary
  report, and

  b. Fairly setting out any defence of our client.

  Jurisdiction & Purpose of Investigation Page 12

  The Provisional Report is invalid and unconstitutional as it
  infringes upon, breaches or contravenes
  Constitutional Laws

  27. Unfortunately, for the reasons set our in this letter, the
  Provisional Report:

  a. Is in breach of the Ombudsman Commission‘s duties referred
  to in paragraph 14 above;

  b. Has been made without compliance with Section 17(4)(b) of
  the OLOC because it contains
  comments which are adverse to or derogatory of our client in
  circumstances where:

  o He has not been provided with a reasonable opportunity to
  be heard; and

  o It does not fairly set out the defence of our client in
  its report;

  c. Is in breach of Section 59(2) of the Constitution in that it

• Page 98 of 475

• does not satisfy the minimum
  requirements of natural justice because the Ombudsman
  Commission has not acted fairly and
  has not been seen in principle to act fairly in this matter.

  Very recent proceedings involving the Ombudsman Commission
  exceeding its jurisdiction

  28. The issue of the Ombudsman Commission acting in excess of its
  jurisdiction and contrary to the Rules
  of Natural Justice is already before the Court in relation to the
  Ombudsman Commission issuing a
  ―Directions‖ concerning the UBS AG loan. The Ombudsman Commission
  will be well aware of this as it
  is a Defendant in OS (JR) 383 of 2014. We enclose for your
  convenience a copy of the Constitutional
  questions referred by Makail J on 3 December 2014.

  Request by Ombudsman Commission to respond within 21 days

  29. We note your comment in the penultimate paragraph of your
  abovementioned letter that ―if a response
  is not received from you within the stated (21 day) time frame,
  it will be deemed that you have
  accepted the findings under any circumstances. Your advice that
  in the absence of our client‘s response
  you will deem them as having been accepted and publish the final
  report under Section 22 of the OLOC
  demonstrates the Ombudsman Commission is not acting impartially,
  independently, fairly or without a
  prejudicial or preconceived attitude in this matter. Furthermore,
  the time given by the Ombudsman
  Commission to respond is wholly unreasonable in all the
  circumstances, and the Ombudsman
  Commission is obliged to provide a reasonable time from the
  outset.

  30. Consequently, it is our contention for the abovementioned
  reasons that the Ombudsman Commission
  lacks jurisdiction to further proceed in this matter. It has no
  jurisdiction to publish any further report
  relating to ―alleged improper borrowing of AU$1.239 billion loan
  from UBS AG by the Government to
  purchase 149,390,244 shares in Oil Search Limited and improper
  tender and procurement of
  Consultants‖, making any comments which are adverse to or
  derogatory of our client.

  Constitutional questions arise in the interpretation and
  application of Constitutional Laws.

  31. If you do not agree with what we have set out above, then
  questions of interpretation or application of
  the OLOC (particularly Section 13) and the Constitution arise.

• Page 99 of 475

• Questions of interpretation or
  application of any provision of a Constitutional Law (such as the
  OLOC) are not within the
  jurisdiction is relevant exclusively limited to the Supreme Court
  of Papua New Guinea under the
  provisions of Section 18 of the Constitution.

  32. We are concerned that the Ombudsman Commission has sought to
  make comments adverse to or
  derogatory of the Prime Minister, which are dependent and
  conditional upon the interpretation or
  application of provisions of Constitutional Laws by the Ombudsman
  Commission itself. The
  Ombudsman Commission has no jurisdiction to interpret or apply
  provisions of any Constitutional
  Laws. Notwithstanding this, the Ombudsman Commission has made
  comments adverse to or
  derogatory of the Prime Minister on the premise that there have
  been breaches of various provisions of
  the Constitution, such as Section 209, 211, 212 and 255. As the
  Ombudsman Commission will be aware,
  there are currently proceedings before the Supreme Court, in
  which Sections 209 and 255 are to be
  interpreted and applied [OS (JR) 383 of 2014 and SCCOS No 4 of
  2014]. Insofar as the Ombudsman
  Commission has sought to interpret and apply Constitutional
  provisions, to make any comments that
  are adverse to or derogatory of our client, such comments exceed
  the jurisdiction of the Ombudsman
  Commission.

  33. There are questions which arise that are serious, with far-
  reaching consequences for the Ombudsman
  Commission and our client. They are not vexatious, trivial or
  irrelevant.

  34. In these circumstances, we respectfully submit that the
  appropriate course is that you make an
  application pursuant to Section 19 of the Constitution to refer
  questions to the Supreme Court for

  Jurisdiction & Purpose of Investigation Page 13

  hearing and determination. We note in this regard that you are
  expressly named as an authority under
  Section 19(3)(e) of the Constitution entitled to make such an
  application.

  35. Appropriate Constitutional questions warranting an
  authoritative determination by the Supreme
  Court, in our respectful contention, could include as follows:

  i. Whether the Ombudsman Commission, having regard to the

• Page 100 of 475

• provisions of the Organic Law on
  the Ombudsman Commission (―OLOC‖) (particularly Section 13),
  lacks the jurisdiction to
  investigate, under Section 13 of the OLOC, on its own
  initiative or on complaint by a person
  affected, any conduct on the part of the Prime Minister of the
  Independent State of Papua New
  Guinea.

  ii. Whether the Ombudsman Commission, having regard to the
  provisions of Section 219(1)(a)
  and (b) of the Constitution, on its own initiative or on
  complaint be a person affected, any
  conduct on the part of the Prime Minister of the Independent
  State of Papua New Guinea.

  iii. Whether the Ombudsman Commission, having regard to the
  provisions of the Constitution,
  (including Section 219), the Organic Law on the Duties and
  Responsibilities of Leadership
  (―OLDRL‖) and the OLOC, has lawful authority, power and
  jurisdiction to have issued or
  published a document titled ―Provisional Report‖ –
  ―Investigation into the alleged improper
  borrowing of AU$1.239 billion loan from the Union Bank of
  Switzerland, Aktiengesellschft
  (Australian Branch) to purchase 149,390,244 shares in Oil
  Search Limited and improper tender
  and procurement of consultants in relation to the borrowing‖,
  making comments that were
  adverse to or derogatory of the Prime Minister.

  iv. Whether the Ombudsman Commission, having regard to the
  provisions of the Constitution
  (including Section 21`9), the OLDRL and the OLOC, has lawful
  authority, power and
  jurisdiction to issue or publish any further or other report
  ―into the alleged improper borrowing
  of AU$1.239 billion loan from the Union Bank of Switzerland,
  Aktiengesellschft (Australian
  Branch) to purchase 149,390,244 shares in Oil Search Limited
  and improper tender and
  procurement of consultants in relation to the borrowing‖,
  making comments adverse to or
  derogatory of the Prime Minister.

  v. Whether the Ombudsman Commission is and was required to
  comply with Section 59(2) of the
  Constitution by providing the minimum requirement of natural
  justice to act fairly and, in
  principle, to be seen to act fairly before:

  (a) Issuing or publishing a document titled ―Provisional

• Page 101 of 475

• Report‖ – ―Investigation into the
  alleged improper borrowing of AU$1.239 billion loan from
  the Union Bank of
  Switzerland, Aktiengesellschft (Australian Branch) to
  purchase 149,390,244 shares in
  Oil Search Limited and improper tender and procurement of
  consultants in relation to
  the borrowing‖, making comments adverse to or derogatory
  of the Prime Minister;

  (b) Issuing or publishing any further or other report into
  ―the alleged improper borrowing
  of AU$1.239 billion loan from the Union Bank of
  Switzerland, Aktiengesellschft
  (Australian Branch) to purchase 149,390,244 shares in Oil
  Search Limited and
  improper tender and procurement of consultants in relation
  to the borrowing‖, making
  comments adverse to or derogatory of the Prime Minister;

  vi. Whether the Ombudsman Commission is and was required to
  comply with Section 17(1) of the
  OLOC, and in particular, inform the Prime Minister of its
  intention to make an investigation
  relating to conduct on the part of the Prime Minister:

  (a) Before investigating the Prime Minister into the alleged
  improper borrowing of
  AU$1.239 billion loan from the Union Bank of Switzerland,
  Aktiengesellschft
  (Australian Branch) to purchase 149,390,244 shares in Oil
  Search Limited and
  improper tender and procurement of consultants in relation
  to the borrowing‖;

  (b) Issuing or publishing a document titled ―Provisional
  Report‖ – ―Investigation into the
  alleged improper borrowing of AU$1.239 billion loan from
  the Union Bank of
  Switzerland, Aktiengesellschft (Australian Branch) to
  purchase 149,390,244 shares in
  Oil Search Limited and improper tender and procurement of
  consultants in relation to
  the borrowing‖, making comments adverse to or derogatory
  of the Prime Minister;

  (c) Issuing or publishing any further or other report ―into
  the alleged improper borrowing
  of AU$1.239 billion loan from the Union Bank of
  Switzerland, Aktiengesellschft
  (Australian Branch) to purchase 149,390,244 shares in Oil
  Search Limited and
  improper tender and procurement of consultants in relation

• Page 102 of 475

• to the borrowing‖,
  making comments adverse to or derogatory of the Prime
  Minister;

  Jurisdiction & Purpose of Investigation Page 14

  vii. Whether the Ombudsman Commission, having regard to the
  provisions of the Constitution
  (including Section 219) and Section 13 of the OLOC, has
  jurisdiction to publish a Report
  (whether provisional, final or otherwise) making comments
  adverse to or derogatory of the
  Prime Minister in relation to conduct on his part.

  viii. Whether the Ombudsman Commission, on proper interpretation
  or application of the
  Constitution (including Section 219) and the OLOC (including
  Sections 13, 17 and 23), lacks
  jurisdiction to make any conclusions, recommendations and
  suggestions under Section 23 of the
  OLOC, making comments adverse to or derogatory of the Prime
  Minister, if such comments
  require, before they can be properly made, an interpretation
  or application of provisions of
  Constitutional Laws by the Ombudsman Commission.

  The Ombudsman Commission has no protection

  36. We note that Section 35(1) of the OLOC provides:

  ―35. PRIVILEGE.

  (1) A member of the Commission or an officer or employee of the
  Commission is not liable for any act
  or omission done or made bona fide and without negligence
  under or for the purposes of this law.‖

  37. There is, for good reason, no protection afforded to a member
  of the Commission in circumstances
  where any act or omission is not done or made bona fide and
  without negligence.

  38. We contend that in light of the matters set out above in this
  letter, the members of the Ombudsman
  Commission will be liable if it were to:

  a. Further publish and distribute the ―Provisional Report‖;

  b. Publish and distribute any further Report making any
  comments adverse to derogatory of the
  Prime Minister

  c. Continues to or purports to investigate the Prime Minister

• Page 103 of 475

• for the purpose of publishing or
  distributing any report.

  39. A reasonable person, in all the circumstances, would form the
  view, that there is an apprehension of
  bias, if not actual bias, by the Ombudsman Commission in
  relation to the Prime Minister.

  Advice and Undertaking by the Ombudsman Commission

  40. We require written advice by 9am, 5 January 2015:

  a. Whether the Ombudsman Commission will file a Section 19
  Special Reference referring
  Constitutional questions to the Supreme Court relating to the
  authority, power and
  jurisdiction of the Ombudsman Commission to have issued the
  ―Provisional Report‖ and issue
  any other Report into the allegations the subject of the
  Provisional Report containing any
  comments adverse to or derogatory of the Prime Minister in
  terms suggested or otherwise;

  b. Whether the Ombudsman Commission will undertake to refrain
  from further publishing or
  distributing the ―Provisional Report‖;

  c. Whether the Ombudsman Commission will refrain from
  publishing or distributing any
  further report concerning an investigation relating to
  conduct of the Prime Minister into
  alleged improper borrowing of AU$1.239 billion loan from UBS
  AG by the Government to
  purchase 149,390,244 shares in Oil Search Limited and
  improper tender and procurement of
  Consultants in relation to the borrowing containing any
  comments which are adverse to or
  derogatory of the Prime Minister.

  d. Whether the Ombudsman Commission accepts that it is not
  entitled to investigation any
  conduct on the part of the Prime Minister under Section 13 of
  the OLOC;

  e. Whether the Ombudsman Commission accepts that it is not
  entitled to investigate any
  conduct on the part of the Prime Minister under Section
  219(1)(a) of the Constitution;

  f. How many people received a copy of the Provisional Report
  or any parts of it that contains
  comments adverse to or derogatory of our client;

• Page 104 of 475

• Jurisdiction & Purpose of Investigation Page 15

  g. Whether our client will be provided with all of the
  documents you have obtained in
  connection with this investigation referred to in the report,
  particularly insofar as they are
  relied upon to make any comments adverse to or derogatory of
  the Prime Minister. We have
  previously asked you for copies of documents which you have
  failed to provide, and went
  ahead and referred that matter together with Statement of
  Reasons to the Public Prosecutor
  under Section 27 of the OLDRL;

  h. Whether the Ombudsman Commission accepts that t did not
  inform our client of its
  intention to make the investigation, before investigating any
  matter under Section 13 of the
  OLOC or Section 219 of the Constitution, as required by
  Section 17(1) of the OLOC. If it doe
  not so accept, please provide forthwith evidence that our
  client was so informed (including a
  copy of any written document so informing our client);

  i. Whether the Ombudsman Commission accepted that:

  (i) The Provisional Report contains comments that are
  adverse to or derogatory of our
  client;

  (ii) The Provisional Report was provided without providing
  our client a reasonable
  opportunity to be heard (and if the Ombudsman Commission
  does not so accept
  please provide forthwith evidence that our client was
  provided a reasonable
  opportunity to be heard);

  (iii) The Provisional Report does not set out any defence
  from our client.

  Conclusion

  41. For the record, our client refutes any improper or wrong
  conduct as asserted by you or otherwise in
  relation to the subject matter of the investigation.

  42. This is an open letter and we reserve the right to bring it to
  the attention of the Court should the need
  arise. We also reserve the right to draw to the attention of the
  Court the failure of the Ombudsman
  Commission to provide the written advice and undertaking

• Page 105 of 475

• requested in his letter.

  43. In short, the purported investigation of our client by the
  Ombudsman Commission and issuance of the
  Report is fatally flawed. The investigation was conducted, and
  the Report issued, in circumstances
  where the Ombudsman Commission has failed to comply with its
  Constitutional obligations and
  duties. In fact, the investigation has been conducted
  unconstitutionally, as has the issuance of the
  Report.

  44. If the Ombudsman Commission contends otherwise, it should,
  given the serious matters raised in this
  letter, seek an authoritative determination from the Supreme
  Court on questions relating to the
  interpretation or application of provisions of Constitutional
  Laws.

  45. We await your reply by, at the latest, 9am, 5 January 2015,
  and reserve all our client‘s rights.

  On 23 January 2015, the Prime Minister filed an application in the
  National Court seeking
  referral of several questions for interpretation by the Supreme
  Court, under Section 18(2) of
  the Constitution.

  Comments

  The Ombudsman Commission has discharged its duty of procedural
  fairness and natural
  justice by giving the above named persons the opportunity to respond
  to the Provisional
  Report within 21 days from the date of our letter. However, rather
  than responding to the
  Provisional Report, the Prime Minister instructed his Lawyers, Young
  & Williams Lawyers,
  to file National Court proceedings against the Ombudsman Commission
  to prevent the
  Provisional Report and eventually the Final Report on the matter to
  be published.

  Jurisdiction & Purpose of Investigation Page 16

  [1.10] CHALLENGE ON OMBUDSMAN COMMISSION‘S JURISDICTION – SCR

• Page 106 of 475

• NO: 15 OF 2015

  [1.10.1] NATIONAL COURT OS NO: 15 OF 2015
  On 12 December 2014, the Prime Minister was served the Provisional
  Report and given 21
  days to respond to the findings. However, on 22 December 2014 the
  Prime Minister
  responded through his Lawyers, Young & Williams Lawyers refuting any
  wrong doings on
  the part of their client and that the investigations by the
  Ombudsman Commission were
  fatally flawed. The Prime Minister‘s Lawyers requested the
  Commission for undertakings
  that it has failed to comply with the constitutional obligations and
  duties and that the
  investigation was conducted unconstitutionally. The Commission was
  asked to reply
  before or by 0900 am on 5 January 2015.

  On 23 January 2015, the Prime Minister‘s Lawyers filed proceedings
  in the National Court,
  OS No: 15 of 2015 Peter O‘Neill vs Ombudsman Commission Of Papua New
  Guinea and
  Rigo A. Lua, Chief Ombudsman and Phoebe Sangetari, Ombudsman (2015)
  N5857,
  questioning its jurisdiction over the office of the Prime Minister.
  At the same time as filing
  proceedings in the National Court, a motion was filed to invoke
  Section 18(2) of the
  Constitution to have the matter referred to the Supreme Court to
  deal with the constitutional
  question of whether the OC has jurisdiction over the office of the
  Prime Minister.

  In those proceedings the Prime Minister challenged the jurisdiction
  of the Ombudsman
  Commission regarding an investigation conducted under the Organic
  Law on the Ombudsman
  Commission in so far as the investigation related to his conduct.
  The subject of the
  investigation was the alleged improper borrowing of AU$1.239 Billion
  from the Union Bank
  of Switzerland (UBS) by the National Government to purchase
  149,390,244 shares in Oil
  Search Ltd and improper tender and procurement of consultants in
  relation to the
  borrowing.

  On 19 July 2016, the National Court (Davani J) referred 11
  questions, which arose in
  proceedings before her Honour, in OS No: 15 of 2015. When the
  National Court (Davani J)
  referred the matter to the Supreme Court, interim orders were issued
  preventing the

• Page 107 of 475

• Commission from conducting any further investigations into the Prime
  Minister,
  specifically on the UBS case and generally on any other
  investigations under the Organic Law
  on the Ombudsman Commission.

  [1.10.2] SUPREME COURT SC REF NO 5 OF 2016
  In March 2017, the Supreme Court (SC Ref No: 5 of 2016; Reference
  Pursuant to
  Constitution, Section 18(2), Re alleged improper borrowing of AU
  $1.239 Billion Loan;
  Ombudsman Commission, Rigo A. Lua, Phoebe Sangetari, Hon Peter
  O‘Neill MP, Prime
  Minister and Hon Ano Pala MP, Attorney-General (2017) SC1580) handed
  down its
  decision upholding the Ombudsman‘s contention that it has
  jurisdiction over the Prime
  Minister in so far as its functions under the Organic Law on the
  Ombudsman Commission were
  concerned.

  The Supreme Court also ordered that the Registrar list the matter
  before a judge
  immediately for directions hearing. The Ombudsman Commission‘s
  attempts to have the
  Registrar list the matter in OS No: 15 of 2015 for determination was
  unsuccessful until the
  Friday 11 August 2017 when the Commission discovered that the matter
  was listed for
  hearing.
  Jurisdiction & Purpose of Investigation
  Page 17

  The Ombudsman Commission considered the relief that the Prime
  Minister was claiming
  again in the National Court and compared that to the questions
  referred to the Supreme
  Court and concluded that the questions are same, if not similar.

  The Ombudsman Commission filed proceedings to dismiss the entire
  proceedings in OC
  No: 15 of 2015 for disclosing no cause of action and or an abuse of
  process and further, to
  uplift the injunctions preventing the Commission from further
  dealing with the Prime
  Minister under the UBS investigation or any other OLOC
  investigations.

  The Ombudsman Commission argued that the first order the Prime
  Minister was seeking in
  the Originating Summons is a declaration that on the proper
  interpretation of s 219(1)(a) of
  the Constitution, the Prime Minister of PNG does not come within the

• Page 108 of 475

• description of any
  ―member‖, ―officer‖, ―employee‖ or ―person‖ under s 219(1)(a) of the
  Constitution.

  In the Supreme Court, the question was asked whether on the proper
  interpretation of s
  219(1)(a) of the Constitution, the Prime Minister of PNG does not
  come within the
  description of any ―member‖, ―officer‖, ―employee‖ or ―person‖ under
  s 219(1)(a) of the
  Constitution.

  The Commission also argued whether there is any utility in the
  proceedings in the National
  Court, as the Supreme Court has conclusively decided that the
  Ombudsman Commission
  has jurisdiction over the Prime Minister. This application comes
  after the Supreme Court in
  an unanimous decision in March 2017 decided that the Prime Minister
  was an officer of a
  governmental body and therefore subject to the Ombudsman
  Commission‘s jurisdiction.

  The Supreme Court has decided that the office of the Prime Minister
  comes within the
  meaning of an officer of a governmental body hence there is no
  purpose in continuing with
  the case in the National Court except for the interim orders that
  were issued when the
  National Court (Davani J) referred the matter to the Supreme Court
  preventing the
  Commission from conducting any further investigations into the Prime
  Minister,
  specifically on the UBS case and generally on any other
  investigations under the Organic Law
  on the Ombudsman Commission to be lifted.

  On 21 November 2017 the Prime Minister‘s Lawyer Greg Sheppard did
  not contest the
  Commission‘s application, and after a short submission by the
  Commission through its
  Counsel Dr Vergil Los Narokobi, the National Court (Justice Hitelai-
  Polume) dismissed the
  entire proceedings with costs and discharged any injunction that may
  have been issued
  against the Ombudsman Commission.

  The decision by the National Court paved the way for the progression
  of the Report after
  the injunction was issued stopping the progress of the
  investigations on 19 July 2016.

  [1.11] RESPONSE FROM THE ACTING SECRETARY FOR TREASURY, MR DAIRI
  VELE

• Page 109 of 475

• On 23 January 2015, Mr Dairi Vele, Acting Secretary for Treasury
  responded to the
  Ombudsman Commission‘s Provisional Report. Below is his response.
  RESPONSE TO EXECUTIVE SUMMARY
  Provisional Findings
  I deny without reservation the findings listed at Findings 9 to 13.
  Jurisdiction & Purpose of Investigation Page 18

  Irregularities

  I deny that I was involved in any irregularities or wrong or
  improper conduct with regards to UBS AG Loan and the
  engagement of private financial and legal Consultants in relation to
  the borrowing.
  Findings of Wrong Conduct

  I deny that my conduct was wrong and erroneous in any way and there
  are no such irregularities or breach of the
  Constitution and the applicable laws as alleged or at all, and say
  as follows;

  • That there was no lack of proper and wide consultation with
  State agencies and no by-passing on the
  National Parliament‘s approval of the borrowing pursuant to
  Section 209, 212 and 255 of the Constitution.

  • That the loan has not exceeded the State‘s Gross Domestic
  Product (GDP) to Debt ratio threshold of 35%.
  Hence, the PNG Fiscal Responsibilities Act 2006 being an Act to
  promote economic and financial
  transparency and accountability in the interest of a stable
  macroeconomics environment has been
  complied with.

  • That the borrowing did not exceed the 125% of the total value of
  overseas commercial debt to the
  estimated internal revenue for the Fiscal Year 2014 and Sections
  2(3) of the Loans )Overseas Borrowing)
  (No.2) Act (Chapter 133A) are not breached.

  • That the engagement of Private Law Firms was lawful.

  • That the requirements of public tendering of contracts pursuant
  to Sections 39 and 40 of the Public
  Finance (Management) Act 1995 were not breached in relation to
  the engagement of financial and legal
  consultants.

  • That the engagement of financial, legal and technical
  consultants by was not wrong.

  • That the execution of all documents by the Governor-General and
  witnessed by Mr. Okuk, Lawyer, was

• Page 110 of 475

• proper.

  • That the State‘s sovereignty was not compromised when the State
  entered into the Loan Agreement with
  UBS AG to be the Lender, Facilitator and Arranger of the
  borrowing.

  Comments

  The evidences on the conduct of Mr Vele are outlined in the findings
  of fact in this Report.
  From the evidence produced and gathered during the course of the
  investigation leading up
  to the issuance of the Provisional Report and writing of the Final
  Report on the findings of
  wrong conduct.

  Mr Vele‘s explanations to justify that he did not commit any wrong
  conduct are contrary to
  the facts that he provided in his response to the Provisional
  Report.

  Jurisdiction & Purpose of Investigation Page 19

  2. FINDINGS OF FACTS

  INTRODUCTION
  This Chapter is divided into three parts and each part will deal
  separately with the manner

• Page 111 of 475

• in which this entire loan transaction was carried out. However,
  before the main issue is
  outlined and discussed in this Chapter, it is necessary to highlight
  the events that led to the
  matter been investigated. That is, whether or not proper procedures
  and processes were
  followed by the relevant Government Authorities that led to the
  borrowing of AU$1.239
  Billion loan from UBS AG (Australia Branch) (UBS AG) to purchase new
  shares in Oil
  Search Ltd.

  Part 1 of this Chapter addresses the decision making process that
  led to the NEC approval
  for the State to borrow AU$1.239 Billion from UBS AG to purchase new
  shares in Oil Search
  Ltd and the manner in which UBS AG was engaged and the
  implementation of the NEC
  Decision.

  Part 2 of this Chapter addresses the manner in which both Local and
  International
  Consultants were engaged by Mr Vele, the Acting Secretary for the
  Department of Treasury
  (DoT) with the assistance of Mr Philip Eludeme, the Chairman for
  Central Supply &
  Tenders Board (CSTB).

  Part 3 of this Chapter addresses the manner in which payments were
  made to UBS AG and
  other Consultants by Dr Ken Ngangan, the Acting Secretary for the
  Department of Finance
  (DoF) and Mr Vele.

  PART 1 THE DECISION OF THE NATIONAL EXECUTIVE COUNCIL
  TO BORROW UBS AG (AUSTRALIA BRANCH) LOAN AND
  IT‘S IMPLEMENTATION

  [1] NEC DECISION NO: 37/2013 ON THE RE-FINANCING OF THE
  INTERNATIONAL PETROLEUM INVESTMENT COMPANY (IPIC)
  EXCHANGEABLE BOND

  On 19 December 2013, the NEC during its Special Meeting No: 37/2013,
  made a Decision No:
  479/2013 in regard to the re-financing of the IPIC Exchangeable
  Bond. Below is an extract:

  1. noted the content of Statutory Business Paper No. 179/2013 and
  the attachment provided;

  2. noted the submissions from the Citi, UBS, ANZ/Barclays and
  Hermsley;

• Page 112 of 475

• 3. approved the following recommendations;

  v) approved the Bank of Papua New Guinea to provide final
  evaluations on the
  proposals from Citi and UBS AG to refinance the IPIC
  Exchangeable Bond on the
  specific terms of reference provided (appended herewith) and
  report back to the
  Minister for Public Enterprises and State Investments by end
  of January 2014;

  x) approved the Minister for Public Enterprises and State
  Investments to convey to
  the government of United Arab Emirates and the Emirates of
  Abu Dhabi the
  State‘s decision to redeem the IPIC exchangeable Bond;
  Findings of Facts Page 20

  xiii) approved for a finalization report to be tendered to NEC
  before 31st January 2014;
  and

  xiv) approved the dissolving of the IPICEB Review Committee and
  its powers and
  responsibility,

  4. did not approve recommendations iii, iv, vii, viii, ix, xi and
  xii; and

  5. directed the Minister for Public Enterprises and State
  Investments to report back to NEC
  by the end of January 2014 with the final evaluation report
  provided by the Bank of
  Papua New Guinea as specified in recommendation 5.

  Comments

  The NEC‘s decision to engage the BPNG at the last minute to evaluate
  two (2) Financiers,
  Citi Bank and UBS AG proposals out of four (4) proposals received to
  refinance the IPIC
  Exchangeable Bond was highly improper.

  This was highly improper as there was lack of proper and meaningful
  consultation with
  BPNG prior to the shortlisted Financiers proposals being put to the
  NEC and that the NEC
  failed to comply with Section 255 (Consultation) of the
  Constitution, that is, it had not
  consulted all relevant Agencies and Departments before arriving at
  its decision.

  Section 255 of the Constitution states:

• Page 113 of 475

• 255. CONSULTATION.
  In principle, where a law provides for consultation between
  persons or bodies, or persons
  and bodies, the consultation must be meaningful and allow for a
  genuine interchange and
  consideration of views.

  The four (4) Financiers that were shortlisted and included in the
  NEC Policy Submission
  No. 179/2013 and then submitted on 19 December 2013 to the NEC for
  deliberation and
  approval, was done without proper consultation with the relevant
  agencies, such as the
  BPNG.

  It was not clear whether a proper tender process was conducted that
  resulted in the four
  (4) Financiers been shortlisted, apart from the Prime Minister‘s
  statement saying that the
  Chief Secretary called for a tender inviting potential Financiers to
  put forward their bids to
  provide a loan to re-finance the IPIC Exchangeable Bond.

  Instead of choosing a single Financier as its preferred Financier to
  fund the exercise, the
  NEC forwarded a list containing two (2) Financiers; Citi Bank and
  UBS AG, their proposals
  to BPNG to evaluate.

  Therefore, the NEC‘s action was improper as it did not give the BPNG
  the leverage to
  conduct its own independent assessment of all potential service or
  loan providers. In
  addition, this part of the exercise should have been done prior to
  the NEC deliberating on
  the potential financier for the loan to refinance the IPIC
  Exchangeable Bond.

  Findings of Facts Page 21

  [2] BANK OF PAPUA NEW GUINEA RECOMMENDED UBS AG AS THE LENDER
  OF THE LOAN TO RE-FINANCE THE IPIC EXCHANGEABLE BOND

  On 19 December 2013, in a Special Meeting No: 37/2013, made its
  Decision No: 479/2013 in
  relation to the re-financing of the IPIC Exchangeable Bond.

• Page 114 of 475

• On 20 December 2013, Minister Micah wrote to Mr Bakani, Governor for
  BPNG and
  requested him to evaluate the proposals from potential Financiers
  based on the NEC‘s
  Terms of Reference and recommend a Financier to re-finance the IPIC
  Exchangeable Bond.

  On 22 December 2013, Mr Bakani wrote to Minister Micah and advised
  that the time to
  conclude the re-financing of the IPIC Exchangeable Bond was short
  and the Government
  had to make a decision immediately. The BPNG was of the view that
  the four (4) Financiers
  should have been provided all the information and requested to bid
  for the Exchangeable
  Bond re-financing facility.

  On 27 December 2013, Minister Micah wrote to Mr Bakani and sought
  clarification on the
  BPNG‘s advice regarding the re-financing of the IPIC Exchangeable
  Bond. Below is an
  extract of Minister Micah‘s letter:

  I acknowledge receiving your letter dated 24th December 2013 and
  also confirm that we
  had a verbal discussion about the letter on the same day. I write
  to seek further
  clarification on various issues raised in your letter as well as
  confirm few of the pointed
  we agreed through our conversation.

  During our conversation we agreed that;

  1. IPIC EB Refinancing should be the only financing we should deal
  with now and
  postpone the T3, T4 and Kroton Equity option exercise post IPIC
  EB financing.

  2. In the interest of time and consistent with the TOR provided by
  NEC, the central
  bank should only evaluate the 4 proposals by Hermsley Capital,
  ANZ/Barclay,
  CitiBank and UBS and provide advice to me.

  I wish to also seek clarification on following issues;

  1. Two other banks, BNP Paribas and Duetsche were mentioned in the
  letter and as
  indicated in our conversation it is already late for them to
  submit any proposal and
  also the current four proponents would re-submit their bids and
  this is likely to cause
  further delays. Can the bank clarify this suggestion so we can

• Page 115 of 475

• deal with the four
  proposals as agreed?

  2. Given the short notice to the bank it appears there has been no
  review of the 4
  proposals in detail and also proper due diligence conducted, can
  the bank provide a
  final advise to me before the 10th of January 2014?

  3. If you need to discuss further or wish to seek further
  directions please do not hesitate to
  call me.

  Yours sincerely,

  (signed)
  HON BEN MICAH, MP
  Minister

  Findings of Facts Page 22

  On 7 January2014, Mr Bakani wrote to Minister Micah and recommended
  that the State
  renegotiate the funding structure of the proposals with the two (2)
  Financiers (UBS AG
  and Citi Bank) in the event that the negotiations do not meet the
  States objectives, the State
  should consider other Financiers.

  On 9 January 2014, Mr Bakani wrote to Minister Micah and made
  several recommendations
  that included the invitation of other Financiers apart from Citi
  Bank and UBS AG to re-
  finance the IPIC Exchangeable Bond. Below is the extract of the
  letter:

  RE: REFINANCING THE INTERNATIONAL PETROLEUM INVESTMENT COMPANY
  (IPIC)
  EXCHANGEABLE BOND (EB) – NEC DECISION NO: 479/2013

  I write in response to the NEC Decision No: 479/2013, Special
  Meeting No: 37/2013 which
  the Bank received on 08th January 2014. The NEC directed the Bank
  of Papua New
  Guinea (BPNG) to provide a final evaluation on the proposals from
  Citi and UBS AG to
  refinance the IPIC Exchangeable Bond. Prior to receiving this
  Decision, the Bank
  submitted its evaluation of all four proposed financiers; ANZ/

• Page 116 of 475

• Barclays, Citi, UBS AG and
  Hermsely in a letter to you dated 7th January 2014.

  Our evaluation of the four refinancing proposals contained in my
  letter dated 07/01/14 is
  summarized as follows:

  1. All the four proposals fall short of the expected liability
  of A$1.8 billion;

  2. The maturity term of the proposals are different and we
  recommend that the
  financiers be requested to change it to 7 years to enable
  comparison of costs, and
  give a positive cash flow for NCPC;

  3. None of the proposals are free of any risks (exchange rate-
  AUD/USD, interest rate
  rollover risk and counterparty credit risk) and these are not
  disclosed and costs
  not known;

  4. There is an opportunity cost to the State from all proposals,
  except ANZ/Barclays,
  in relation to actual transfer of the Oil Search shares;

  5. We recommended further negotiations with ANZ/Barclays and
  Citi to achieve a
  less costly financing structure for the full liability of A$1.8
  billion;

  6. The State considers giving a Guarantee for the refinancing,
  which should reduce
  the costs; and

  7. The State considers other competitive financing proposals in
  the event the two
  recommended financiers do not meet the refinancing requirements
  following
  further negotiations.

  As per the NEC Decision above, the Bank is directed to provide
  final evaluation only on
  the proposals from Citi and UBS. This evaluation is summarised
  below:

  a) Both submissions do not provide full funding for the expected
  liability os A$1.8
  billion. The minimum repayment should cover the principal
  amount on the loan,
  the remaining interest and the difference between the strike
  and market price on
  the Oil Search shares.

• Page 117 of 475

• b) Maturity structures of the two proposals are too short to
  allow NPCP to maintain a
  positive cash flow throughout the term of the loan. This will
  give rise to
  refinancing risks in an increasing interest rate environment.

  c) Citi‘s proposal has a weighted maturity of 6.0 years compared
  to 2.9 years for UBS.
  This is important in managing the repayment cash flows for the
  loan against the
  income flows from the PNG LNG project.

  Findings of Facts Page 23

  d) The value at risk (VAR) calculated for Citi is A$314.6 million
  compared to A$322.4
  million by UBS AG. The VAR is the expected funding gap between
  the Strike Price
  and Collar option price. The risk calculated in both proposals
  shows a difference of
  A$12 million, which is significant and the Bank is concerned
  that the overall risk
  pricing is very high.

  e) The UBS financing offer requires an additional US$72 million
  to be held as security
  in an Escrow account. This is an addition to be securitized Oil
  Search shares and
  presents an opportunity cost. In addition, the transaction cost
  for Citi is A$372.5
  million compared to A$312 million for UBS.

  Recommendation

  1. The State should negotiate with Citi and UBS AG to provide
  full funding of the
  estimated liability of A$1.8 billion;

  2. The terms to be negotiated should include the points raised in
  our evaluations
  above;

  3. This liability is to be fully funded from securitization of
  Oil Search shares and a
  combination of loan and State Guarantee‘

  4. The State should consider giving a Guarantee for refinancing,
  which will help
  reduce cost;

  5. Other financiers to be invited if negotiations with Citi and
  UBS AG fail to meet the
  full refinancing requirement or reduce the cost of borrowing.

• Page 118 of 475

• My dear Minister, I also advise that the Bank can assist the
  State to meet the basic
  refinancing requirements in the negotiation process. The Bank is
  mindful of the
  maturity date which is in early March 2014. If given the
  flexibility with a clear mandate,
  the bank can assist in negotiating a basic refinancing facility.

  On even date, Mr Bakani wrote to the Prime Minister and advised that
  the two (2)
  Financiers to lend a loan to re-finance the IPIC Exchangeable Bond
  fell short of the re-
  financing requirements and requested that the BPNG be mandated to
  assist the State in
  meeting the basic re-financing requirements in the negotiation
  process.

  On 14 January 2014, Mr Kumarasiri requested Mr Bakani to correct his
  advice to Minister
  Micah concerning the BPNG‘s advice on the financing target to be AU
  $1.8 Billion which Mr
  Kumarasiri advised was incorrect and misleading when the actual
  amount should be
  AU$1.681 Billion. Below is the extract of Mr Kumarasiri‘s letter:

  SUBJECT: CORRECTION TO THE PROPOSED FUNDING TARGET OF A$1.8
  BILLION

  I refer to the BPNG‘s analysis contained in your letters (dated
  7th January 2014 and 9th
  January 2014) to the Minister for Public Enterprises and State
  Investment and our
  telecom discussions on the same.

  I would firstly like to commend the BPNG for its analysis and
  recommendation of some
  important areas such as the maturity structure and security
  arrangements for State‘s
  consideration.

  There are, however, several incorrect facts in the previous
  letters to the Minister which I
  respectfully suggest if you could kindly correct and consider
  reissuing a new letter with
  the correct information.

  IPBC noted the BPNG‘s view that the ―minimum repayment should
  cover the principal
  amount on the loan, the remaining interest and the difference
  between the strike and

  Findings of Facts Page 24

• Page 119 of 475

• market price on the Oil Search shares‖ and hence proposed the
  financing target to be
  A$1.8 billion.

  Principal Amount

  The Principal Amount of the exchangeable bonds issued is A
  $1,681,000,000 (which is
  divided into 3362 bonds in the denomination of $A500,000 each).
  The Bonds will be
  exchangeable for a total of 196,604,177 Shares at an exchange
  price of A$8.550329 (Strike
  Price) per share.

  The BPNG analysis of Oil Search Proceed of A$1,680,965,713 is
  the value of 196,604,177
  shares @ A$8.55 (Strike Price) per share.

  Remaining Interest

  As advised earlier, the final coupon payment on the IPIC Bond
  (A$42,025,000.00) was
  not factored as part of the refinancing package because funding
  is already available. The
  last coupon payment is already in escrow and this has been
  double counted erroneously.
  It appears that someone is giving wrong information. There is
  no need to include the final
  coupon payment as part of the funding requirement.

  Difference between the Strike Price and Market Price (Cash Top)

  As indicated above, the Principal Amount of exchangeable bonds
  issued is
  A$1,681,000,000 with a value guarantee of 196, 604,177 Oil
  Search shares at A$8.550329
  (Strike Price) per share.

  196,604,177 Oil Search shares at A$8.550329 (Strike Price) is A
  $1,681,030,396.12 while
  196,604,177 Oil Search shares at A$8.16 (market price) is A
  $1,604,290,084.32. The value
  difference between the strike price (A$8.55) and market price
  (A$8.16) is
  A$76,740,311.80. The cash top is only required in the event
  that the Government does not
  proceed with its intention to buy-back the Oil Search shares.

  In this instance, what we are redeeming is the Bonds valued at
  AUD1,681billion (i.e.
  USD500,000 each and 3362 bonds with a value guarantee on OSL
  Shares AUD8.550329.
  Therefore the assumption that PNG Government will require

• Page 120 of 475

• AUD1.8billion is completely
  not correct.

  Consistent with the BPNG‘s recommendation for the State/[IPBC]
  to focus on
  refinancing the principal amount (A$1,681,000,000) of the
  exchangeable bonds, the
  funding target anticipated is A$1,681,030,396.12 (196,604,177
  Oil Search shares at
  A$8.550329) which already covers the cash top up requirements
  (difference of strike
  price and market price). IPBC‘s indication of the repurchase
  offer to IPIC is based on the
  position that the exchangeable bonds will be redeemed at
  196,604,177 shares x
  A$8.550329 and no more than that.

  Adequacy of Funding

  Based on the above clarification, estimated Total Transaction
  Cost therefore will be
  A$1,681,030,396.12 + interest costs + fees

  Adequacy of funding given in Table B comparing with BPNG
  Analysis is also wrong due
  to the initial errors in funding requirement analysis as
  explained above. In IPBC‘s
  analysis, all proposals have provided 100% funding to complete
  this transaction. Further,
  please see below the funding structures.

  Bidder Financing Structure
  ANZ/Barclays A$1.25B (US$1.15B) E/BondA$500M (US$470M)
  Monetised Collar
  Citi A$1.267B Monetised CollarUS$500M Multi Tranche
  Loan (Trance A)
  Hermsley US1.75B straight loan
  UBS US$1.3B Prepaid Collar US$425M Cash
  collateral

  Findings of Facts
  Page 25

  Based on the above, by not converting the USD to AUD, the
  calculations and incorrect
  assumptions of funding need analysis, the content in Table B is
  completely inaccurate.

  With regard to the repayment of the loan, IPBC proposed two
  sources (i) NPCP free cash
  flow and (ii) proceeds from the landowners call option in NPCP to
  ensure positive cash

• Page 121 of 475

• flow for NPCP.

  As per the PNG LNG Project Fee Cash Flow Forecast (contained in
  submission provided
  to the Bank), NPCP will still have a positive cash flow as it
  will be only providing
  A$810m to service the interest and principal out of the estimated
  A$1.8b free cash flow
  available to NPCP during that period. It is also anticipated that
  the asset (NPCP) and
  liability (new borrowing) will be fully transferred to Kumul
  Petroleum Holdings if
  established.

  Kindly note that the incorrect information used by BPNG to
  provide its recommendation
  on the funding target does not justify the need for the State or
  IPBC to contract a A$1.8 B
  debt when it only requires a A$1.681B debt with the explanation
  provided above. We will
  be misinforming the IPBC Board and NEC, as well as the people of
  PNG with such
  incorrect information. I am therefore humbly requesting if the
  Bank can make corrections
  to its analysis.

  Please do not hesitate to contact myself or Mr. Igimu Momo (Chief
  Policy/Acting COO)
  on 321 2977 should you require further clarification.

  Yours sincerely,

  (signed)
  Wasantha Kumarasiri, OBE
  Managing Director

  On 15 January 2014, Minister Micah wrote to Mr Bakani and requested
  that BPNG provide
  its final recommendation on the two (2) Financiers, UBS AG and Citi
  Bank.

  On 16 January 2014, Mr Bakani wrote to Minister Micah and requested
  for all parties
  including BPNG, Ministry for State Enterprise and State Investments,
  Independent Public
  Business Corporate (IPBC) and DoT to meet and draft the Terms of
  Reference to form the
  basis of the negotiations with the potential Financiers for the IPIC
  Exchangeable Bond.

  On 17 January 2014, Mr Bakani wrote to Mr Kumarasiri and advised
  that BPNG‘s evaluation
  and recommendations purely formed the advice for the State to
  consider based on

• Page 122 of 475

• information provided and that information was communicated to
  Minister Micah in
  accordance with the NEC Decision No: 479/2013.

  On even date, Minister Micah directed Mr Bakani to furnish BPNG‘s
  recommendations by
  Wednesday 22 January 2014, for the NEC to sanction on Thursday 23
  January 2014. Below
  is an extract.

  SUBJECT: REFINANCING THE IPIC EXCHANGEABLE BOND

  I refer to your letter of 16th January 2014 and the Prime
  Minister‘s letter dated 14 January
  2014 regarding the above and your discussions with Secretary of
  Department of Public
  Enterprises Dr Clement Waine (PhD). I understand that Bank of PNG
  requests a clear
  mandate to negotiate the final structure with either Citi or UBS.
  Consistent with the NEC
  Decision (479/2013), BPNG is expected to evaluate the proposals
  by these two banks only
  and provide its recommendation to me. Previous NEC Decisions
  (241/2013) have
  mandated me to take carriage of all matters pertaining to the
  redemption of IPIC
  Exchangeable Bonds. However, in consideration of Prime Minister‘s
  letter other options
  can be considered but only if Citi & UBS fail to deliver the
  outcomes we are seeking.

  Findings of Facts Page 26

  I have mentioned five terms of reference for the BPNG to consider
  when negotiating with
  the two banks. These are captured here –

  1. Suitable rates of interest in comparison to general borrowing/
  lending rates in each
  currency,

  2. Less costly in terms of the interest rates and risk assessment
  of the balance sheet or
  capital provided,

  3. Less stringent security requirements where the certainty of the
  repayment by the state
  is covered within the earning stream of the government,

  4. Appropriate tenor and repayment targets that closely matching
  the PNG LNG cash
  flows as you recommended to ensure NPCP is always cash flow
  positive during the

• Page 123 of 475

• transaction period, and

  5. No State Guarantee should be available since this may violate
  the Negative Pledge issue
  and the PNG LNG project has already been ring-fenced for this
  reason.

  Importantly, as I have mentioned, the bank is willing to pledge
  its own balance sheet
  without having to go to the open market for syndication in the
  interest of time (an
  effective underwritten transaction) and complied with the above
  requirements (TOR)
  should undertake the refinancing.

  I expect to receive your final recommendation by Wednesday
  22ndJanuary 2014 and for
  NEC to sanction on Thursday 23rd January 2014.

  (signed)

  HON BEN MICAH, MP
  MINISTER

  On even date, Mr Bakani wrote to Ms Natalie Yacoubian of PNP Paribas
  and requested her
  to resubmit PNP Paribas proposal incorporating the refined terms.

  On even date, Mr Bakani wrote to Mr Mitchell Turner of UBS AG and
  requested him to
  resubmit UBS AG proposal incorporating the refined terms.

  On even date, Mr Bakani wrote to Mr Philip Graham of Citi Bank and
  requested him to
  resubmit Citi Bank proposal incorporating the refined terms.

  On 23 January 2014, Mr Bakani wrote to Minister Micah and strongly
  recommended that
  the NEC to approach the Abu Dhabi Government and request for an
  extension of six
  months in IPIC‘s right to exercise the Exchangeable Bond option to
  allow time for BNP
  Paribas, the superior proposal, as well as the UBS AG, Citi Bank and
  ANZ/Barclays to
  improve on their proposals. Below is an extract of Mr Bakani‘s
  recommendation:

  RE: REFINANCING THE INTERNATIONAL PETROLEUM INVESTMENT COMPANY
  (IPIC) EXCHANGEABLE BOND (EB)

  In your letter of the 17th of January 2014, you asked the Bank of
  Papua New Guinea (Bank)
  to evaluate the proposals to refinance the IPIC EB by UBS and
  Citi, and find out if the Bank

• Page 124 of 475

• can identify other financiers that will proposed superior
  financing solutions.

  The Bank calculated the financing needs of A$1.7 billion, based on
  the assumption that
  IPIC is accepting an A$8.55 strike price. The NEC should be
  informed that to the best of
  the Bank‘s information, this is not agreed between IPIC and IPBC.

  Findings of Facts Page 27

  In the attached evaluation you will find the Bank‘s ranking of
  the proposals by UBS and
  Citi, as well as a proposal by BNP Paribas, submitted to the Bank
  on Tuesday the 21st of
  January 2014. As you can see the BNP Paribas is far superior on
  the pricing (re: all–in cost),
  compared to the UBS and Citi.

  The upside risk in the BNP Paribas proposal is that, at a
  substantial appreciation of the Oil
  Search share price, the share option might be realized by the
  bond holders. Given that BNP
  Paribas has had only four days to prepare and submit their
  proposal; work on mitigating
  that risk might take some time, which we do not have. For the
  sake of completeness, the
  Bank spoke to ANZ/Barclays that submitted the lowest cost
  proposal. They are not ready
  to back the financing by their balance sheet and therefore were
  excluded in the final
  ranking. The ranking in terms of cost between the three remaining
  financiers is BNP
  Paribas, UBS and Citi.

  Based on the above, I strongly recommend that the NEC decides to
  approach the Abu
  Dhabi Government (Prime Minister Sheik Mansour Bin Zayed,
  Government to
  Government), and as for an extension of six months in IPIC‘s
  right to exercise the EB
  option. This will allow time to improve on the proposal by BNP
  Paribas, the superior
  proposals, as well as the UBS, Citi and ANZ/Barclays.

  Yours sincerely

  (signed)
  Loi M. Bakani

  On 27 January 2014, Mr Bakani wrote to Minister Micah and

• Page 125 of 475

• recommended UBS AG to be
  given the mandate to fund the IPIC Exchangeable Bond re-financing
  and further advised the
  State to seek an extension of six months for the re-financing of the
  IPIC Exchangeable Bond
  on the NEC‘s terms.

  On even date, Minister Polye wrote to Mr Bakani and requested for a
  full brief on the
  implementation of the NEC‘s Decision No: 479/2013 on the re-
  financing of IPIC
  Exchangeable Bond.

  On 30 January 2014, Mr Bakani wrote to the Director for Investment
  Banking UBS AG
  regarding the re-financing of the IPIC loan and advised that the
  State accepted its proposal
  to re-finance the IPIC Exchangeable Bond by a combined structure of
  a Rollover Collar and
  Term Loan. Mr Bakani also requested the UBS AG to confirm in writing
  its commitment to
  fund the AU$1.7 Billion IPIC Exchangeable Bond.

  On even date, Minister Micah wrote to Mr Bakani and advised that he
  noted the BPNG‘s
  recommendation for UBS AG to be given the mandate for the IPIC
  Exchangeable Bond and
  that the State would not seek the six months extension as it will
  incur additional interest.

  On 3 February 2014, Minister Micah wrote to Mr Bakani and advised
  that he accepted the
  BPNG‘s recommendations and that he had requested the National
  Petroleum Company of
  Papua New Guinea (NPCP) to lead the re-finance IPIC, Exchangeable
  Bond process on
  behalf of the State.

  On 7 February 2014, Mr Bakani wrote to Minister Micah and reassured
  him that the Bank
  was pleased that he had accepted its recommendation to use UBS AG to
  re-finance IPIC
  Exchangeable Bond.

  On 23 February 2014, during a meeting in the Grand Papua Hotel, the
  Prime Minister, Mr
  Vele and Mr Botten discussed and agreed for the State to buy shares
  in Oil Search Ltd
  which was formalised in the Prime Minister‘s letter dated 26
  February 2014 to Mr Botten.

  Findings of Facts Page 28

• Page 126 of 475

• On 24 February 2014, Minister Pato advised His Highness (HH) Sheikh
  Abdullah bin Zayed
  Al Nahyan, Minister for Foreign Affairs and Immigration, Abu Dhabi,
  United Arab
  Emirates, that the GoPNG wanted to retain ownership of the Oil
  Search Ltd shares.

  On 25 February 2014, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of
  UBS AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30
  January 2014, in relation to the management of the investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance in 2009 of
  Exchangeable Bond in respect
  of the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi. These terms
  were agreed to when the GGPNG signed the document that was witnessed
  by Mr Okuk.

  On 26 February 2014, Prime Minister wrote to Mr Botten and advised
  that the State desired
  and was willing to buy shares in Oil Search Ltd. Below is an extra
  of the Prime Minister‘s
  letter:

  Dear Mr Botten,

  RE: OIL SEARCH LIMITED PLACEMENT

  I am writing to you following our discussion in Port Moresby on
  23 February 2014 regarding
  a share placement by Oil Search Limited (―Oil Search‖ or ―the
  Company‖) to the State
  (together, ―the Placement‖).

  This letter is intended to convey the State‘s willingness to
  participate in the Placement in
  order to form a long term investment in Oil Search, with a view
  to further strengthening our
  existing relationship.

  The State offers to invest an amount of A$1.225 billion at a
  subscription price of A$8.20 per
  share on the basis that this occurs on or before March 10,
  2014.

  Given the significance of the transaction, the State wants to
  ensure that the financing and
  hedging arrangements that are put in place minimize the cost to
  the State and also provide
  for an orderly solution in the market for the Company.
  Accordingly, the State requests the
  assistance of Oil Search to help maximize the price achieved

• Page 127 of 475

• via, hedging arrangements.

  The State‘s commitment to the Placement is subject to the
  following-

  • The PNG Government receiving formal approval from the
  PNG‘s National Executive
  Council, which I intend to secure on or before March 6,
  2014, [and signing final
  binding financing agreements]; and
  • Oil Search entering into a contingent placement agreement
  with UBS, as the State‘s
  Strategic Advisor, under which Oil Search will gain the
  benefit of hedging
  arrangements that UBS will have undertaken on its behalf.

  Please find attached a draft announcement to the market. Please
  liaise with Mr Dairi Vele,
  Secretary of the Treasury, who will be co-ordinating the
  Placement on behalf of the PNG
  Government.

  (signed)
  Yours sincerely,
  HON PETER O‘NEILL, CMG, MP
  Prime Minister

  On 27 February 2014, four days after the meeting, the Prime Minister
  wrote to Mr Guy
  Fowler, MD for UBS AG regarding UBS AG proposal to provide funding
  facilities to the
  State in connection with the subscription by the State for
  approximately 149.39 million
  shares in Oil Shares in Oil Search Ltd for AU$8.20 per share.

  Findings of Facts
  Page 29

  On even date, UBS AG forwarded a Commitment Letter that outlined the
  terms and
  conditions on which it was willing to arrange and participate in the
  Facility and this was
  agreed to by the State when the GGPNG signed the documents
  effectively engaging UBS
  AG as Sole Advisor and Arranger of a loan which documents were
  witnessed by Mr Carl
  Okuk.

  Comments

  Then Minister Polye wrote to BPNG Governor Mr Bakani and requested
  for a brief on the
  implementation of the NEC Decision No 479/2013 regarding re-

• Page 128 of 475

• financing of the IPIC
  Exchangeable Bond, however Mr Bakani did not respond to then
  Minister Polye‘s request.

  The engagement of BPNG by the NEC to evaluate the two (2) potential
  Financiers, UBS AG
  and Citi Bank, together with ANZ/Barclays consortium and Hermsley
  was done at the very
  last minute.

  In October 2013, a Committee called the IPIC Exchangeable Bond
  Committee met and
  decided to get proposals from potential financiers for the
  Exchangeable Bond. The
  Committee got five financiers to submit their proposals and the
  proposals were then
  submitted to the NEC to deliberate and make a decision on.

  Then on 19 December 2013, the NEC endorsed two financiers, UBS AG
  and Citi Bank as its
  potential Bidders for the borrowing to refinance the IPIC loan.

  The NEC then forwarded the two (2) Financiers‘ proposals to Mr
  Bakani and requested him
  to evaluate the two proposals in accordance with the information
  that was provided. BPNG
  was not aware of the list of Financiers until it was informed of the
  NEC‘s Decision directing
  BPNG to evaluate the two (2) proposals from UBS AG and Citi Bank.

  This was unfair and improper as BPNG‘s impartiality and independence
  was put at stake.
  In addition, BPNG was not given ample time and information for it to
  analyse the preferred
  financiers and other Bidders‘ proposals. It would have been better
  if the NEC have left
  BPNG out as it had already made up its mind on which financier to
  engage for the
  borrowing.

  Based on the information before it, BPNG evaluated the potential
  financiers‘ proposals and
  forwarded its recommendation to Minister Micah to take to the NEC
  for decision making on the
  refinancing of the IPIC Exchangeable Bond.

  Hence, it seemed that BPNG was put into a position where it was not
  given enough time to
  properly analyse the preferred financiers‘ proposals to re-finance
  the IPIC Exchangeable
  Bond.

  This was confirmed when during his interview Mr Bakani stated that
  he was not aware of

• Page 129 of 475

• the list of financiers until he was informed of the NEC decision
  that directed BPNG to
  evaluate Citi Bank and UBS AG proposals.

  Mr Bakani stated that he was given a task by the NEC through its
  Decision No: 479/2013
  made during its Special Meeting No: 37/2013 and he had to comply
  with the directions and
  complete the evaluation and then forward BPNG‘s recommendation to
  the NEC.

  Findings of Facts Page 30

  Therefore, in light of the above evidence gathered, it seems that
  BPNG was conveniently
  used by Mr Vele to legitimise the deal to engage UBS AG to re-
  finance IPIC Exchangeable
  Bond.

  There is no evidence to confirm that Minister Micah reported back to
  NEC as per it‘s
  Decision No: 479/2013 and there is no evidence whether NEC made a
  decision on the
  recommendation by BPNG to accept UBS AG‘s proposal to re-finance
  IPIC Exchangeable
  Bond.

  [2.1] RESPONSE FROM THE GOVERNOR OF BANK OF PAPUA NEW GUINEA
  MR LOI BAKANI

  On 24 February 2015, Mr Bakani responded to the Provisional Report.
  Below is Mr Bakani‘s
  response:

  Mr. Rgo A. Lua, OBE
  Chief Ombudsman
  Ombudsman Commission of Papua New Guinea
  P. O. 1831
  PORT MORESBY 121
  National Capital District

  Dear Mr. Lua,

  PROVISIONAL REPORT ON THE AU$1.2 BILLION UBS LOAN

  I refer to your provisional report furnished to me under cover
  of your letter of 8 December
  2014 regarding the above loan.

  I wish to reiterate from the outset once again that neither I
  nor the Bank of Papua New

• Page 130 of 475

• Guinea (BPNG) were ever involved in the AU$1.2 billion Loan
  from UBS AG to purchase
  shares in Oil Search Ltd. Our involvement was limited to the
  evaluation and
  recommendation of an appropriate financier to finance up to AU
  $1.7 billion, the buy-back
  of IPIC Exchangeable Bond which were pledged in 2009 by the
  State. Upon the completion
  of the assessment and submission of our recommendation to the
  Minister, our involvement
  ceased.

  Your investigation and the subsequent preliminary report, in my
  view erroneously makes
  allegations against me for a matter which neither I nor BPNG
  had any involvement in. That
  is your investigation was to do with the AU$1.2 billion loan
  for the purchase of shares in
  Oil Search Ltd by the State which I had no part in and yet
  various allegations have been
  made against me.

  I note from the report that there are two (2) allegations or
  findings of misconduct against
  me and I wish to clarify my position on the two (2) findings.

  Firstly, your Finding No. 15 alleges amongst others that my
  conduct was wrong and
  improper when I failed to provide due diligence check in the
  process of selecting financiers
  for the buy-back of IPIC Exchangeable Bond and advised against
  the appointment of UBS
  AG as the financier.

  The NEC Decision No. 479/2013 directing the Bank to do
  evaluations was quite specific and

  explicit. We were advised to assess and evaluate only 2
  financiers, namely UBS and CitiBank. As to how the NEC came up with
  these 2 financiers was beyond my knowledge.

  Even though not specifically directed, but for good governance
  purposes and to ensure the
  State was given the best advice, we (the Bank of PNG) went
  beyond the list of financiers
  and requested other reputable financiers such as BNP Paribas
  and ANZ/Barclays to also
  submit their bids. A thorough interview and evaluation was done
  on these potential

  Findings of Facts
  Page 31

• Page 131 of 475

• financiers within a timing constraint, and the UBS AG proposal was
  recommended to the
  State because it was least costly. In the circumstance, it is my
  strong view that the Bank of
  PNG had done the best it could do to meet the State‘s request.

  On your Finding No. 16 wherein it is alleged that I had informed
  UBS AG that the State had
  engaged them to finance the IPIC Exchangeable Bond buy back
  without the approval of
  NEC. Although I now realize that there was no NEC Decision in
  place to that effect at that
  time, I had been advised by Mr. Micah before 30 January 2014, that
  the State had made that
  decision. Note that such advice from the Minister was sufficient
  for me to form an opinion
  that the State had made a decision.

  Note also that my letter of 30 January 2014 to UBS AG was
  necessary as a matter of good
  business practice, and as a matter of courtesy and prudent
  practice I was obliged to inform
  UBS AG of the outcome of my assessment. I reiterate that this
  letter was sent only after I
  had been assured by a Minister of State that UBS AG had been
  selected to finance the IPIC
  Exchangeable Bond buy back.

  On the whole, I reiterate that these two allegations relate to the
  AU$1.7 billion loan to
  redeem the IPIC Exchangeable Bond and was not related to the AU
  $1.2 billion for the
  purchase of shares in Oil Search Ltd. I note that your
  investigation was in relation to the
  AU$1.2 billion loan and not the AU$1.7 billion. If for any reason
  you may have been
  informed that the State or any of its agents used our
  recommendation for the IPIC
  refinancing, as an approval for the AU$1.2 billion loan for the
  purchase of Oil Search Shares,
  then that is misleading and untrue. Our recommendation to use
  financing from UBS AG
  was specifically for the buy-back of the IPIC Exchangeable Bond
  and not for the purchase
  of 10.1% equity in Oil Search Ltd.

  I hope the above clarification on these 2 allegations or your
  Findings are sufficient.

  Yours sincerely

  signed
  Loi M Bakani

• Page 132 of 475

• Comments

  Evidence provided indicate that Mr Bakani and officers within the
  BPNG conducted due
  diligence checks and complied with the laws governing their conduct
  and borrowings, in
  this case, the borrowing relating to the IPIC Exchangeable Bond.

  The findings of facts in regard to the due diligence checks by the
  BPNG in securing UBS AG
  as the financier to provide a loan of AU$1.7 Billion was to buy back
  the IPIC Exchangeable
  Bond from IPIC and not for the State to borrow in order to purchase
  shares in Oil Search
  Ltd.

  In light of Mr Bakani‘s response to the Provisional Report, the
  Ombudsman Commission‘s
  Preliminary Finding No. 15 in regard to his conduct has been noted
  and not included in this
  Final Report.

  However, the Ombudsman Commission‘s Finding No. 16 remains as Mr
  Bakani‘s conduct in
  informing UBS AG that the State had engaged UBS AG as the Lender of
  the Loan to
  refinance the IPIC Exchangeable Bond without NEC‘s approval was
  wrong and improper.

  Findings of Facts Page 32

  [3] THE STATE ENGAGES UBS AG TO FINANCE PURCHASE OF NEW SHARES
  IN OIL SEARCH LIMITED

  On 30 January 2014, Mr Bakani advised UBS AG that the State decided
  to accept the
  proposal by UBS to refinance the IPIC Exchangeable Bond, by a
  combined structure of
  Rollover Collar and Term Loan.

  On even date, Mr Vele engaged UBS AG to act as the sole Financial
  Advisor and Lead
  Arranger, in relation to the management of the investment of the
  State in Oil Search Ltd.

• Page 133 of 475

• On 23 February 2014, during a meeting in the Grand Papua Hotel, the
  Prime Minister, Mr
  Vele and Mr Botten discussed and agreed for the State to buy shares
  in Oil Search Ltd
  which was formalised in the Prime Minister‘s letter dated 26
  February 2014 to Mr Botten.

  On 25 February 2014, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of
  UBS AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30
  January 2014, in relation to the management of the investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance in 2009 of
  Exchangeable Bond in respect
  of the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi.

  On even date, the GGPNG signed the document agreements outlining the
  terms and
  conditions of the engagement of UBS AG which were witnessed by Mr
  Okuk as
  Commissioner of Oath.

  On 26 February 2014, Prime Minister wrote to Mr Botten regarding the
  State‘s willingness
  to buy shares in Oil Search Ltd without prior NEC approval.

  On 27 February 2014, four days after the meeting, the Prime Minister
  wrote to Mr Guy
  Fowler, MD for UBS AG regarding UBS AG proposal to provide funding
  facilities to the
  State in connection with the subscription by the State for
  approximately 149.39 million
  shares in Oil Search Ltd for AU$8.20 per share.

  On even date, UBS AG responded by issuing a Commitment Letter to the
  attention of Mr
  Vele and incorporated the Equity Derivative Term Sheet and Debt Term
  Sheet that outlined
  the terms and conditions which are perceived to be prejudicial to
  the State, in particularly
  the acceptance of its appointment as the arranger to arrange and
  participate in the facility
  contained in the letter which is disclosed below.

  1. Appointment
  1.1 The State appoints UBS as the exclusive arranger of the
  facility to arrange and
  participate in the facility on the basis of the Commitment
  Documents
  1.2 Unless this mandate terminates in accordance with paragraph
  14 (Termination):

• Page 134 of 475

• (a) no other person shall be appointed as arranger or other
  similar position

  (b) no other titles should be awarded; and
  (c) except as provided in the Commitment Document, no other
  compensation
  shall be paid to any other person.
  In connection with the Facility or other financial accommodation
  to be provided to the
  State for purposes similar to those for which the facilities are
  to be provided without the
  prior written consent of UBS.

  Findings of Facts Page 33

  On 5 March 2014, Mr Guy Fowler, Head of Australian Investment
  Banking, UBS AG wrote
  to the Prime Minister and requested the Prime Minister‘s direct
  intervention to assist with
  resolving the most challenging issues such as IPIC Exchangeable
  Bond, Papua New Guinea
  Liquefied Natural Gas direction-to-pay and Sovereign Bond take-out
  of the Bridge Loan.

  On even date, Mr Fowler responded to the letter of Prime Minister of
  27 February 2014,
  advising him that he had responded to the Prime Minister on the same
  date.

  On 6 March 2014, during the Special Meeting No: 79/2014, the NEC
  effectively engaged UBS
  AG to be the Arranger, Financier and Advisor to the loan to purchase
  new Shares in Oil
  Search Ltd.

  On even date, UBS AG issued a Bridge Takeout Letter to Mr Vele and
  outlined the terms of
  fees payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was
  signed by GGPNG, and witnessed by Mr Okuk.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr Okuk.

• Page 135 of 475

• On 12 March 2014, UBS AG wrote to the Mr Vele and the State and
  confirmed the terms and
  conditions of the financing transaction entered into between the
  State and UBS AG in
  respect of Oil Search Ltd shares.

  On even date, the loan agreement was executed by the GGPNG and UBS
  AG witnessed by
  Mr Okuk.

  On 15 May 2014, representatives of UBS AG, Mr Goldsworthy and Ms
  Raguine wrote to Mr
  Vele and pointed out to him the breach to clause 5.1(b) of the
  Agreement by the State, when
  the State failed to pay the interest for the loan on 14 May 2014 as
  a result of the Directions
  issued by the Commission.

  Comments

  There is no evidence to confirm that Minister Micah reported back to
  the NEC by the end of
  January 2014 with the final evaluation report provided by BPNG on
  the proposal by Citi
  Bank and UBS AG to re-finance IPIC Exchangeable Bond, as per NEC
  Decision No:
  479/2013.

  There is no evidence to confirm whether NEC made a decision to
  engage UBS AG to re-
  finance the IPIC Exchangeable Bond as recommended by BPNG.

  However on 30 January 2014, BPNG Governor Mr Bakani proceeded to
  inform UBS AG of
  it‘s engagement by the State to re-finance the IPIC Exchangeable
  Bond without any formal
  NEC Decision to that effect. Hence, Mr Bakani had no authority from
  NEC to engage UBS
  AG.

  Findings of Facts Page 34

  It is also noted that Mr Vele was wrong when he effectively engaged
  UBS AG on 30 January
  2014 to act as the Sole Financial Advisor and Sole Lead Arranger in
  relation to management
  of the investment of the State in Oil Search Ltd without NEC
  Decision to that effect. He
  also had no authority from the NEC to engage UBS AG in January 2014.

  It was evident that the DoT made upfront payments as fees to UBS AG

• Page 136 of 475

• in order to secure
  the loan without the CSTB engaging the UBS AG as the Advisor and
  Arranger for the Loan.

  It was also noted that the GGPNG signed the documents/Agreement
  outlining the terms
  and conditions of engagement of UBS AG on 25 February 2014 witnessed
  by Mr Okuk prior
  to the NEC‘s Decision to engage them on 6 March 2014.

  It is noted that the NEC‘s original intention was to engage a
  Financier re-finance the IPIC
  Exchangeable Bond, however that changed after Prime Minister met
  with Mr Botten, Mr
  Aopi and Mr Vele on 23 February 2014 and made commitment for the
  State to buy shares
  from Oil Search Ltd and to engage UBS AG to finance the purchase of
  the shares without
  NEC‘s prior approval. This arrangement was subsequently approved by
  the NEC on 6
  March 2014.

  [4] BUY BACK OF IPIC EXCHANGEABLE BOND BY THE STATE FAILS
  In 2009, the GoPNG mortgaged its shares in Oil Search Ltd with IPIC
  and acquired the
  needed funding and financed the PNG LNG project. An Extract of the
  IPIC Loan Agreement
  is attached as an appendix to this Report.
  On 19 December 2013, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 approved BPNG to evaluate the proposals from Citi Bank,
  UBS, ANZ/Barclays and
  Hermsley in relation to the re-financing of IPIC‘s Exchangeable
  Bond.
  On 4 February 2014, the Prime Minister wrote to HH Sheik Mansour bin
  Zayed Al Nahyan
  and advised that the GoPNG wanted to retain a significant
  shareholding in Oil Search Ltd
  and appointed the UBS AG as the Financial Advisor, Underwriter and
  Arranger of a
  financing package to facilitate the Exchangeable Bond and further
  requested for a six month
  extension for the State to finalise all legal and financial
  agreements to refinance the IPIC
  Exchangeable Bond.

  On 23 February 2014, the Prime Minister, Mr Botten, Mr Aopi and Mr
  Vele met for coffee at
  Grand Papua Hotel and it was during this meeting that the decision
  was made for the State
  to acquire 149, 390, 244 shares which translates to 10.01 %
  shareholding in Oil Search Ltd.

  On 24 February 2014, Minister Pato on behalf of the GoPNG requested

• Page 137 of 475

• HH Sheikh
  Abdullah bin Zayed Al Nahyan, Minister for FAI, Abu Dhabi, United
  Arab Emirates to
  support a decision for GoPNG to redeem the Exchangeable Bond in cash
  and retain
  ownership of the Oil Search Ltd shares and that an extension of six
  months be granted to
  improve on the financing terms with the banks to provide the funds
  to pay IPIC.

  Comments

  In 2009, the State signed the IPIC Loan Agreement where it mortgaged
  its shares to finance
  the PNG LNG Project and when the loan matured the GoPNG would go
  back and
  renegotiate the terms and conditions of the loan to buy back the Oil
  Search Ltd shares.

  Findings of Facts Page 35

  Minister Pato led the GoPNG team to Abu Dhabi to negotiate with IPIC
  in order for the
  GoPNG to buyback the IPIC Exchangeable Bond which fell through as
  the Arabs wanted to
  retain the shares in Oil Search Ltd.

  It appears that the IPIC may not have responded to the Prime
  Minister‘s letter dated 4
  February 2014, hence the negotiations fell through as the Arabs
  wanted to retain its shares
  in Oil Search Ltd.

  This triggered Mr Botten to approach the Prime Minister, and Mr Vele
  to negotiate for
  GoPNG to be a substantial Shareholder in Oil Search Ltd that would
  prevent an imminent
  takeover by IPIC of Oil Search Ltd.

  Therefore, the fear of a takeover by IPIC led Oil Search Ltd to
  arrange an alternative
  arrangement that was mooted by Mr Botten and the Prime Minister and
  that was to sell Oil
  Search Ltd shares to the GoPNG.

  [5] THE PRIME MINISTER‘S MEETING WITH MR PETER BOTTEN,
  MANAGING DIRECTOR OF OIL SEARCH LIMITED

  On 23 February 2014, there was a meeting in the Grand Papua Hotel
  where the Prime
  Minister, Mr Vele, Mr Botten and Mr Aopi met, discussed and agreed
  for the State to buy

• Page 138 of 475

• shares in Oil Search Ltd which was formalised in the letter dated 26
  February 2014.

  On 26 February 2014 three days after their meeting at Grand Papua
  Hotel in Port Moresby,
  the Prime Minister wrote to and informed Mr Botten that he wanted
  the State to purchase
  shares in Oil Search Ltd. Below is an extract of the Prime
  Minister‘s letter to Mr Botten:

  I am writing to you following our discussion in Port Moresby on
  23 February 2014
  regarding a share placement by Oil Search Limited (―Oil Search‖
  or the Company‖) to the
  State (together the,― Placement‖).

  The letter is intended to convey the State‘s willingness to
  participate in the Placement in
  order to form a long term investment in Oil Search with a view to
  further strengthening
  our existing relationship.

  The State offers to invest an amount of A$1,225 Billion at a
  subscription price of A$8.20 per
  share on the basis that this occurs on or before March 10 2014.

  Given the significance of the transaction, the State wants to
  ensure that the financing and
  hedging arrangements that are put in place minimize the cost to
  the State and also provide
  for an orderly solution in the market for the company.
  Accordingly the State request the
  assistance of Oil Search to help minimize the price achieved via
  hedging arrangements.

  The State‘s commitment to the Placement is subject to the
  following-

  The PNG Government receiving formal approval from PNG‘s National
  Executive Council,
  which I intend to secure on or before March 6, 2014, [and signing
  final binding financing
  agreements]; and

  Oil Search entering into a contingent placement agreement with
  UBS, as the State‘s
  strategic Advisor under which Oil Search will gain the benefit of
  hedging arrangement that
  UBS will have undertaken on its behalf.

  Please find attached a draft announcement to the market. Please
  liaise with Mr Dairi Vele,
  Secretary of the Treasury who will be coordinating the Placement
  on behalf of the PNG

• Page 139 of 475

• Government.

  Findings of Facts Page 36

  Yours sincerely,

  (signed)
  Hon Peter O‘Neil, CMG, MP
  Prime Minister

  On 27 February 2014 four days after the meeting, the Prime Minister
  wrote to Mr Fowler
  regarding UBS AG proposal to provide funding facilities to the State
  in connection with the
  subscription by the State for approximately 149.39 million shares in
  Oil Search Ltd for
  AU$8.20 per share. The letter reads:

  I write to you regarding the proposal for UBS AG, Australia
  (―UBS‖) to provide funding
  facilities to The Independent State of Papua New Guinea (the
  ―State‖) in connection with
  the subscription by the State for approximately 149.39 million
  shares in Oil Search Limited
  (―Oil Search‖) at A$8.20 per share (―Transaction‖).

  I confirm that the commercial terms contained in the enclosed
  draft documents dated 27
  February 2014 (the ―document‖) are expected to be acceptable to
  the State but are subject
  to the approval process described below:

  • Confirmation letter from UBS to be counter-signed by the
  State, which annexes the
  Equity Derivative Term Sheet and Debt Term Sheet: and

  • Subscription agreement between Oil Search and the State and
  the associated side
  letter relating to hedge disruption events.

  I also confirm that the Transaction and the drafts of the
  documents, together with any
  other ancillary documents, will be taken to the National
  Executive Council of the State for
  approval at its next meeting and that the necessary approvals
  required for the State to
  enter into the above agreements will be sought at that meeting,
  such that the Documents
  can be executed on or before 6 March 2014.

  Given that Oil Search requires certainty of funding in respect of
  the PRL15 acquisition,

• Page 140 of 475

• should the documents not be approved and executed by the State on
  or before 6 March
  2014, the State acknowledges that the placement to the State will
  not proceed and will be
  replaced by a placement by Oil Search to UBS.

  Yours sincerely

  (signed)
  Peter O‘Neill, CMG, MP
  Prime Minister

  On 22 December 2014, Young and Williams Lawyers acting on behalf of
  the Prime Minister
  forwarded a letter to the Commission and stated that the following:

  Conclusion

  For the record, our client refutes any improper or wrong conduct
  as asserted by you or
  otherwise in relation to the subject matter of the investigation.

  42. This is an open letter and we reserve the right to bring it
  to the attention of the
  Court should the need arise. We also reserve the right to draw
  to the attention of
  the Court the failure of the Ombudsman Commission to provide
  the written advice
  and undertaking requested in this letter.

  43. In short, the purported investigation of our client by the
  Ombudsman Commission
  and issuance of the Report is fatally flawed. The
  investigation was conducted, and
  the Report issued, in circumstances where the Ombudsman
  Commission has failed

  Findings of Facts Page 37

  to comply with its Constitutional obligations and duties. In
  fact, the investigation
  has been conducted unconstitutionally, as has the issuance of
  the Report.

  44. If the Ombudsman Commission contends otherwise, it should,
  given the serious
  matters raised in this letter, seek an authoritative
  determination from the Supreme
  Court on questions relating to the interpretation or
  application of provisions of
  Constitutional Laws.

• Page 141 of 475

• Comments

  The maturity date of 5 March 2014 for the IPIC loan was approaching
  and both HH Sheik
  Mansour bin Zayed Al Nahyan or HH Sheik Abdullah Al Nahyan had not
  responded to the
  GoPNG‘s request for an extension of another 90 days or for the State
  to pay cash for the
  Exchangeable Bond.

  The nonresponse resulted in the negotiations failing, which meant
  that IPIC could takeover
  Oil Search Ltd as the major stakeholder and this made Oil Search Ltd
  panic.

  The Prime Minister, Mr Vele, Mr Botten and Mr Aopi met, discussed
  and agreed for the
  State to purchase 10.01% shareholding which is equal to 149,390,244
  substantial shares in
  Oil Search Ltd.

  Commission investigation revealed that technical officers from the
  relevant State Agencies
  were not consulted or involved in the whole matter.

  The Prime Minister and Oil Search Ltd reached an agreement (subject
  to approvals) under
  which the State will be issued 149.39 million shares in Oil Search
  Ltd at AU$8.20 per share
  and the Prime Minister approved the announcement by Oil Search Ltd
  of it‘s share
  placement with the State without prior NEC approval.

  On 27 February 2014, (four (4) days after their meeting with the
  Prime Minister) Oil Search
  Ltd shares trading were suspended ahead of its announcement in the
  Australian Stock
  Exchange.

  On even date, Oil Search Ltd announced that it had agreed to acquire
  a 22.835% gross
  interest in Petroleum Resources Licence (PRL) No. 15 (Elk/Antelope)
  from the PacLNG
  Group Companies for US$900 million to be funded through a placement
  of new shares to
  the State.

  On the same date (ie 27 February 2014) the Prime Minister also wrote
  to UBS AG regarding
  the funding facilities to the State in connection with State‘s
  purchase of the shares in Oil
  Search Ltd.

  The proper thing for the Prime Minister to do in this circumstances

• Page 142 of 475

• was to bring the
  proposals for State‘s purchase of 10.01% shareholding in Oil Search
  Ltd and for UBS AG‘s
  funding facility in connection with State‘s purchase of new Oil
  Search shares, to the NEC
  for it‘s approval first, which did not happen until later on 6 March
  2014 when NEC
  endorsed the commitments made by the Prime Minister to Oil Search
  Ltd and UBS AG.

  Findings of Facts Page 38

  [6] THE ACTING SECRETARY, DEPARTMENT OF TREASURY, INVOLVEMENT
  IN THE WHOLE UBS AG TRANSACTION
  On 6 August 2013, the NEC appointed Mr Vele as the Acting Secretary
  for DoT. Between 12
  and 16 August 2013, Mr Vele met with officials of various Financial
  Institutions in Australia
  which included UBS AG, Morgan Stanley, JP Morgan and Credit Suisse.

  On 19 December 2013, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 approved that the BPNG provide final evaluations on the
  proposals from Citi Bank
  and UBS AG to re-finance the IPIC Exchangeable Bond.

  On 27 January 2014, Mr Bakani recommended the UBS AG to Minister
  Micah.

  On 30 January 2014, Mr Bakani informed the Directors for Investment
  Banking, UBS AG
  that the State had accepted its proposal to re-finance IPIC
  Exchangeable Bond worth
  AU$1.7 Billion.

  On even date, Mr Vele engaged UBS AG to act as the sole Financial
  Advisor and Lead
  Arranger in relation to the management of the investment of the
  State in Oil Search Ltd and
  associated matters flowing from the issuance in 2009 of Exchangeable
  Bond in respect of
  the State‘s 196.6 million shares in Oil Search Ltd to IPIC of Abu
  Dhabi.

  On 23 February 2014, the Prime Minister, Mr Vele, Mr Botten and Mr
  Aopi met at the
  Grand Papua Hotel and agreed to commit the State to purchase shares

• Page 143 of 475

• in Oil Search Ltd
  which was formalised in the Prime Minister‘s letter dated 26
  February 2014 to Mr Botten.

  On 25 February 2014, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of
  UBS AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30
  January 2014, in relation to the management of the investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance in 2009 of
  Exchangeable Bond in respect
  of the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi. These terms
  were agreed to when the GGPNG signed the document that was witnessed
  by Mr Okuk.

  On 26 February 2014 four (4) days after their meeting at Grand Papua
  Hotel in Port
  Moresby, the Prime Minister wrote to Mr Botten expressing the
  State‘s willingness to
  purchase shares in Oil Search Ltd.

  On 5 March 2014, Mr Vele wrote to Mr Rolpagarea and stated that the
  documents related to
  a proposed transaction whereby the State entered into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd and
  requested for his legal
  clearance. Pacific Legal Group Lawyers representing Mr Vele
  delivered 28 documents
  pertaining to the UBS AG loan that included the Bridge Facility
  documents, Collar
  documents, Subscription documents, fee letters, Authorisations and
  other related
  documents and Engagement letter and related letters to Mr Rolpagarea
  for his legal
  clearance. The draft loan transaction documents and draft NEC Policy
  Submission
  documents were delivered to Mr Rolpagarea very late at night by
  Pacific Legal Group
  Lawyers, purportedly engaged by Mr Vele.

  On even date, Mr Rolpagarea wrote to Mr Vele and requested
  confirmation and clear
  instructions from him regarding the engagement of Pacific Legal
  Group Lawyers to act on
  behalf of the DoT as the legal firm had drafted an NEC Policy
  Submission that proposed for
  Findings of Facts Page 39

  the State to enter into financial arrangements to fund the
  acquisition by the State of

• Page 144 of 475

• 149,390,244 shares in Oil Search Ltd. Mr Rolpagarea advised among
  other matters that
  Section 209 of the Constitution also requires that Parliament‘s
  approval be obtained for these
  Bridge and Collar Loans which total up to AU$1.225 Billion through
  the Budgetary process
  and that Mr Vele take appropriate steps to facilitate this
  constitutional requirement. He
  advised Mr Vele to proceed to NEC with the documents to be
  considered taking into
  account the advice he had given.

  On 6 March 2014, Mr Vele was called to attend the NEC Special
  Meeting No: 08/2014 to
  clarify the contents of the NEC Policy Submission No: 67/2014. The
  NEC subsequently
  made a Decision No: 79/2014 among other things to engage UBS AG to
  be the Arranger,
  Financier and Advisor for the Loan to purchase 149,390,244 new
  shares in Oil Search Ltd;
  appointed Petromin as the State‘s subscriber and nominee for the
  transaction; endorsed
  NPCP to execute the Payment Direction Deed concerning payments from
  PNG LNG Global
  Company (GloCo) with approval of Minister for Finance on
  recommendation of IPBC and
  endorsed the issuance of COI to tender by the CSTB under Section
  40(3) of the PFMA and
  an APC by the Secretary for Finance under Section 47B of the Public
  Finance (Management) Act
  1995.

  On even date, UBS AG issued a Bridge Takeout Letter to Mr Vele and
  outlined the terms of
  fees payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was
  signed by GGPNG, and witnessed by Mr Okuk.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr Okuk.

  On even date, Mr Vele advised Treasury Minister Polye that the Loan
  would not affect the
  State‘s debt program and that Petromin was the subscriber and
  nominee of the State for the

• Page 145 of 475

• Transactions.

  On even date, Mr Vele requested Mr Eludeme CSTB to approve the
  request for COI at the
  earliest to cover the advisory costs. Mr Vele then explained to Mr
  Eludeme that the COI
  was needed to access funds to pay for fees pertaining to the State‘s
  acquisition of the shares
  in Oil Search Ltd.

  On 7 March 2014, Mr Vele wrote to Mr Rolpagarea and requested as a
  matter of importance
  and urgency for the legal clearance to be issued on the State‘s
  borrowing of loan
  arrangements.

  On 8 March 2014, Mr Vele sent an electronic mail to Dr Thomas
  Webster, then Chairman
  for IPBC Board and requested for the documents to be progressed to
  the IPBC Board for its
  consideration and approval. The electronic mail included electronic
  copies of documents
  that Mr Vele had prepared for the IPBC Board and NPCP Board to
  endorse and approve.

  On 10 March 2014, Mr Vele confirmed with Mr Rolpagarea that the
  GGPNG and Minister
  for Treasury were to execute the transaction documents to purchase
  Oil Search Ltd shares

  Findings of Facts Page 40

  on behalf of the State, knowing with full knowledge that IPIC
  rejected GoPNG to buy the
  Exchangeable Bond on 24 February 2014.

  On even date, Mr Vele wrote to Dr Ngangan and requested that he
  approve the payment
  made to UBS AG in relation to the acquisition of the new shares in
  Oil Search Ltd.

  On 12 March 2014, UBS AG wrote to Mr Vele and the State and
  confirmed the terms and
  conditions of the financing transaction entered into between the
  State and UBS AG in
  respect of Oil Search Ltd shares.

  On 14 May 2014, Mr Vele wrote to the Commission and advised that the
  State was required
  to make periodic interest payments to UBS AG as per the terms and
  conditions of the Loan
  Agreement.

• Page 146 of 475

• On even date, the DoT raised Finance Forms number 3 & 4 (FF3& FF4)
  indicated
  AU$2,261,938.36 which is about K5,543,966.57 was paid to UBS AG.

  On 15 May 2014, representatives of UBS AG, Mr Goldsworthy and Ms
  Raguine wrote to Mr
  Vele and pointed out to him the breach to clause 5.1(b) of the
  Agreement by the State, when
  the State failed to pay the interest for the loan on 14 May 2014 due
  to Directions issued by
  the Commission under the Leadership Code.

  On even date, Mr Vele wrote to the Commission and requested
  clearance to allow the DoT
  to process and pay the interest payment to UBS AG.

  On 16 May 2014, Ms Betty Palaso, Commissioner-General for the
  Internal Revenue
  Commission (IRC) issued a Tax Clearance Certificate to the DoT
  allowing the Department
  to transfer or remit moneys for the purpose of payment of interest
  on the UBS AG Loan.

  On even date, a copy of the Notification (transmission) of Original
  was produced that
  indicated that the BPNG transferred AU$2,261,938.36 to the Reserved
  Bank of Australia.

  On 5 June 2014, Mr Eludeme, the Chairman of CSTB confirmed that he
  approved a request
  for application for COI that was forwarded to him by Mr Vele.

  On 6 June 2014, Mr Vele filed his affidavit pertaining to the
  National Court proceedings
  against the Commission and the State.

  On 4 July 2014, Mr Vele stated in his letter to the Commission that
  the UBS loan transaction
  was constitutional and have been lawfully undertaken by the State
  and its related parties in
  every aspect.

  Comment

  Mr Vele was appointed by the NEC as the Acting Secretary for DoT on
  6 August 2013. He
  was not a career public servant and hence was not very familiar with
  Government‘s public
  finance management process and procedures and the public service
  machinery as can be
  seen from his handling of the UBS AG Loan transaction.

  Between the period 12 – 16 August 2013, soon after Mr Vele was
  appointed as Acting

• Page 147 of 475

• Secretary for DoT, he engaged in discussions with officials of
  various Financial Institutions
  in Australia which included UBS AG, Morgan Stanley, JP Morgan and
  Credit Suisse.

  Findings of Facts Page 41

  On 19 December 2013, NEC during a Special Meeting No. 37/2013
  decided in Decision No:
  479/2013 to approve BPNG to provide final evaluations on the
  proposals from Citi Bank and
  UBS AG to re-finance the IPIC Exchangeable Bond and report back to
  Minister for Public
  Enterprises and State Investments by end of January 2014.

  On 27 January 2014 BPNG Governor, Mr Bakani recommended UBS AG to
  Minister Micah
  for him to report back to NEC. There is no evidence to confirm that
  Minister Micah
  reported back to NEC on BPNG‘s recommendations on engagement of UBS
  AG or that NEC
  approved the engagement of UBS AG to re-finance IPIC Exchangeable
  Bond.

  Hence, Mr Vele had no authority and was wrong when he engaged UBS AG
  on 30 January
  2014, as the Sole Financial Advisor and Sole Lead Arranger in
  relation to the management of
  the investment of the State in Oil Search Ltd and associated matters
  flowing from the
  issuance of the 2009 IPIC Exchangeable Bond, when he had no
  authority from the NEC at
  that point in time to engage UBS AG.

  The Commission‘s investigation revealed that Mr Vele engaged Legal
  and Financial
  Consultants to facilitate the Loan Transaction to purchase shares in
  Oil Search Ltd without
  complying with the tender procedures and requirements for issuance
  of COI under the
  Public Finance (Management) Act 1995 and Finance Management Manual.
  The preparations of the
  NEC Submission on this matter were done by the Consultants engaged
  by him.

  The Financial and Technical Consultants were UBS AG, KPMG and
  Pacific Capital Ltd
  whilst the Legal Consultants involved were Pacific Legal Group
  Lawyers, Norton Rose
  Fulbright of Australia and Ashurst that acted for UBS AG. The Law
  Firms involved were
  not cleared by the Attorney-General to act on behalf of the DoT and
  the State in accordance

• Page 148 of 475

• with Section 8 of the Attorney-General Act 1989.

  The Commission‘s investigation revealed that the original intention
  of the State to engage
  UBS AG on 30 January 2014 was as Financier of AU$1.7 Billion Loan
  for the buyback of the
  IPIC Exchangeable Bond.

  However, when the IPIC Exchangeable Bond buyback negotiations
  failed, the Prime
  Minister committed the State to purchase new shares from Oil Search
  Ltd with Loan from
  UBS AG without prior approval of NEC and National Parliament. Hence
  the original
  intention of the State engaging UBS AG to refinance IPIC
  Exchangeable Bond was cancelled
  and the Prime Minister and Mr Vele indicated to Oil Search Ltd that
  the State wanted to
  purchase new shares from Oil Search Ltd.

  The Commission‘s investigation also revealed that the engagement of
  UBS AG as the Lender
  of the Loan to the State to purchase shares in Oil Search Ltd came
  about as a result of Mr
  Vele‘s earlier engagement of UBS AG in January 2014 as the Sole
  Financier and Sole Lead
  Arranger in relation to management of investment of the State in Oil
  Search Ltd and
  associated matters flowing from the issuance of 2009 IPIC
  Exchangeable Bond and their
  engagement was done without complying with the tender process and
  the requirements for
  issuance of COI under the Public Finance (Management) Act 1995 and
  Finance Management Manual.

  It is noted that Mr Vele was present at the NEC Meeting on 6 March
  2014 when NEC‘s
  Decision No: 79/2014 was made to borrow AU$1.239 Billion from UBS AG
  to purchase
  149,390,244 new shares from Oil Search Ltd however he failed to
  advise NEC of the State
  Solicitor‘s advice on the requirement to comply with Section 209 of
  the Constitution.

  Findings of Facts Page 42

  This was unfair and unethical business engagement by Mr Vele and the
  State against other
  Bidders who had shown interest in providing a loan package for the
  State.

  It was also a breach of Section 40(1) of the Public Finance
  (Management) Act 1995 and Part 13,

• Page 149 of 475

• Division 4, Clause 13 of the Finance Management Manual as proper
  procedures were not
  complied with and that the COI was applied retrospectively.

  The five (5) Consultants; Norton Rose Fulbright of Australia,
  Pacific Legal Group Lawyers,
  Pacific Capital Ltd, Ashurst Lawyers and KPMG were all engaged by Mr
  Vele prior to the
  awarding of the contract by the CSTB and this was in breach of
  Section 40(1) of the Public
  Finance (Management) Act 1995 and Part 13, Division 4, Clause 13 of
  the Finance Management
  Manual.

  Part 13, Division 4, Clause 13 of the Finance Management Manual
  states:

  13. A Certificate of Inexpediency cannot be issued to
  retrospectively cover a contract
  already executed.

  Therefore, Mr Vele‘s statement that proper processes and procedures
  were complied with
  for the engagement of the Consultants was not correct and was done
  in breach of the above
  stated laws.

  The Commission‘s investigation also revealed that Mr Vele and DoT
  did not prepare the
  NEC Policy Submission on the UBS Loan Transaction to purchase new
  shares in Oil Search
  Ltd. The NEC Policy Submission and the Transaction Documents were
  prepared by the
  Legal and Financial Consultants engaged by Mr Vele. Apart from Mr
  Vele, DoT officials
  were not involved in the negotiations for the UBS AG loan to
  purchase new shares in Oil
  Search Ltd nor the preparation of the NEC Policy Submission and the
  Transaction
  Documents.

  [6.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to Part 1 [6] of the
  Provisional Report. Below is the
  extract from his response.

  FINDINGS OF FACTS

  PART 1 THE DECISION OF THE NEC TO BORROW FROM UBS AG AND ITS
  IMPLEMENTATION

• Page 150 of 475

• Sub Parts [1] – [5] and [7 – 13] response included in Response
  Below

  Sub Part [6] MR DAIRI VELE‘S INVOLVEMENT IN THE WHOLE UBS
  TRANSACTION

  Comment

  There are three main errors which make these findings of fact
  distorted, untrue and without proper
  basis:-

  (b) A superficial and limited investigation into the facts was
  conducted by the Ombudsman
  Commission, with limited witnesses interviewed coupled with a
  refusal by the Ombudsman
  Commission to receive witness testimony from numerous
  involved parties such as UBS AG,
  or any of the retained advisors.

  Findings of Facts Page 43

  (c) An assumption by the Ombudsman Commission that the decision
  on financial advisors and
  lenders was last minute.

  (d) Assumptions by the Ombudsman Commission as to the legal
  requirements for the State
  when seeking and obtaining an overseas loan pursuant to
  Section 209 of the Constitution
  and other Legislation – and the application of those
  assumptions in this Report–in
  circumstances where the issue as to compliance with the
  legal requirements for such a loan
  is before the Supreme Court for Constitutional
  Interpretation in SCCOS 4 of 2014 and is sub
  judice.

  Response

  Section of Advisors commenced December 2012

  1. The selection of UBS AG as financial advisors and lenders was
  the end of a process that
  commenced in late 2012, not a process that commenced in
  December 2013.

  2. In 2009 the State through IPBC and IPIC had obtained a loan to
  purchase the State‘s interest in
  the PNGLNG project by virtue of the issue of an Exchangeable

• Page 151 of 475

• Bond.

  3. The loan had been secured by the State‘s shares in Oil Search
  Limited and mortgages over all the
  State owned Enterprises. The maturity date of the Bond was 5
  March 2014. Under the terms, IPIC
  could take on the maturity in repayment of the loan either the
  shares, cash and share or just cash.
  IPIC had to make an irrevocable election 2 weeks prior to
  maturity date as to what it wanted in
  repayment.

  4. As the State through IPBC would need to seek a large funding
  amount to repay the loan, a long
  lead time was needed for the planning.

  Appointment of Legal Advisors by IPBC in 2012

  5. In addition to its own investigations, IPBC retained Norton
  Rose Fulbright Lawyers (NRF) on 5
  December 2012 to provide legal advice on the IPIC Bond Project
  (see Retainer letter 5 December
  2012 NRF marked ―A‖). The work expressly included reviewing
  the terms and conditions of the
  IPIC Bond, review and advise options available to IPBC for
  refinancing of the loan and or a
  restructure of the terms of the existing loan. Specifically it
  was recognised in the scope of work
  that ―a significant aspect of this scope of work would involve
  meeting the objectives regarding
  the ownership of the Oil Search Shares‖.

  6. It was always at the forefront of concerns of the State –
  through IPBC – to retain ownership of
  the Oil Search shares.

  Dairi Vele – appointed Director Gas Project Co-Ordination Office

  7. I had been appointed in December 2011 as Director of the Gas
  Project Co-ordination Office where
  I was essentially the Project Manager for the State of the PNG
  LNG Project.

  8. During 2013, in my roles at the Gas Office and NPCP I spent a
  lot of time negotiating on behalf of
  the State and IPBC with IPIC about whether it would convert
  the bond and thereby retain the
  Oil Search shares.

  9. Because of the terms of the Convertible Bond, I was aware that
  IPIC might elect to retain the
  shares and therefore I gave some thought to other methods by
  which PNG could obtain an
  interest in Oil Search. In my view the other ways to obtain an

• Page 152 of 475

• interest in Oil Search was by a
  private placement or alternatively on the public market. I
  considered that a private placement (if
  available) was a better option as buying a large amount of
  shares on the public market would lead
  to an increase in share price.

  Cabinet confirms that IPBC is to be Agency to Review the IPIC
  Bond

  10. On 5 April 2013, the Cabinet explicitly authorised the
  Minister for Public Enterprises and IPBC to
  explore methods of raising money to redeem the Convertible
  Bonds. [see NEC meeting 03/2013,
  decision no. 117/2013 marked ―B‖]

  Appointment of Members of IPIC Exchangeable Bond Review Committee
  – Mr. Dairi Vele

  11. In July 2013, Cabinet determined to look at ways to refinance
  the IPIC loan and to retain an
  interest in Oil Search. Cabinet appointed a committee under
  the direction of IPBC and the Gas
  Projects Coordination Office (myself), the Secretary of Public
  Enterprises, the Secretary of

  Findings of Facts Page 44

  Treasury (or his nominee), the State Solicitor (or his
  nominee). [See NEC Decision 241/2013 at
  meeting 20/2013 attached marked ―C‖].

  12. Part of my role in the Committee, in my capacity as Director
  of the Gas Project Coordination
  Office, was to review and evaluate the process that the
  Committee had considered to retain an
  interest in Oil Search. I drafted a discussion a discussion
  paper about the approach to take if IPIC
  was prepared to accept a cash payment in exchange for the
  shares. I set out in the paper that
  whilst buying the shares back from IPIC was the State‘s first
  plan for acquiring shares in Oil
  Search, its other option was to buy them from the market. This
  was for the purpose of seeking
  views from financiers into the future. [See Discussion Paper
  Dairi Vele marked ―D‖].

  13. At the time I was appointed Chair, the Committee had already
  solicited some offers from various
  banks and I raised my concerns that the work that had been done
  up to that time was in my view
  quite limited.

• Page 153 of 475

• 14. I was aware that Treasury had only undertaken 3 other
  transactions and on each occasion
  engaged external lawyers as members of Treasury, and the
  Committee, had limited financial
  experience. Norton Rose Fulbright, as sent out above, were
  first engaged by IPBC on these issues
  on 5 December 2012 and continue to be engaged by IPBC. I
  therefore referred to them for advice
  on these matters given the committee was under the Direction of
  IPBC.

  Appointing Acting Secretary for Treasury

  15. On 6 August 2013, I was appointed Acting Secretary for
  Treasury.

  16. We, the IPIC Bond committee, had already set up meetings with
  various banks in Sydney to
  assess proposals from banks as to being the financial advisor
  and arranger to the State through
  IPBC for the refinancing of the IPIC Bond.

  17. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I will still be a
  Member of the IPIC Committee due to Cabinet decision No.
  241/2013.

  Consultations with Banks

  18. Accordingly, between 12 August and 16 august 2013, I
  travelled to Sydney and attended the
  arranged meetings with the representatives of the advisory
  sections of UBS, Morgan Stanley,
  ANZ, JP Morgan, Citigroup and Credit Suisse. I provided the
  discussion paper to those banks
  about the approach to take if IPC was prepared to accept a cash
  payment in exchange for the
  shares. At that stage, we were looking at the transaction from
  an advisory perspective and not
  seeking to obtain a loan from these banks.

  19. In my discussions with those banks I told each of the banks
  words to effect that while buying the
  shares back from IPIC was the State‘s first plan for acquiring
  shares in Oil Search, its other option
  was to buy them from the market. This also can be seen in the
  discussion paper.

  20. In those discussions with the bank, it was also contemplated
  that if the Oil Search share price
  went down below $8.55 and that if the shares were returned to
  the State, then the State would
  still need to pay the difference between the market price at
  that time and the price under the

• Page 154 of 475

• Convertible Bond.

  21. The discussion paper also proposed as an option, a funding
  facility to enable the State to buy Oil
  Search shares on market. Such a facility would have allowed the
  State to buy Oil Search shares on
  occasions when they fell below $8.55 during the period before
  the IPIC Convertible Bond
  expired. Such a facility would mean that in the event that IPIC
  returned the shares to the State
  then the State would simply have additional shares which was in
  its interest or alternatively, in
  the event that IPIC retained the shares it would result in the
  price of the Oil Search shares being
  pushed up and thereby reducing the amount that the State had to
  pay IPIC if the share‘s market
  price was less than the amount agreed to in the Convertible
  Bond at the time it expired.

  22. While the discussion paper did not specifically deal with
  other options to acquire Oil Search
  shares if IPIC decided to retain them, it was clearly raised at
  my meetings with the banks that
  thought needed to be given to this.

  23. The banks were approached in their advisory capacity and they
  were approached to look at
  searching for options for acquiring the shares. At that stage
  they were not approached in order to
  provide specific products, though clearly the banks approached
  would also be in a position to
  provide funds at a later stage.

  Findings of Facts Page 45

  24. I invited other meetings of the IPIC Committee to attend
  these meetings but none of the
  members were available to come with me. As a result I attended
  these meetings by myself.

  25. During these meetings on 12-16 August 2013 I formed the view
  that UBS was the most appropriate
  bank to provide advice to the State. This was on the basis that
  they had considered in the most
  detail other options available to the State if IPIC were to
  decide to retain the shares under the
  Convertible Bond. I recall that none of the other banks had
  particularly considered other options
  despite me raising this as an issue in the first round of
  meetings.

• Page 155 of 475

• 26. In my discussions with all of the prospective banks, I made
  it clear that there were to be no local
  subcontractors or intermediaries involved in the arrangement
  that the State might enter into. I
  made clear that any proposal to use local subcontractors would
  not be acceptable to me or to the
  State.

  27. I knew that Oil Search had a close working relations with one
  of the banks approached Morgan
  Stanley, the representatives seemed to ―parrot‖ the views
  previously expressed to me by Peter
  Botten of Oil Search. I considered that given this approach
  they may put the interests of Oil
  Search before the interests of the State and for this reason
  was very reluctant to use Morgan
  Stanley.

  28. After these meetings I reported back to the Committee members
  orally. I advised members of the
  Committee words to the effect that: of the all the banks that
  had made proposals to the State, I
  thought that UBS was the one with the best understanding of the
  issues.

  29. Additionally, I thought it was necessary to make a decision
  about which bank the State would
  have advising it. The discussions with the banks could only go
  on for so long in my view because
  otherwise too much information about what the State intended to
  do may be revealed to the
  banks and they may end up competing against the State.

  30. Except for ANZ, all of the banks that had made a pitch to the
  State had proposed a collar and
  bridge loan structure of some kind. Whilst the structures of
  the proposed loans were slightly
  different, essentially all of the banks were making similar
  proposals. Some banks offered lower
  rates than others and offered the loan over a longer period,
  but this reflected the various levels
  that could be used to structure a loan.

  31. The bridge loan was a fairly straightforward loan whereby the
  bank would lend money in return
  for holding a certain number of shares as security. The collar
  loan involved the bank making an
  upfront payment, with the remainder of the shares being
  transferred to that bank with it
  entitling the bank to use those shares as part of its hedging
  activities.

  32. A consortium of ANZ and Barclays Bank came with an offer to
  fund that did not involve a

• Page 156 of 475

• derivative and was at a lower rate. However, I was firmly of
  the view, based on my experience
  with other banks, that there proposal would not pass the credit
  committee and therefore was not
  a viable option.

  33. Other members of the committee favoured those banks that had
  proposed a structures loan with
  lower interest rates but my view was that those members of the
  Committee didn‘t understand
  the downsides to the arrangements proposed by those banks. I
  had views about what kind of loan
  repayments the economy could handle as well as what would be
  politically acceptable to Cabinet.
  My view was that the other members of the Committee did not
  understand how to compare the
  various products on offer. At the end of the day, the Committee
  recommended to IPBC that UBS
  AG was the appropriate institution.

  Cabinet Determines UBS AG and Citibank to be further evaluated.

  34. When the matter was put to Cabinet in December 2013, UBS AG
  was recommended to be the
  Financial Advisor and Lead Arranger, but Cabinet wanted to also
  consider proposals from
  Citibank which had not been included in the first round of
  discussions.

  35. Citibank provided a very similar proposal to UBS but I still
  regarded UBS to have the better
  understanding the issues for the State and most consistent with
  the terms of reference that were
  developed in January 2014.

  36. To assist in a final decision being made, the Bank of Papua
  New Guinea (BPNG) was asked by
  Minister Micah to review and evaluate the proposals from the
  banks in relation to the structure
  of any loans for the buyback of Oil Search shares. Cabinet
  authorised the bank of PNG to provide
  evaluations of the proposals put by both UBS and Citibank.
  [Cabinet Decision 479/2013 on 19
  December 2013].

  Findings of Facts Page 46

  37. During the process of BPNG reviewing the bank proposals, I
  was informed that BNP Paribas had
  been approached by BPNG to also make a proposal to the State. I
  recall that their pitch was a
  heavily qualified bid and not particularly thorough. I am aware

• Page 157 of 475

• that certain persons with BPNG
  had regularly used BNP Paribas and meetings were held with BNP
  Paribas in Singapore but this
  bank was not ultimately successful. BPNG ultimately concluded
  that UBS was the bank that
  should be used, with the bank providing its recommendations to
  the Minister for Public
  Enterprise and State Investment on 23 January 2014.

  38. In January 2014, the Minister for Public Enterprises was
  going to travel to Abu Dhabi to negotiate
  with IPIC about buying shares back from it. I was concerned
  about going to Abu Dhabi
  unprepared in terms of the State‘s financial arrangements and
  so advised the Minister that I did
  not want to go on this trip. I understand from discussions with
  the Minister for Public
  Enterprises that representatives of the State still ended by
  going to Abu Dhabi. The State did not
  have any of the finance arrangements in place and so there was
  little to negotiate about. I
  understand from discussion with the Minister for Public
  Enterprises that the Sheik did not give
  any indication as to whether the shares would be retained by
  IPC or whether they were prepares
  to accept a cash settlement in exchange for the Oil Search
  shares.

  39. It was my view that it was necessary to have the financing
  arrangements in place for the buyback
  of the IPIC shares before the State could approach and
  negotiate with IPIC.

  40. I did not have any pre-existing relations with UBS AG (Aust)
  prior to my discussions with them
  around the purchase of the Oil Search shares. I was introduced
  to Paddy Jilek of UBS by Minister
  Micah. I was also provided with the name of some other UBS
  officials by staff at Norton Rose
  Fulbright but as Paddy Jilek was more senior, I ended up having
  discussions with him.

  41. It is simply not correct to say that the process for
  selecting financial advisors and arrangers were
  left to the last minute – the process had commences in 2012.

  42. BPNG was tasked with giving an evaluation on Banks already
  investigated at length by IPBC and
  their IPIC committee. It was consultation as required under the
  Constitution and it took place.
  There were commercial deadlines in place that needed to be
  adhered to – and public service
  institutions needed to lift their work performance to meet
  those deadlines.

• Page 158 of 475

• 43. The impression given in the Provincial Report is that some
  banks were suggested to Cabinet in
  December 2013 out of the blue – and BPNG was the only entity
  that had any dealings with the
  banks or that were to formulate any evaluation. This is just
  not correct – the preparation and
  proposals were put to BPNG for their opinion, not for them to
  commence the whole process
  again. The Ombudsman Commission report completely fails to
  include all the facts and
  consequently the version presented is distorted and untrue.

  DECISION OF STATE TO PURCHASE OIL SEARCH SHARES

  The Decision to borrow from UBS AG and to purchase Oil Search
  Shares was made by NEC on 6 March
  2014 and no earlier agreement was made.

  44. The finding of fact by the Ombudsman Commission that on 23
  February 2014, the Prime
  Minister, Mr. Botten, Mr. Aopi and I decided for the State to
  buy 149,390,244 shares or that we
  agreed to commit the State to purchase shares in Oil Search Ltd
  is as false as it is illogical.

  45. The decision to hold Oil Search Shares was one taken by the
  government years ago, since before it
  was Oil Search Ltd, but Origin.

  46. The desire by government to retain Oil Search shares has been
  a constant, as evidence by all steps
  taken in this process – commencing with the decision of IPBC to
  retain Norton Rose Fulbright in
  December 2012 to receive on the IPIC Bond Issue and in the
  clear words of the Cabinet Decisions
  117/2013 made 5 April 2013 and No. 241/2013 made 9 July 2013.

  47. The possibility of such purchase was included in the
  discussion paper that I placed before all the
  Banks in the meetings 12 – 16 August 2013.

  48. It is mischievous to suggest that the decision taken by the
  Cabinet to purchase Oil Search shares
  was somehow engineered by the Prime Minister for the benefit of
  Oil Search. That conclusion is
  simply not supportable on the facts.

  Meeting in Abu Dhabi and Notification IPIC to take shares in
  payment

  49. I was asked by the Prime Minister to go with the Foreign
  Minister to Abu Dhabi to meet with the
  Sheik in relation to the IPIC shares. The trip occurred between

• Page 159 of 475

• Sunday, 16 February and

  Findings of Facts Page 47

  Thursday, 20 February 2014. Representatives of UBS, Peter
  Botten of Oil Search and Anthony
  Latimer, a partner from Norton Rose Fulbright also attended
  this trip. When we arrived in Abu
  Dhabi the Sheik was in the United Kingdom attending a football
  match and we were only able to
  meet with a relatively low ranking official from IPIC.

  50. Just before my return to PNG I was advised that IPBC had been
  served by IPIC with a
  Notification of Exchange on Friday 13 February 2014 just before
  we left for Abu Dhabi. This was
  the formal indication by IPIC that it intended to retain the
  Oil Search shares.

  Commencement of Negotiations for a Proposal to Buy Oil Search Ltd
  Shares

  51. Given the government‘s consistent and constant desire to
  retain shares in Oil Search Ltd. I
  formed the view that serious thought now had to be given to
  other methods of acquiring shares in
  Oil Search.

  52. In around mid-February 2014, I heard rumours that Oil Search
  Ltd was going to purchase an asset
  and I noticed an upward movement in the price of shares in Oil
  Search Ltd which indicated to me
  at that time I did not know what that was. I considered that if
  the State waited until after the
  transaction was completed the share price may become too high
  for the State to contemplate
  purchasing shares on the market.

  53. I was told by UBS AG that based on market rumours they
  considered that there would be a
  placement of shares by Oil Search. We had a discussion about
  the share price of Oil Search. At
  this time the State was notionally after 15% but would have
  taken a lesser issuing of shares.

  54. In order to even place a possible purchase before NEC, many
  matters needed to be attended to so
  that any purchase proposal would be possible and not
  theoretical. In order to do that, I had to see
  if there was funding available, whether there was going to be a
  placement of shares on the open
  market or whether sufficient shares would be available on
  market.

• Page 160 of 475

• 55. Cabinet would need a proposal that had certainty attached to
  it in order to make a decision.

  56. Consequently, I needed to ascertain whether a purchase could
  actually be achieved.

  57. On the afternoon of my return from Abu Dhabi, I met with
  Mitchel Turner and Paddy Jilek of
  UBS AG in Sydney and began discussions with UBS AG to give us
  an indication whether they
  would agree to provide the funding as part of a purchase of the
  new placement by Oil Search Ltd.
  I believe it was necessary to have an offer from UBS to fund in
  order to make any approached to
  Oil Search Ltd by the State to look serious. Anthony Latimer
  from Norton Rose Fulbright also
  attended this matter at UBS with me, on his continuing retainer
  from IPBC.

  58. On the same day I called the Prime Minister and said words to
  the effect of: would the State be
  interested in buying a placement of shares from Oil Search
  given that IPIC was to retain their
  shares. He said the State would be as it was a cabinet decision
  to retain an interest in Oil Search
  Ltd and instructed me to proceed with putting together
  essentially a draft deal.

  59. On 21 February 2014, I approached Peter Botten in Sydney and
  said words to the effect that the
  State was keen the State informed of any plans to issue
  additional shares. I also informed him that
  the State would be able to obtain funding from UBS AG.

  60. I understand that there was talk of Oil Search purchasing an
  interest in the Elk Antelope project
  and if this happened then the share price would be much more
  expensive for the State to buy
  shares from the market. The Oil Search price is very closely
  linked to what projects they currently
  have under development and so an announcement of the
  acquisition of part of the Elk Antelope
  project would cause the price to rise. Additionally, as Oil
  Search shares traded at relatively small
  volumes, it would be take a very long period of time to buy a
  10% shareholding. I therefore
  regarded a purchase of a new placement of shares as a good
  option for the State.

  61. The other reason that the State would be interested in
  acquiring an interest in Oil Search was
  that its purchase of an interest in Elk Antelope gave it an
  interest inPRL15. The purchase of

• Page 161 of 475

• PRL15 gave Oil Search certain pre-emptive rights including the
  right to offer other parties to
  partner in the development with it. This would enable Oil
  Search to invite Exxon Mobil to
  partner with it, which was already developing projects in PNG,
  rather than a company such as
  Totale. It was Total that would otherwise have been involved in
  PRL15 and given Totale‘s diverse
  interests across the world and not just in NG there was a risk
  that PRL15 might not be a priority
  for it and therefore there would be delays to its development.
  Therefore I considered it was a very
  good outcome for the State to have Oil Search able to take a
  proactive involvement in PRL15.

  Findings of Facts Page 48

  62. While I was still in Sydney and understood the private
  placement might be available there was
  also rumour that Oil Search would go into a trading hold on the
  following Monday [24 February
  2014]. I made arrangements to get UBS and Ashursts ready to
  move if the opportunity became
  available and I recall that several UBS staff began making
  calls trying to make arrangements with
  Oil Search.

  63. I kept the Prime Minister updated with developments at this
  time and spoke with him regularly
  by telephone. I would have spoken to the Prime Minister on
  multiple times on Friday, 21
  February though for much of this day there was no certainty
  around the Oil Search placement
  and matters were largely based on rumours and somewhat coded
  conversations between myself
  and Mr Botten of Oil Search.

  64. On 22 February 2014, I was advised by the Prime Minister that
  Peter Botten of Oil Search had
  arranged to meet with him that day whilst I was still in
  Sydney. I said words to the Prime
  Minister to the effect that the Prime Minister could discuss
  specific price of shares with Oil
  Search but should leave the final negotiations to me.

  65. On Friday 21 February 2014, the Oil Search share price was
  approximately $8.49.

  66. I arrived in Port Moresby on Sunday, 23 February 2014. Later
  that day I met at the Grand Papua
  Hotel with the Prime Minister and Peter Botten of Oil Search.

• Page 162 of 475

• The discussion was about the
  availability of a placement of Oil Search shares. Whilst I
  recalled the Prime Minister said words
  to the effect of, talk to Dairi about price. At that meeting
  while the State through the Prime
  Minister and myself expressed that the State had an interest in
  buying Oil Search shares no
  agreement or commitment was made on behalf of the State, the
  share price was not settled on and
  I understood that negotiations would be ongoing. The only
  agreement was that we agreed that all
  parties could explore the options in the matter.

  67. The next day, Monday 24 February 2014 a number of discussions
  took place between myself and
  Mr. Botten about the price that the State would pay. The prices
  of shares on Monday had gone up
  to $8.57. Mr Botten informed me that he had spoken to current
  shareholders who did not want
  their shares diluted and that there was a lot of interest in
  the placement. Mr Botten told me that
  Oil Search would accept $8.50 a share which was about 5 per
  cent discount. He also indicated
  that whilst we could discuss the price, ultimately he would
  need to take any proposed price back
  to the Board of Oil Search. I also said words to the effect
  that I would need to speak to the Prime
  Minister about the price and then any proposed deal would need
  to be put to and approved by
  cabinet.

  68. The Prime Minister of Fiji was visiting Port Moresby that day
  and a function was being held for
  him which the Prime Minister attended. After I met with Mr
  Botten, I attended that function to
  speak to with the Prime Minister. I recall that the Prime
  Minister said words to the effect of, the
  State should only pay $8.20 per share because that was the
  price that Mr Botten had raised with
  him at the meeting on Saturday.

  69. I then went back to Mr Botten and said words to the effect of
  as Mr Botten had indicated a price
  of $8.20 per share on Saturday to the Prime Minister that was
  the price that the State would
  consider in relation to the placement. He informed me that he
  couldn‘t do a deal at $8.20 per
  share and that Oil Search would want $8.50 a share.

  70. During this time I also received a call from Paddy Jilek of
  UBS and recall that he said words to the
  effect that, $8.20 was an unrealistic price and that the State
  was unlikely to secure the shares for
  this price and that the State would need to pay &8.50 a share.

• Page 163 of 475

• However, I had a clear instruction
  from the Prime Minister to push for $8.20 and so continued to
  make clear to Oil Search that this
  was the price that the State wanted.

  71. I recalled that Oil Search had also indicated at this time
  that it was concerned that it was
  concerned that the State would be unable to make the
  arrangements to finance the matter. There
  was also a concern by Oil Search and PNG that Cabinet may not
  approve the purchase of the
  share placement. That was of course always open to Cabinet.

  72. I understand from discussions with Paddy Jilet of UBS, that
  UBS and Oil Search entered into a
  separate underwriting agreement whereby if the State did not go
  through with the deal, and
  specifically if the NEC did not approve the transaction then
  UBS could buy the shares.

  No Engagement of Consultants

  73. Throughout these discussions with UBS and representatives of
  Oil Search at no time did I
  understand that anyone believed that an agreement had been
  entered into. Rather negotiations
  were still on foot with all of the parties trying to reach an
  agreement and the State would not

  Findings of Facts Page 49

  commit to any purchase of the placement in Oil Search or loan
  agreement until after cabinet
  approval.

  74. During this time I was receiving advice on legal matters from
  Norton Rose Fulbright as a result of
  their retainer by IPBC. As Acting Secretary for Treasury I will
  still a member of the IPIC Bond
  Committee and that was under the direction of IPBC.

  75. I was not receiving advice from the State Solicitor as I was
  informed he was busy and a derivative
  transaction of this type was complicated not something that had
  any experience in or expertise
  and we therefore required specialist advice.

  76. On 25 February 2014 UBS AG wrote to me and outlined the terms
  of the proposed engagement as
  Lender, including fees charged in relation to the role as
  Financial Advisor and Lead Arranger as
  well as financial modelling.

• Page 164 of 475

• 77. At about this time KPMG was also brought in as part of the
  State‘s due diligence to provide
  independent advice on the structure of the loan for the
  purchase of Oil Search shares. KPMG‘s
  role was to test the assumptions about the pricing auctions
  that UBS AG had developed and
  generally to ensure that UBS was providing good value for money
  to the State. We wanted to
  ensure that the State was getting value for money and that the
  financial calculations were correct.
  We thought this was the responsible and prudent course to take.

  78. I recall that KPMD‘s advice was ultimately that UBS‘s fees
  were on the high side but within the
  market range and therefore acceptable. Subsequent to this I had
  further negotiations with UBS
  and was able to get them to agree to further reduce their fees.
  [See KPMG Report attached
  marked ―E‖].

  79. Three was no retainer agreement with KPMG at that stage and
  they were well aware that
  payment for their work very much depended upon whether or not
  Cabinet determined to go
  ahead with the transaction.

  80. While I had also received advice about the transaction from
  Pacific Capital I wanted advice from
  KPMG in order to confirm this advice and it also provided some
  comfort to me and to the
  Cabinet that UBS loan structure was appropriate and the fees
  payable reasonable.

  81. Regarding UBS AG, they required local counsel and as part of
  the arrangements, and normal
  commercial practice, the borrower pays for those counsels.
  Ashurts were advised to us to be UBS
  AG‘s counsel.

  82. I did not retain Ashurts. They were retained by UBS AG.

  83. The transactional documents were being drafted by Ashurts for
  UBS AG but only the basis that
  the Cabinet would still need to approve the transaction.

  84. I was being advised by Pacific Legal Group and Norton Rose
  Fulbright about who in the
  government needed to provide sign-off on the deal. I did not
  engage Pacific Legal Group. I am
  informed that Norton Rose Fulbright had engaged Pacific Legal
  Group as their local counsel at
  that stage.

  Negotiations continue on Proposal for Loan and Purchase.

• Page 165 of 475

• 85. I recall that during this process I also had a discussion
  with UBS AG about a sovereign bond that
  had been issued and said that they wanted to be involved in the
  issuing of the next sovereign
  bong. I told them words to the effect that, a sovereign bond
  would need to go through a tender
  process and that therefore I could not give them assurances
  that they would be involved in it.

  86. I understood from my meetings with the banks that there were
  four variables in such an
  arrangement that could be negotiated with the banks. These
  were: the interest rate to be charged,
  the tenor of the loan, put/call options and the payment of
  dividends. Generally speaking changing
  one of these factors had an impact on the price or rate of the
  other factors.

  87. I discussed with UBS that I considered that an interest of
  4.95% would be attractive to cabinet. It
  was discussed that, the loan would be for a period of 24
  months, the put/call option would be
  90/121 and the State would only be entitled to the existing
  dividend with any increase in the
  dividend being paid to UBS.

  88. It was also agreed that in the proposal 12.5 million shares
  would not be part of the collar loans
  and the reason for this was the State‘s desire to gradually own
  all of the shares that has been
  issued in the new placement by Oil Search.

  Findings of Facts Page 50

  89. The 12.5 million shares not subject to the collar loan were
  subject to the bridge loan and those
  shares were security for the advance of money. This loan was
  paid for from the profits from the
  LNP project. Because there were cash flows from the LNP project
  the bridge loan was structured
  so that these profits would be repaid by NCPC to UBS.

  90. While these discussions were going on, no agreement had yet
  been reached and negotiations at
  that price were still going on with Oil Search.

  91. On 27 February 2014, I received a commitment letter that
  outlined the terms and conditions it
  was willing to arrange and participate in a Loan Facility with
  State.

  92. It was at this time that the potential of the State to be

• Page 166 of 475

• able to purchase the Oil Search shares
  became more than a possibility.

  93. I then arranged to consult with BPNG on the terms of the
  draft proposal and met with the
  Governor of the BPNG, Dr Jacob Weiss from the BPNG and Paddy
  Jilek of UBS. I went through
  the structure of the proposal by UBS and showed the Governor
  and Mr Weiss that the proposal
  that UBS was making was not substantially differently to what
  had previously been proposed in
  their previous advice on the IPIC refinancing. The terms and
  conditions therefore cannot in any
  way be said to be prejudicial to the State as claimed by the
  Ombudsman Commission. I recall that
  the Governor and Dr Weiss asked some questions about why
  foreign exchange reserves were not
  being used and I explained to them why I did not think that
  this could be done.

  94. I arranged for them to meet with Craig Roberts and Paddy
  Jilet of UBS to explain the structure of
  the loan and so that they could clarify any queries. I was also
  present at that meeting. I recall that
  Jacob Weiss wanted a higher interest rate but a better upside
  and to be able to roll the collar loan
  after 6 months. Paddy Jilek of UBS said words to the effect
  that this was not possible. Mr Jilek
  did say that UBS would be willing to offer a 12 month
  arrangement but this would mean an 11%
  interest rate. My view was that a high interest rate would not
  be attractive to cabinet.

  95. It was my opinion that at the conclusion of this meeting, the
  Governor and Dr Weiss understood
  the proposal that was being made by UBS and had the opportunity
  to ask any questions that they
  had about the proposal.

  96. Throughout this time I was keeping the Prime Minister updated
  on developments on a regular
  basis and while I had a number of discussions with the
  Treasurer and understood that he was
  aware of the general arrangements under consideration, I did
  not brief the Treasurer as
  frequently.

  97. Given we had no an actual offer of a loan, documents could be
  prepared to facilitate the terms of
  the purchase to go before NEC. This does not just mean a NEC
  Submission, but also all the actual
  transaction documents.

  98. During this time, Wendy Isu, my Executive Officer at Treasury

• Page 167 of 475

• and Carl Okuk were liaising with
  Norton Rose Fulbright to arrange the necessary documents,
  approvals and permissions that
  would be needed should NEC approve the deal.

  99. Norton Rose Fulbright to my knowledge had engaged Pacific
  Legal Group to assist them with
  their on-going retainer as now they were being asked to advice
  on the necessary processes to put
  the deal together to acquire Oil Search shares.

  100. I was aware that interactions with the State Solicitor were
  being managed by the legal team of
  Norton Rose Fulbright and Pacific Legal Group. I, at all times,
  followed and acted in accordance
  with the advice provided to me by Pacific Legal Group, Norton
  Rose Fulbright and the State
  Solicitor about what sign-offs were necessary in order to get
  the necessary approvals for the
  proposed arrangement.

  101. Prior to the State committing to any agreement UBS needed to
  make arrangements in respect to
  buy some Oil Search shares. This was because under the collar
  loan UBS would be holding the
  shares and therefore needed to buy shares in order to build a
  delta hedge and put a book together.
  Even though there was no legal obligation by the State yet, UBS
  needed to build up a hedge, at
  their own risk, so that if the agreement did go ahead they
  would have the necessary hedges in
  place to manage the collar loan.

  102. I understood that in order for the deal to go ahead it would
  be necessary for the State Solicitor to
  sign a certificate of necessity which stated that the written
  agreements reflected the commercial
  agreement that had been struck between the parties and IPBC
  would need to provide board
  approval.

  Findings of Facts Page 51

  103. I was also conscious that once the terms had been agreed
  between Oil Search and the structuring
  had been finalised with UBS it would then be necessary to go to
  Cabinet for Cabinet to decide
  whether the State would complete the determination to purchase
  the shares on the terms offered.
  I was then involved in preparing the cabinet submissions, with
  the help of the team of advisers
  that I had assisting me with this.

• Page 168 of 475

• 104. At this time I was the Acting Secretary of Treasury. The
  Deputy Secretary at that time was
  Andrew Yauieb, and he was the only other person who was also
  applying to be appointed
  permanently to the position of Secretary.

  105. UBS AG through their lawyers and Oil Search through their
  lawyers and we through Norton Rose
  Fulbright had all the necessary documents drawn up for the
  transaction. This was so the
  necessary documents drawn up for the transaction. This was so
  the entire transaction could first
  perused and cleared or otherwise by the State Solicitor and
  also so the entire transaction terms
  and conditions were in final form to go before NEC to make a
  decision.

  106. At all material times, and by all persons involved it was
  known that there would be no
  transaction unless and until it was approved and agreed to be
  NEC.

  107. On 5 March 2014, the State Solicitor providing copies of the
  loan transaction documents and
  seeking his advice on them. The State Solicitor was aware the
  matter was to go to Cabinet on 6
  March 2014.

  108. On 5 March 2014, the State Solicitor issued his first letter
  of advice in relation to the proposal.

  109. The State Solicitor advised me to proceed to cabinet for its
  approval on the documents to be
  considered, taking into account the advice he had given, and
  that I should facilitate all statutory
  and administrative approval made necessary should NEC determine
  the transaction should go
  ahead.

  110. I had then been advised by Norton Rose Fulbright and by
  Ashurts that all processes had been and
  were being followed in accordance with S209 of the Constitution
  and the respective legislation
  that provides the mechanics for S209.

  111. I had not retained Pacific Legal group; Norton Rose
  Fulbright had retained them to assist with
  local processes.

  112. On 5 March 2014 I had had dinner with the then Treasurer,
  Don Polye who indicated that he was
  uncomfortable with signing off of the deal. I explained why it
  was considered it to be in the best

• Page 169 of 475

• interests of the State. He said words to the effect that he
  wanted the loan to be through a State
  owned entity, specifically Petromin, rather than it being held
  by the State.

  113. I explained to him that usually there is an equity
  cushioning which is needed in order to secure
  borrowings. As the State was the only entity that could get an
  equity cushion, it was the only
  entity that could secure the $300 million bridge loan.
  Therefore I advised him that it was not
  possible in the first instance for a State owned entity
  Petromin or IPBC to secure the loan but
  that it could be transferred to them at a later time, but
  within the financial year.

  114. I recall that the Treasurer also said words to the effect
  that, he was concerned that the loan
  would be in breach of debt to GDP ratios. I explained to them
  that this could only be determined
  at the end of the 2014 financial year and that there were
  provisions to correct any such issues in
  the 12 month period after the end of the financial year.
  Nonetheless the Treasurer was explicit
  that he wanted the transaction off the balance sheets. This was
  simply impossible. I did not think
  that Petromin was an inappropriate entity to hold the loan but
  as I have noted above I did not
  believe that it would have been able to secure the loan and
  then transfer it to Petromin. UBS had
  made it quite clear to me that they would not loan directly to
  Petromin in relation to the bridging
  loan.

  NEC Meeting and Decision 6 March 2014

  115. On 6 March 2014, the NEC met in relation to the purchase of
  the Oil Search shares. I attended
  this meeting. A lengthy Cabinet Submission was made containing
  details of the entire IPIC Bond
  and the genesis of the proposal to buy Oil Search shares and
  the use of UBS AG as Financier, as
  well as consultants. The fact was that ―time was of the
  essence‖ because it was a commercial
  transaction was also covered at length. The Written Submission
  covered every necessary point
  [NEC Submission No 67/2014 marked ―F‖].

  116. I presented the purchase of the Oil Search shares in a
  neutral format as it was for NEC to decide
  whether the State was to purchase the Oil Search shares and I
  was aware of the sensitivities of my

  Findings of Facts Page 52

• Page 170 of 475

• own Minister being uncomfortable with the proposal. I advised
  them how the deal would be
  structures if NEC were to approve the purchase the shares and
  the consequences to the State if
  NEC chose not to approve the purchase of the shares.

  117. At the meeting Minister Polye argued against the purchase of
  the shares by the State.

  118. NEC noted the transaction documents, approved Petromin as
  the eventual subscriber but that
  the State would be the initial subscriber, noted the
  certificate of correctness from the State
  Solicitor and confirmed the authority of the Minister for
  Treasury to finalise any documents that
  were not included in the NEC submission prior to submission of
  the transaction documents to
  the Head of State for Execution.

  119. NEC then approved to advise the Head of State to approve the
  borrowing for the purchase of
  shares and to execute the transaction documents for the State.

  120. NEC also approved to advise the Minister for Treasury to
  sign such documents, instruments and
  certificates as the transaction required. He was not given the
  discretion to refuse to sign by NEC.
  It was a NEC decision to go ahead with the transaction and he
  was to implement parts of that
  decision.

  121. NEC noted other approvals were required from other State
  Agencies and endorsed all of them
  including but not limited to a Certificate of Inexpediency be
  issued by CSTB, an authority to pre-
  commit by the Secretary for Finance and a certificate by the
  Secretary for Treasury certifying
  deed by NPCP, and the payment direction by IPBC.

  122. This approval by NEC was specifically to cover any processes
  that had to occur either before or
  after the decision by NEC so that the transaction could
  proceed in a commercial time frame.

  123. The distribution list of NEC Decision No. 79/2014 included
  the Minister for Justice and Attorney-
  General, the Minister for Treasury, the Minister for Finance,
  the Departments of Finance,
  Treasury, Justice & Attorney-General, IPBC, the State
  Solicitor, BPNG, NCPC and Petromin. [See
  NEC Decision No. 79/2014 marked ―G‖].

• Page 171 of 475

• Implementation of NEC Decision No 79/2014

  124. It is incumbent on those on the Distribution List to
  implement and give effect to the Decision of
  NEC as far as their respective offices and powers allow.

  125. There was no contact or representation by the Minister for
  Justice and Attorney-General Kerenga
  Kua at any state to me before or after the NEC meeting that he
  was unhappy or in opposition to
  anything that had been determined or of any of the procedures
  and processes that were being
  followed. He was completely silent.

  126. It is only at the time he was removed from his position as
  Minister and Attorney-General on 18
  June 2014 for an unrelated reason that he started making
  complaints about any of the processes
  involved in the transaction.

  127. Subsequent to NEC approval I sent a letter to the Treasurer
  which attached the relevant
  documents to be executed by him. I also had a discussion with
  Mr Polye about the State
  Solicitor‘s letter dated 5 March 2014. He said words to the
  effect that he wanted further advice
  from the State Solicitor and in particular who was to sign off
  on the loan documents.

  128. Also on 6 March 2014, pursuant to and for the purposes of
  implementing the NEC decision, I
  wrote to the Central Supply Tenders Board and requested that a
  Certificate of Inexpediency for
  the retainer of services for Pacific Legal Group, Pacific
  Capital Group, UBS, Ashurst, Norton Rose
  Fulbright and KPMG.

  129. On 8 March 2014, I was requested by Minister Polye to obtain
  a further letter of advice from the
  State Solicitor about the loan sign offs.

  130. I had a lot of difficulty locating the State Solicitor as he
  had been in Singapore at this time. I was
  not able to locate him until about 1 am on 9 March 2014 at
  which time he gave me a second letter
  of advice about sign-off. I contacted the Treasurer
  immediately on receiving the letter from the
  State Solicitor and he advised me to give it to his First
  Secretary. I made arrangements to meet the
  First Secretary in a car park and handed him a copy of the
  State Solicitor‘s letter. At the same
  time, he provided me with a copy of a letter from the
  Treasurer dated 9 March 2014, which was
  clearly postdated. In that letter the Treasurer advised me

• Page 172 of 475

• that he would not be signing off on the
  arrangement.

  Findings of Facts Page 53

  131. I recall that on 9 March 2014 I met the Prime Minister just
  as he was preparing to fly out of Port
  Moresby and had him sign the NEC minutes approving the
  arrangement. I then made
  arrangements to see Minister Polye n=on the next Monday to have
  him sign the necessary
  documents.

  132. At this time I also requested that IPBC calling a meeting to
  discuss the issues, though I did not
  give a direction as to what should be done at that meeting, in
  accordance with NEC decision No.
  79/2014.

  133. It was only after the NEC approved the transaction that the
  UBS engagement letters were signed.
  It was always understood that the arrangement was subject to
  NEC approval and therefore it was
  only upon NEC approval that the other aspects of the deal could
  proceed.

  134. After the NEC decision, the Secretary of Finance, in
  accordance with and for the purposes of
  implement the NEC decision, gave his approvals as did the
  Attorney-General.

  135. On 10 March 2014, I took the relevant documents for the
  Treasurer to sign, but despite the NEC
  decision of 6 March 2014 he refused. I rang the Prime Minister
  and said to him words to the effect
  that Minister Polye would not sign the necessary documents. Not
  only is the Prime Minister the
  Prime Minister – he is also the Chairman of NEC, whose decision
  it was incumbent upon me to
  implement. He told me he would speak to Minister Polye by
  telephone. I understand from my
  presence in his office that the Prime Minister called him and
  they had a discussion about the
  signing the documents and reminded him NEC had approved the
  transaction on 6 March 2014.
  Minister Polye still refused to sign to documents. Shortly
  after the Prime Minister called me again
  and I said to the Prime Minister words to the effect of, the
  Treasurer won‘t sign. I recall that the
  Prime Minister said to me words to the effect of, go back into
  the Treasurer and try again. I again
  asked Minister Polye to sign the documents and he said words to

• Page 173 of 475

• the effect of that he would not
  sign and that they can sack him if they wish and he wouldn‘t
  change his mind.

  136. The Prime Minister called me again shortly thereafter, I
  believe after he had again spoken to the
  Treasurer, and said words to the effect that the deal wouldn‘t
  go ahead and asked me to go and
  approach UBS and talk about what fees would be payable for
  breaking the arrangement. The
  Prime Minister told me words to the effect that the State
  should try and get out of the
  transaction and then he would sack Minister Polye as he was
  causing instability in the
  government.

  137. As I was trying to reach UBS by telephone, the Prime
  Minister called me back and told me that
  Minister Polye had been decommissioned. I recalled that I then
  went in and spoke to the
  Treasurer to see if was okay and he told me that no longer
  being Treasurer would allow him to
  spend more time focussing his efforts on being Chairman of the
  World Bank and IMF. I told him
  words to the effect of, I assumed that he would also lose these
  positions now that he was no
  longer Treasurer. He then became quite upset.

  138. On Minister Polye being decommissioned, the Prime Minister
  replaced Mr Polye as Minister of
  Treasury and this was formally gazetted by National Gazette on
  10 March 2014.

  139. On 12 March 2014, the Prime Minister in his capacity now as
  Treasurer signed the relevant
  documents on behalf of the State.

  140. On 12 March 2014 the transaction documents were signed by
  the Head of State with Carl Okuk as
  witness.

  141. It is not a requirement of law that the witness be a
  commissioner of oath, just that the witness be
  over 18 and of sound mind. The effect of Carl Okuk affixing a
  stamp saying commissioner for
  oaths on the agreement/documents has no effect on the
  agreement/documents whatsoever.

  12 March 2014 – Transaction Completes.

  142. The transaction of the purchase of the Oil Search shares and
  the UBS loan was completed on 12
  March 2014.

• Page 174 of 475

• 143. Oil Search Limited is listed on the Australian Stock
  Exchange and the Australian Stock Exchange
  was notified on 12 March 2014 by Oil Search Limited on
  accordance with the Rules of the
  Australian Stock Exchange that the completion of share
  placement of 149,390,244 fully paid
  ordinary shares to the Independent State of Papua New Guinea
  had occurred that day. This
  notification, announcement and information are publicly
  available on the Australian Stock
  Exchange Website. Notice by Oil Search to the Public
  announcement dated placed on the
  Australian Stock Exchange register that the completion of Share
  Placement to the government of
  Papua New Guinea had occurred. New Issue Announcement Form
  lodged with the Australian

  Findings of Facts Page 54

  Stock Exchange on 12 March 2014. Compushare document showing
  the State‘s ownership of the
  shares. [Documents marked ―H‖].

  Ombudsman Commission Investigation

  144. On 14 March 2014 the Ombudsman Commission determined to
  investigate into the conduct of
  those leaders involved with the loan and the transaction with
  regards to its jurisdiction under
  Section 27 of the Constitution being the leadership code.

  145. Also on 14 March 2014, the Ombudsman Commission issued a
  notice of the leadership
  investigation and further issued numerous directives to stop
  work on the UBS loan. The
  Ombudsman Commission had not realized that the deal had
  actually been finalized. All
  documentation has been provided to the OC on the loan and
  transaction and now it is a current
  investigation into the deal that has been done. There was
  nothing left for the direction to stop.
  [See Ombudsman Commission Notice and Directives dated 14 March
  2014 marked ―T‖].

  146. Don Polye MP then filed proceeding numbered OS142 of 2014 to
  seek declaratory orders in the
  National Court that the loan was non-compliant with Section 209
  of the Constitution and ought
  to be declared void, and further that he be re-instated as
  Minister for Treasury.

  147. On 8 May 2014, the National Court dismissed Don Polye‘s
  proceedings on the basis that they

• Page 175 of 475

• were an abuse of process in that he was seeking to quash a
  decision of the National Executive
  Council and he had failed an ordinary OS proceeding instead of
  a Judicial Review. The National
  Court also made the factual findings however that the loan
  transaction had been completed and
  that there was nothing left for the Ombudsman Commission
  directives dated 14 March 2014 left
  to stop. [See decision of the National Court dated 8 May 2014
  marked ―J‖].

  Supreme Court Application Pursuant to Section 18(1) Constitution
  to challenge the UBS loan

  148. On 19 May 2014 Don Ploye filed a Supreme Court Application
  pursuant to Section 18(1)
  Constitution to challenge the UBS loan being SCOS No. 4 of 2014
  [See SCCOS No.4/2014 marked
  ―K‖].

  149. He is seeking that the Supreme Court declare that

  a) The executive actions of the Prime Minister and the NEC in
  borrowing $1.239 million from
  UBS to purchase 10.1% interest without parliamentary approval
  were unconstitutional and
  invalid.

  b) That the loan agreement is illegal and unenforceable against
  the State.

  150. This application before the Supreme Court is still on foot
  and the matter is sub judice.

  151. The Ombudsman Commission should not make any findings at all
  until the Supreme Court has
  dealt with this matter.

  152. An interest payment was due on the UBS loan on 16 May 2014.
  To be certain that I would not be
  in breach of the Directives of the Ombudsman Commission,
  notwithstanding the decision of the
  National Court, I wrote to Ombudsman Commission on 14 May 2014
  to advise that I would be
  making the interest payment due under the binding loan
  documents. [See letter to the
  Ombudsman Commission dated 14 May 2014 marked ―L‖].

  153. I explained to the Ombudsman Commission that to not make
  such interest payments would place
  the government and the people of Papua New Guinea in a very bad
  situation. Papua New Guinea
  has not defaulted on a loan since Independence.

• Page 176 of 475

• 154. I explained that the OSH Shareholding is an extremely
  valuable asset of the State. Based on the
  closing Australian Stock Exchange trading price for Oil Search
  Limited on 30 April 2014 of $8.89
  per share, the OSH Shareholding has a value of $1.33 billion
  (Australian dollars), which is the Kina
  equivalent of K3.24 billion.

  155. Norton Rose Fulbright had received a letter from the legal
  advisors to UBS, being Ashurst
  Lawyers, highlighting the implications of non-payment of
  interest payments. I enclosed such
  letter with the letter to the Ombudsman Commission.

  156. The State had then obtained advice about possible
  implications of default by the State in
  repayment of the UBS Loan, under a letter from the Australian
  legal advisers to the State, Norton
  Rose Fulbright addressed to myself as Secretary for Treasury. I
  enclosed also a copy of the letter
  from Norton Rose Fulbright to the letter to the Ombudsman
  Commission.

  Findings of Facts Page 55

  157. I further explained to the Ombudsman Commission that under
  the UBS Loan, the State is
  required to make periodic interest payments. If the State is
  prevented from making those
  payments, the State will be in default, and UBS will have the
  right to commence enforcement
  processes without further notification to the State. The
  enforcement processes without further
  notification to the State. The enforcement process could result
  in the loss by the State of its OSH
  Shareholding. This could lead to substantial financial and
  strategic disadvantages to the State
  because it would lose the opportunity to benefit from holding
  those shares.

  158. A default under the UBS Loan would 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 ADB, typically include cross default
  provisions. A default under the UBS
  Loan is likely to trigger cross defaults under such other
  arrangements which could have
  significant adverse implications for the economic development
  of the State and its people, and
  could adversely affect the sovereign credit ratings of the
  State. An associated perception by
  international capital markets of an increase in sovereign risk

• Page 177 of 475

• would likely have significant adverse
  implications for the value of the Kina, and the ability and the
  ability and cost of the State and its
  subsidiaries to borrow from banks and international investors.

  159. I therefore advised the Ombudsman Commission that the State
  would therefore be making
  interest payments in accordance with the loan agreement, given
  the factual findings of the
  National Court and the advice from Norton Rose Fulbright, in
  light of the very serious
  consequences for Papua New Guinea of default.

  160. I received a letter back from the Ombudsman Commission dated
  May 2014 stated that they were
  an independent body and that they were not subject to direction
  by anyone including the Court,
  and that they would analyse the situation and then write back
  to me. [See letter from the
  Ombudsman Commission dated 15 May 2014 marked ―M‖].

  161. Time was of essence as there was a deadline before which the
  interest payment had to be made so
  I wrote to again to the Ombudsman Commission to further seek
  clearance for the payment and
  emphasizing the seriousness of default. [See letter to the
  Ombudsman Commission dated 15 May
  2014 marked ―N‖].

  162. I did not receive a response from the Ombudsman Commission
  so the State made the interest
  payment prior to the deadline and no default under the loan
  agreement occurred.

  163. On 26 May 2014 however I received a letter from the
  Ombudsman Commission dated 23 May
  2014 which essentially stated that they were investigating
  various alleged legal and financial
  breaches occasioned by the loan, then set out in detail what
  those alleged breaches were and then
  concluded that stated by the State could not make interest
  payments as they stated the directives
  issued 14 May 2014 effectively froze everything to do with the
  loan including interest payments.
  [See letter from the Ombudsman Commission dated 23 May 2014 but
  received by my office on 26
  May 2014 marked ―O‖].

  164. I considered the letter and obtained legal advice on such
  letter and responded by way of letter
  dated 5 June 2014, setting out in detail why each alleged legal
  breach was false and that why the
  Ombudsman Commission did not have powers to prevent the State
  from conducting its business

• Page 178 of 475

• and from complying with binding loan agreements. [See letter to
  the Ombudsman Commission
  dated 5 June 2014 marked ―P‖].

  165. I was concerned that the Ombudsman Commission may create a
  situation where the State may
  find itself in breach of a binding international loan
  agreement, when there is no legal impediment
  to the interest being paid, because the Ombudsman Commission is
  purporting to exercise powers
  it just does not possess and threatening those that are subject
  to the leadership code with being
  charged with breaches if they comply with the State‘s legal
  obligations under the loan agreement.
  I therefore thought we should seek a judicial review of the
  decision of the Ombudsman
  Commission to not allow interest payments to be made pursuant
  to the loan agreement with UBS.

  166. I had expressed my concerns to the Prime Minister and we
  concluded that we need to seek
  protection for the State from the Courts against what we
  perceived as illogical and harmful
  directions given by the Ombudsman Commission that we believed
  also that were beyond the
  powers of the Ombudsman Commission and tantamount to giving an
  injunction.

  167. On 6 June 2014 the Prime Minister and I filed a Judicial
  Review of the decision of the
  Ombudsman Commission to issue directions restraining any
  dealings between the parties to the
  UBS/Oil Search transactions, in particular restraining any
  payments, being OS 383 of 2014.

  168. On 10 June 2014, the Prime Minister and I were granted leave
  for Judicial Review.

  Findings of Facts Page 56

  169. On 11 June 2014, the Directions of the Ombudsman Commission,
  particularly those that
  restrained any payment of interest by the State to UBS AG were
  stayed by the National Court and
  the State was free to make interest payments.

  170. On 3 December 2014, the National Court in OS383 of 2014
  determined to refer questions as to the
  nature and scope of the Ombudsman Commission to issue
  directions pursuant to Section 27(4) of
  the Constitution; consequently the Judicial Review is stayed
  pending the Supreme Court Hearing

• Page 179 of 475

• and Determination of the Constitutional Questions.

  171. This report and investigation should be halted pending the
  hearing and determination of SCC OS
  NO. 4 of 2014, as the issue of the validity of the Loan is sub
  judice the Supreme Court.

  Comments

  The Ombudsman Commission in its deliberations on Mr Vele‘s response
  was considered the
  points raised and noted.

  It was noted that on 19 July, Justice Catherine Davani of the
  National Court made reference
  to the Supreme Court under SCR No: 5 of 2016, eleven (11) questions
  pertaining to whether
  the OC had the jurisdiction to investigate the PM and whether or not
  the issuing of the
  OLOC Provisional Report ultra vires the power of the Ombudsman
  Commission.

  In his submissions to the National and Supreme Courts, the Prime
  Minister‘s Lawyers
  stated that the Ombudsman Commission lacked jurisdiction over the
  Office of the Prime
  Minister and the Prime Minister himself. Hence, the Ombudsman
  Commission‘s
  investigation into the conduct of the Prime Minister, Hon Peter
  O‘Neill, CMG, MP and the
  subsequent publishing of the Provisional Report were ultra virus and
  unconstitutional.

  However, on 6 October 2017, the Supreme Court dismissed the Supreme
  Court Reference
  SCR No: 5 of 2016 and conclusively determined that the Office of the
  Prime Minister does
  fall within the OLOC functions of the Ombudsman Commission.
  Therefore, the
  Ombudsman Commission did conduct its investigations in accordance
  with the OLOC and
  that it can publish its Provisional and Final Reports on the
  investigation.

  [7] STATE SOLICITOR‘S ADVICE ON THE WHOLE OF UBS AG
  TRANSACTION

  On 5 March 2014, Mr Vele wrote to Mr Rolpagarea and stated that the
  documents related
  to a proposed transaction whereby the State entered into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd and
  requested for his legal

• Page 180 of 475

• clearance. The draft loan transaction documents and draft NEC Policy
  Submission and
  other related documents were delivered to Mr Rolpagarea by Pacific
  Legal Group Lawyers,
  purportedly engaged by Mr Vele very late at night.

  On even date, Mr Rolpagarea wrote to Mr Vele and requested
  confirmation and clear
  instructions from him regarding the engagement of Pacific Legal
  Group Lawyer to act on
  behalf of the DoT as the legal firm had drafted an NEC Policy Paper
  that proposed for the
  State to enter into financial arrangements to fund the acquisition
  by the State of
  149,390,244 shares in Oil Search Ltd. Below is an extract:

  FINANCIAL ACCOMMODATION FOR THE INDEPENDENT STATE OF PAPUA NEW
  GUINEA (The State)

  I refer to your letter dated 5th March 2014 on the above.

  Findings of Facts Page 57

  Your letter makes reference to documents relating to the proposed
  transaction (transaction
  documents) whereby the State will enter into financial
  arrangements to fund the acquisition
  by the State of 149,390,244 shares in Oil Search Limited. These
  documents were delivered to
  my office this morning by way of personal service by Pacific
  Legal Group Lawyers upon your
  instructions. Your letter referred to above and delivered later
  during the day requests my
  urgent consideration of these documents and issuance of the legal
  clearance of National
  Executive Council‘s (NEC) consideration.

  I noted from the documents that Norton Rose Fulbright and Pacific
  Legal Group Lawyers
  are the State lawyers engaged and instructed through your office
  in relation to the above
  subject. I also noted that the following transaction documents
  listed below were negotiated
  and finalised between the State‘s lawyers and respective parties.
  These documents are;

  1. Specific Security Deed between the State and UBS Nominees Pty
  Ltd ABN 32 001 450
  522.

  2. Bridge Facility Agreement between the State and UBS AG,

• Page 181 of 475

• Australia Branch and UBS
  Nominees Pty Ltd.

  3. Participants Sponsorship Agreement between the State and UBS
  Nominees Pty Ltd
  and UBS Securities Australia Limited.

  4. Payment Direction Deed between the State and the National
  Petroleum Company of
  PNG (Kroton) Limited, Papua New Guinea Liquefied Natural Gas
  Global Company
  LDC and UBS AG, Australia Branch.

  5. Security Trust Deed between the State and UBS Nominees Pty
  Ltd.

  6. Nominee Deed between the State and UBS AG, Australia Branch,
  UBS Nominees Pty
  Ltd and UBS Securities Australia Limited.

  7. Specific Security Deed (CHESS Securities-Collar) between the
  State and UBS AG,
  Australia Branch ABN 47 088 129 613.

  8. Subscription Agreement between the State and Oil Search
  Limited.

  I have gone through the above listed documents within the
  permitted time today and
  despite the lack of explanatory notes, I have formed the view
  that the terms of these
  agreements are a reflection of the State‘s negotiated position
  based on your instructions
  taking into account the State‘s intentions and as such are
  acceptable to the State.

  There are also other documents forming part of the transaction
  documents and listed below:

  1. Advice to Governor-General

  2. Verification Certificate from the State to UBS AG, Australia
  Branch

  3. Minutes of a meeting of the Board of Directors of IPBC

  4. Resolution In Lieu of Meeting of shareholders pursuant to
  Sections 103, 89 and 110 of
  the Companies Act 1997

  5. Minutes of a meeting of the Board of directors of National
  Petroleum Company of
  PNG (Kroton) Limited held at Port Moresby with no specific
  dates

• Page 182 of 475

• 6. Power of Attorney from the National Petroleum Company of PNG
  (Kroton) Limited
  (the Grantor) and

  7. Letter from Norton Rose Fulbright to the Independent State of
  PNG, care of the
  Acting Secretary of Treasury, Mr Dairi Vele, March 2014.

  Findings of Facts Page 58

  I have read that these documents listed immediately above are yet
  to be signed and/or
  approved by the respective individuals or company boards. Please
  facilitate such
  signatures/or board meetings.

  I have read the NEC Decision and noted the background information
  particularly the State‘s
  intention to acquire a 10.01% interest in Oil Search.

  I have also noted the recommendations and make the following
  comments;

  1. The recommendations should include clearly the fact that the
  State and NPCP will
  direct all PNG LNG equity cash flows to be paid to UBS to be
  applied to prepayment
  of the bridge loan. I am aware that the Organic Law on the
  Sovereign Wealth Fund
  provides that all revenue from the PNG LNG Project will flow
  into the Sovereign
  Wealth Fund. This is stated in paragraph (c) ii on Page 5 of
  the NEC submission but
  not included in the recommendations. This in my view is a
  Major decision to be taken
  by the State‘s lead agency in this regard and may take a
  decision.

  2. Some or if not most of the recommendations to NEC for
  approvals require
  approvals/authorizations specifically from the State‘s
  relevant agencies acting
  independently/pursuant to their respective laws but of course
  taking into
  consideration the Government/NEC Decision. I therefore advise
  that the relevant
  approvals be sought from the State‘s relevant agencies after
  NEC consideration and
  approval of the financing transaction.

• Page 183 of 475

• 3. I must also advise that section 209 of the PNG Constitution
  also requires that
  Parliament‘s approval be obtained for these Bridge and Collar
  loans which total up to
  A$1.225 Billion through the budgetary process. I am sure you
  are aware of this
  constitutional requirement and further advise that you take
  appropriate steps to
  facilitate this process.

  4. Note that I make no comments in relation to the amounts and
  percentage of fees in
  relation to the transaction as these are within your expertise
  to do so including the
  debt to equity ratio under the Loans (Overseas Borrowings) No.
  2 Act and the
  requirements under the Papua New Guinea Fiscal Responsibility
  Act.

  You may proceed to NEC with the documents to be considered taking
  into account my
  foregoing advice.

  Please note that after the NEC approval of the Transaction
  documents, I will then prepare an
  advice to the Head of State advising him to execute the
  transaction documents. As such, I
  request that you provide to me the NEC Decision as soon as the
  decision is signed by the
  Chairman (Prime Minister).

  On even date, Mr Rolpagarea also noted that most of the documents
  were yet to be signed
  and/or approved by the respective individuals or Company Boards and
  that Section 209 of
  Constitution was not complied with by the NEC.

  On 7 March 2014, Mr Vele wrote to Mr Rolpagarea and requested as a
  matter of importance
  and urgency for the legal clearance to be issued on the State‘s
  borrowing of loan
  arrangements.

  On 9 March 2014, Mr Rolpagarea responded to Mr Vele and reiterated
  his advice in his
  letter of 5 March 2014. Below is an extract:

  (1) I have confirmed and advise that the authorised person to
  execute loan agreements on
  behalf of the State is the Minister for Treasury per Section 2(7)
  of the Loans (Overseas
  Borrowing) (No.2) Act 1976. As such the Minister for Treasury
  will have to execute the
  transaction documents.

• Page 184 of 475

• Findings of Facts Page 59

  (2) I have raised matters that needed to be seriously considered
  in my letter of 5th March 2014
  after briefly perusing the NEC submission submitted to me also on
  the 5th March 2014 and
  brought to NEC‘s attention in its special meeting No.08/2014 and
  affirm those comments. I
  make particular mention again of the requirement to comply with
  Section 209 of the
  Constitution.

  (3) As alluded to in my letter, transaction documents were
  prepared, negotiated and
  confirmed by the external lawyers instructed through Department
  of Treasury taking into
  consideration the Government‘s intentions including the terms
  contained in the
  transaction documents. These intentions are reflected in the
  transaction documents and
  hence accepted by the NEC in its special meeting No.08/2014.

  (4) As it is commercially urgent for parties to execute the
  transaction documents, you may
  now proceed to organise for the Minister for Treasury to execute
  the transaction
  documents on behalf of the State.

  On even date, Mr Rolpagarea advised Mr Vele that the Minister for
  Treasury was
  authorised to execute Loan Agreements on behalf of the State and
  that Section 209 of the
  Constitution should have been complied with and the State should not
  have engaged external
  lawyers to prepare a NEC submission.

  In light of the above advice Mr Vele should have organised for the
  Minister for Treasury to
  execute the Transaction Documents.

  On 10 March 2014, Mr Rolpagarea wrote to the GGPNG and advised him
  that all
  documentations relating to the borrowing of loan were in order and
  that Mr Vele was
  satisfied with the Terms of the Transaction Documents.

  On 12 March 2014, Mr Naime wrote to Mr Rolpagarea and advised him on
  the CSTB‘s
  endorsement on the issuance of the COI and awarding of the contract
  to both local and
  international firms to facilitate the borrowing of the UBS AG Loan

• Page 185 of 475

• during its Meeting No:
  M-03/14 on 7 March 2014 and sort clearance on the matter. Below is
  an extract of the letter:

  This contract was endorsed by the Board at its Meeting No M-03/14
  held on Friday 07th
  March 2014. The Board approved the award of the contract to both
  PNG and International
  Consulting firms.

  PNG Consultants

  1. Pacific Legal Group Lawyers
  2. Pacific Capital Ltd (PNG)

  The fees to cover the cost is up to an APC Limit K9,000,000.00

  International Consultants

  1. UBS AG Australia Branch
  2. Ashurst Lawyers
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees for the above Consultants is up to a limit of AU
  $14,555,759.00.

  The Board understands that the state will finance the cost of the
  Local Consultants whilst
  the cost of the overseas Consultants will be paid from the UBS
  loan components.

  Attached is also a copy of the Board‘s decision with the
  Authority to Pre-Commit
  International for ease of reference.

  Findings of Facts Page 60

  *Note that the APC for the PNG component together with Finance
  Secretary‘s cover letter
  have been processed and will be released as soon as signed by the
  financial delegate.

  On 20 March 2014, Mr Rolpagarea wrote to Mr Naime and advised him of
  his legal opinion
  on the request for the issuance of Legal Clearance – CSTB COI 02/04.
  An extract of the
  letter is set out below:

  1. I refer to your letter and enclosures of 12th March, 2014
  requesting legal clearance for the
  subject matter.
  BACKGROUND

• Page 186 of 475

• 2. The National Executive Council (‗NEC‘) approved in its Decision
  No. 79/2014 the
  transaction for the purchase of shares in Oil Search Limited with
  funds obtained under a
  UBS loan. Amongst others, NEC approved the engagement of
  financial, legal and technical
  Consultants within PNG and internationally.

  3. Due to the urgency of the matter, Consultants were engaged to
  provide services without
  complying with the procurement process under the Public Finance
  (Management) Act
  1995 (‗PNG‘).

  4. In a letter dated 6th March 2014, Acting Secretary for the
  Department of Treasury
  (―Treasury‖), Mr Dairi Vele sought approval from the Central
  Supply and Tenders Board
  (‗CSTB‘) for a Certificate of Inexpediency (‗COI‘) for the
  payment of services for the
  following Consultants:
  PNG Consultants to a total value of K9 million

  (i) Pacific Legal Group Lawyers
  (ii) Pacific Capacity Limited

  International Consultants to a total value of AU$14,555,759.00

  (i) UBS AG Australian Branch
  (ii) Ashurst Lawyers
  (iii) Norton Rose Fulbright of Australia
  (iv) KMPG

  5. The CSTB convened on 7th March 2014 to consider the request from
  Treasury and approved
  the issuance of the COI subject to clearance from my Office.

  6. Having noted your request and the relevant documents pertaining
  to it, I now provide my
  advice on the following issues.

  Questions and Short Answer
  7. The questions and Short Answers are as follows:

  Q1: Whether a COI can be issued for the engagement of the
  Consultants (financial, legal
  and technical)?

  A1: No

  Q2: Whether CSTB has the power to approve retrospectively the
  payment of service for
  the engagement of the Consultants?

• Page 187 of 475

• A2: No

  Reasons

  Certificate of Inexpediency

  Findings of Facts Page 61

  8. I note that the National Executive Council in Decision No.
  79/2014, amongst other things,
  endorsed the issuance of a COI for the captioned engagements.
  However, such issuance of a
  COI is subject to the relevant provisions of the PFMA and
  Financial Instructions.

  9. Section 40(3)(b) of the PFMA empowers CSTB to certify that the
  inviting of tenders is
  impractical or inexpedient. Part 13, Division 4.14 of the
  Financial Instructions limits the
  issuance of a COI to the following declared situations:

  (a) Natural Disaster; or
  (b) Defence Emergency; or
  (c) Health Emergency; or
  (d) Civil Unrest

  10. Furthermore, part 13, Division 4.13 of the Financial
  Instructions further provides that a COI
  cannot be issued to retrospectively cover a contract that has
  been performed. The
  principles of retrospectively will only apply if it is expressed
  in a law.

  In light of the above, the circumstances in this case do not
  warrant the issuance of a COI. I
  have noted that an Authority to Pre-Commit Funds has been issued
  and CSTB has also
  approved as requested by Secretary for the Department of
  Treasury. This shows approval
  for such engagement, however such approval came after the task
  was completed. All the
  arrangements obtain the requisite approvals should have been
  obtained prior to the
  engagement of the Consultants to be compensated for the work
  already carried out. This
  can be done on a Quantum Meruit basis.

  Quantum Meruit

  11. Quantum Meruit is an equitable principle which provides for the

• Page 188 of 475

• reasonable payment for
  the actual value of work that is done. The Courts held in the
  case of Fly River Provincial
  Government v Pioneer Health Services [2003] SC705 that where work
  has been performed
  on a contract not procured through the PFMA process, the party
  that has performed the
  work may obtain restitution under equity to avoid unjust
  enrichment by the other party to
  whom work has been performed for.

  12. You would note that the work carried out is a commercial
  transaction which requires
  significant effort. Treasury was involved from the beginning with
  the Consultants until the
  tasks were completed. Therefore Treasury would be better placed
  to work out the
  remuneration based on the principle of Quantum Meruit. This means
  the Consultants will
  not be paid as per the initial amount agreed to, but for work
  done taking into account the
  nature of the transaction.

  Attorney-General Approval

  13. Section 8(4) of the Attorney-General Act 1989 provides:

  ―On matters affecting the conduct of the business of the State
  where legal issues arise or
  might arise, legal advice shall be provided by the Attorney-
  General, either in his capacity as
  principal legal adviser to the National Executive or under
  Subsection (2) or (3) to the
  exclusion of all other lawyers unless the Attorney-General, in
  his absolute discretion,
  authorizes the giving of legal advice by any other person.‖

  It is based on approval by the Attorney-General that legal
  services can be sought by
  government agencies from private firms both within PNG or
  internationally.

  14. In the given circumstances, the engagement and payment of legal
  services from private
  firms must be done in consultation with the Attorney-General.
  Payment for the provision
  of legal services should be made on a Quantum Meruit basis
  provided the State is fully
  satisfied with the services rendered. Treasury would in this case
  be in a position to make an
  assessment of the amount to be paid.

  Findings of Facts Page 62

• Page 189 of 475

• 15. I suggest that the prior to payment for legal services,
  Treasury should seek an audience
  with the Attorney-General as the person authorized by law to brief
  out to private law firms
  for the provision.

  16. Treasury should seek an audience with the Attorney-General as
  the person authorized by
  law to brief out to private law firms for the provision of legal
  services to the State.

  Way Forward

  17. Provided that a COI is not justified in these circumstances,
  Treasury and the Central Bank
  may consider paying for the services rendered by the Consultants
  on a Quantum Meruit
  basis as discussed above. In addition, the payment for legal
  services should be done in
  consultation with the Attorney-General.

  Yours sincerely

  (signed)
  Daniel Rolpagarea
  State Solicitor

  Comments

  It is noted that the State Solicitor, Mr Rolpagarea was not involved
  in the initial loan
  negotiations, nor was he involved in the preparation of the various
  UBS AG Loan
  Transaction Documents. He is a member of the CSTB but he was not
  aware and hence was
  not present at the CSTB Meeting that approved the issuance of the
  COI for the engagement
  of the Consultants.

  Mr Rolpagarea was served the 28 volumes of documents that included a
  draft NEC Policy
  Submission, unsigned Transaction Documents and other related
  documents by Pacific Legal
  Group Lawyers upon Mr Vele‘s instructions at 12 midnight on the eve
  of the NEC Special
  Meeting scheduled for 6 March 2014 and was not given enough time to
  thoroughly read
  through those documents in order to give his legal clearance. He
  noted that the Transaction
  Documents lacked explanatory notes to assist him.

  Given the urgency of the matter, Mr Rolpagarea advised among other

• Page 190 of 475

• matters that Section
  209 of the Constitution also requires that Parliament‘s approval be
  obtained for these Bridge
  and Collar Loans which total up to AU$1.239 Billion through the
  Budgetary process and
  that Mr Vele take appropriate steps to facilitate this
  constitutional requirement.

  Mr Rolpagarea was aware that the State‘s borrowing was very
  excessive and that it would
  have an impact on the country‘s Budget and the Debt to Gross
  Domestic Production ratio.
  However, he accepted that the terms of the agreements was a
  reflection of the State‘s
  negotiated position based on Mr Vele‘s instructions taking into
  account the State‘s
  intentions and hence he advised Mr Vele to proceed to NEC with the
  documents to be
  considered taking into account the advice he had given. As noted
  earlier, Mr Vele did not
  adhere to his advice nor did he inform the NEC of the State
  Solicitor‘s advice on the
  constitutional requirement for Parliamentary approval.

  Findings of Facts Page 63

  [8] NEC DECISION TO PURCHASE SHARES IN OIL SEARCH LIMITED

  On 23 February 2014, during a meeting in the Grand Papua Hotel with
  Mr Vele, Mr Botten
  and Mr Aopi, the Prime Minister committed the State to purchase new
  shares in Oil Search
  Ltd which was formalised in his letter dated 26 February 2014 to Mr
  Botten.

  On 25 February 2014, trading in the Australian Stock Exchange of Oil
  Search Ltd shares was
  halted ahead of its announcement of issuing shares to existing
  Shareholders and interested
  buyers.

  On 26 February 2014, the Prime Minister wrote to Mr Botten and
  advised him of the State‘s
  desire and willingness to participate in the Placement in order to
  form a long term

• Page 191 of 475

• investment in Oil Search Ltd with a view to further strengthening
  the State and Oil Search
  Ltd‘s relationship. A draft Announcement to the share market was
  attached to his letter to
  Mr Botten.

  On 27 February 2014, Oil Search Ltd shares trading were suspended
  ahead of its
  announcement in the Australian Stock Exchange.

  On even date, Oil Search Ltd announced that it had agreed to acquire
  a 22.835% gross
  interest in PRL 15 (Elk/Antelope) from the PacLNG Group of Companies
  for US$900
  million funded through a placement of new shares to the State. The
  State and Oil Search Ltd
  reached an agreement under which the State was issued 149.39 million
  shares in Oil Search
  Ltd at AU$8.20 per share.

  On 5 March 2014, Mr Vele wrote to Mr Rolpagarea and stated that the
  documents related
  to a proposed transaction whereby the State entered into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd and
  requested for his legal
  clearance. The draft loan transaction documents and draft NEC Policy
  Submission and
  other related documents were delivered to Mr Rolpagarea by Pacific
  Legal Group Lawyers,
  purportedly engaged by Mr Vele very late at night.

  On even date, Mr Rolpagarea requested Mr Vele to confirm and give
  clear instructions on
  the engagement of Norton Rose Fulbright and Pacific Legal Group
  Lawyers to act on behalf
  of the DoT as the legal firm had drafted a NEC Policy Submission No:
  67/2014 that was
  presented to the NEC. Below is an extract:

  I refer to your letter dated 5th March 2014 on the above.

  Your letter makes reference to documents relating to the proposed
  transaction (transaction
  documents) whereby the State will enter into financial
  arrangements to fund the acquisition
  by the State of 149,390,244 shares in Oil Search Limited. These
  documents were delivered to
  my office this morning by way of personal service by Pacific Legal
  Group Lawyers upon your
  instructions. Your letter referred to above and delivered later
  during the day requests my
  urgent consideration of these documents and issuance of the legal
  clearance of National

• Page 192 of 475

• Executive Council‘s (NEC) consideration.

  I noted from the documents that Norton Rose Fulbright and Pacific
  Legal Group Lawyers
  are the State lawyers engaged and instructed through your office
  in relation to the above
  subject. I also noted that the following transaction documents
  listed below were negotiated
  and finalised between the State‘s lawyers and respective parties.
  These documents are;

  1. Specific Security Deed between the State and UBS Nominees Pty
  Ltd ABN 32 001 450
  522.

  Findings of Facts Page 64

  2. Bridge Facility Agreement between the State and UBS AG,
  Australia Branch and UBS
  Nominees Pty Ltd.

  3. Participants Sponsorship Agreement between the State and UBS
  Nominees Pty Ltd
  and UBS Securities Australia Limited.

  4. Payment Direction Deed between the State and the National
  Petroleum Company of
  PNG (Kroton) Limited, Papua New Guinea Liquefied Natural Gas
  Global Company
  LDC and UBS AG, Australia Branch.

  5. Security Trust Deed between the State and UBS Nominees Pty
  Ltd.

  6. Nominee Deed between the State and UBS AG, Australia Branch,
  UBS Nominees Pty
  Ltd and UBS Securities Australia Limited.

  7. Specific Security Deed (CHESS Securities-Collar) between the
  State and UBS AG,
  Australia Branch ABN 47 088 129 613.

  8. Subscription Agreement between the State and Oil Search
  Limited.

  I have gone through the above listed documents within the
  permitted time today and
  despite the lack of explanatory notes, I have formed the view
  that the terms of these
  agreements are a reflection of the State‘s negotiated position
  based on your instructions
  taking into account the State‘s intentions and as such are
  acceptable to the State.

• Page 193 of 475

• There are also other documents forming part of the transaction
  documents and listed below
  as:

  1. Advice to Governor-General

  2. Verification Certificate from the State to UBS AG, Australia
  Branch

  3. Minutes of a meeting of the Board of Directors of IPBC

  4. Resolution In Lieu of Meeting of shareholders pursuant to
  Sections 103, 89 and 110 of
  the Companies Act 1997

  5. Minutes of a meeting of the Board of directors of National
  Petroleum Company of
  PNG (Kroton) Limited held at Port Moresby with no specific
  dates

  6. Power of Attorney from the National Petroleum Company of PNG
  (Kroton) Limited
  (the Grantor) and

  7. Letter from Norton Rose Fulbright to the Independent State of
  PNG, care of the
  Acting Secretary of Treasury, Mr Dairi Vele, March 2014.

  I have read that these documents listed immediately above are yet
  to be signed and/or
  approved by the respective individuals or company boards. Please
  facilitate such
  signatures/or board meetings.

  I have read the NEC Decision and noted the background information
  particularly the State‘s
  intention to acquire a 10.01% interest in Oil Search.

  I have also noted the recommendations and make the following
  comments;

  1. The recommendations should include clearly the fact that the
  State and NPCP will
  direct all PNG LNG equity cash flows to be paid to UBS to be
  applied to prepayment
  of the bridge loan. I am aware that the Organic Law on the
  Sovereign Wealth Fund
  provides that all revenue from the PNG LNG Project will flow
  into the Sovereign
  Wealth Fund. This is stated in paragraph (c) ii on Page 5 of
  the NEC submission but
  not included in the recommendations. This in my view is a
  Major decision to be taken

• Page 194 of 475

• by the State‘s lead agency in this regard and may take a
  decision.

  Findings of Facts Page 65

  2. Some or if not most of the recommendations to NEC for
  approvals require
  approvals/authorizations specifically from the State‘s
  relevant agencies acting
  independently/pursuant to their respective laws but of course
  taking into
  consideration the Government/NEC Decision. I therefore advise
  that the relevant
  approvals be sought from the State‘s relevant agencies after
  NEC consideration and
  approval of the financing transaction.

  3. I must also advise that section 209 of the PNG Constitution
  also requires that
  Parliament‘s approval be obtained for these Bridge and Collar
  loans which total up to
  A$1.225 Billion through the budgetary process. I am sure you
  are aware of this
  constitutional requirement and further advise that you take
  appropriate steps to
  facilitate this process.

  4. Note that I make no comments in relation to the amounts and
  percentage of fees in
  relation to the transaction as these are within your expertise
  to do so including the
  debt to equity ratio under the Loans (Overseas Borrowings) No.
  2 Act and the
  requirements under the Papua New Guinea Fiscal Responsibility
  Act.

  You may proceed to NEC with the documents to be considered taking
  into account my
  foregoing advice.

  Please note that after the NEC approval of the Transaction
  documents, I will then prepare an
  advice to the Head of State advising him to execute the
  transaction documents. As such, I
  request that you provide to me the NEC Decision as soon as the
  decision is signed by the
  Chairman (Prime Minister).

  On 6 March 2014, the Prime Minister personally sponsored the NEC
  Policy Submission No:
  67/2014 NEC during its Special Meeting No: 08/2014 that made the
  Decision No: 79/2014
  where NEC:

• Page 195 of 475

• 2. noted the proposed Transaction Documents referred to in
  Schedule A (attached) and
  the transactions contemplated by them including:

  a) for the State to acquire 149,390,244 shares in Oil Search
  Limited (―Oil Search‖);

  b) for the State to borrow A$1.239 Billion from UBS AG
  (Australia Branch)
  (―UBS‖), initially comprising two facilities (a A$335
  million bridge loan facility
  and a A$904 million collar facility) (the ―Borrowing‖); and

  c) for the State to engage UBS as its Advisor on the
  financing and the acquisition
  of Oil Search shares, including that UBS implement (on
  behalf and upon the
  request of the State) a sovereign bond issue to replace the
  bridge loan, (the
  ―Transaction‖).

  3. approve to appoint Petromin PNG Holdings Limited as the
  State‘s eventual subscriber
  and nominee for this transaction;

  4. noted the receipt of certificate correctness from the State
  Solicitor in relation to the
  Transaction Documents to which the State is a party, as set
  out in Schedule E
  (attached);

  5. confirmed the authority for the Minister for Treasury to agree
  and finalize on behalf
  of the State any of the terms of the Transaction Documents
  referred to in this
  submission which for reasons of commercial sensitivity or
  otherwise, are not set out in
  this submission or its attachments, prior to the submission of
  the Transaction
  Documents to the Head of State for execution on behalf of the
  State;

  6. approve to advise the Head of State (without limiting the
  authority of any other
  person as may be authorized to do so on behalf of the State)
  to:

  Findings of Facts Page 66

  (a) approve the Borrowing for the purpose of the purchase of
  shares in Oil Search

• Page 196 of 475

• and for the purpose of meeting the expenses of the Borrowing
  and for the
  services of the State, to agree with UBS the manner and the
  terms and
  conditions of that Borrowing, pursuant to section 2(1) of
  the Loans (Overseas
  Borrowing) No.2 Act; and

  (b) execute under his signature on behalf of the State those
  of the agreements,
  deeds and other documents to which the State Party is listed
  in Part 2 of the
  Schedule A pursuant to section 47 of the Public Finance
  (Management) Act
  1995 and are attached to the State Solicitor‘s certificate
  set out in Schedule E.
  7. approve to advise the Minister for Treasury to:

  a) issue a direction pursuant to section 2 (11) of the Loans
  (Overseas Borrowings) No. 2
  Act, that sections 13 and 14 of the Public Finance
  (Management) Act 1995 do not
  apply to the State in relation to the Borrowing;

  b) execute under his signature on behalf of the State those of
  the agreements, deeds
  and other documents to which the State is a party listed in
  Part 1 of Schedule A
  pursuant to section 2(7) of the Loans (Overseas Borrowings)
  No.2 Act and attached
  to the State Solicitor‘s certificate as set out in Schedule E;
  and

  c) authorise in writing and appoint as the State‘s Authorized
  Representative, the
  Secretary of the Department of Treasury and any other officers
  of the Department of
  Treasury as the Minister may determine and authorize each of
  them to execute any
  of the documents referred to in paragraph (b) and any
  documents as may be
  necessary to give effect to, or which are ancillary to, the
  documents referred to in
  paragraph (b), including any drawdown notice and any
  certificates.

  And

• Page 197 of 475

• 8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and Tenders
  Board under section 40(3)(b), and an authority to pre-commit
  expenditure by the
  Secretary of the Department of Finance under section 47B, of
  the Public Finance
  (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department of
  Treasury certifying that
  after the full amount of the borrowing pursuant to the
  Transaction Documents, the
  total value of overseas commercial debt which will be owed by
  the State will not
  exceed 125% of the estimated internal revenue of the State for
  the calendar year 2014
  within the meaning of section 2(3) of the Loans (Overseas
  Borrowings) No. 2 Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents by the
  National Petroleum Company of PNG (Kroton) Limited concerning
  payments from
  Papua New Guinea Liquefied natural Gas Global Company LDC,
  with the approval
  of the Minister for Finance on the recommendation of the
  Managing Director of the
  IPBC pursuant to section 46B of the Independent Public
  Business Corporation of
  Papua New Guinea Act 2002, including the documentation listed
  in Part 3 of
  Schedule A; and

  d) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to section
  110 of the Companies Act 1997.

  On 12 March 2014, Mr Gardiner of Oil Search Ltd advised that Goldman
  Sachs Financial

  Markets Pty Ltd with a Bank Account number 011-112034-041 was the

• Page 198 of 475

• recipient of the
  Subscription.

  Findings of Facts Page 67

  On even date, Oil Search Ltd announced the completion of share
  placement and file
  appendix 3B, Cleansing Notice and Completion Letter.

  On 7 July 2014, Mr Ilagi Veali, MPS, Secretary to the NEC as
  requested under the Organic
  Law on the Ombudsman Commission, provided a copy of the Attendant
  Sheet of the NEC
  Special Meeting No: 08/2014 held on 6 March 2014. Listed below are
  Ministers who were
  present:
  1. Hon Peter O‘Neill, Prime Minister
  2. Hon Leo Dion, Deputy Prime Minister and Minister for Inter-
  Government Relations
  3. Hon Don Polye, Minister for Treasury
  4. Hon Ben Micah, Minister for State Enterprise and State
  Investments
  5. Hon Ano Pala, Minister for Transport
  6. Hon Rimbink Pato, Minister for Foreign Affairs and Immigrations
  7. Hon Puka Temu, Minister for Public Services
  8. Hon Loujaya Kouza, Minister for Religion, Youth and Community
  Development
  9. Hon Fabian Pok, Minister for Defence
  10. Hon Nick Kuman, Minister for Education
  11. Hon James Marape, Minister for Finance
  12. Hon Nixon Duban, Minister for Petroleum and Energy
  13. Hon Richard Maru, Minister for Commerce, Trade and Industry
  14. Hon Michael Malabag, Minister for Health and HIV/AIDS
  15. Hon Mao Zeming, Minister for Fisheries and Marine Resources
  16. Hon Steven Pirika Kama, Minister Bougainville Affairs
  17. Hon Benny Allen, Minister for Lands and Physical Planning
  18. Hon Charles Abel, Minister for Planning
  19. Hon Davis Steven, Minister for Civil Aviation

  And below is the list of Ministers who were absent during this NEC
  Special Meeting No:
  08/2014:
  1. Hon Patrick Pruaitch, Minister for Forest and Climate Change
  2. Hon Tommy Tomscoll, Minister for Agriculture and Livestock
  3. Hon John Pundari, Minister for Environment and Conservation
  4. Hon Delilah Gore, Minister for Higher Education
  5. Hon Kerenga Kua, Attorney-General
  6. Hon Paul Isikiel, Minister for Housing and Urban Development
  7. Hon Boka Kondra, Minister for Culture and Tourism
  8. Hon Justin Tkatchencko, Minister for Sports and Pacific Games

• Page 199 of 475

• 9. Hon Mark Maipakai, Minister for Labour and Industrial Relations
  10. Hon Robert Atiyafa, Minister for Police

  Findings of Facts Page 68

  11. Hon Jim Simatab, Minister for Correctional Services
  12. Hon Jimmy Miringtoro, Minister for Communication and
  Information
  13. Hon Byron Chan, Minister for Mining
  14. Hon Francis Awesa, Minister for Works and Implementation

  Comments

  The Commission‘s investigation revealed that the Prime Minister was
  personally involved in
  the negotiations with Oil Search Ltd where he committed the State to
  the purchase of
  shares in Oil Search Ltd to the value AU$1.239 Billion at the
  subscription price of AU$8.20
  per share. He followed this up with a letter to MD of UBS, Mr Fowler
  regarding the
  proposal for UBS AG to provide funding facilities to the State for
  the purchase of the new
  Oil Search shares.

  Based on the commitment made by the Prime Minister, Oil Search Ltd
  proceeded to
  suspend trading and made an announcement (which had been approved by
  the PM) in the
  Australian Stock Exchange regarding their acquisition of 22.835%
  gross interest in PRL 15
  Elk/Antelope Project from PacLNG Group of Companies for US$900
  million to be funded
  through a placement of new shares to the State.

  It is also noted that the Prime Minister then personally sponsored
  the NEC Policy
  Submission on this matter to the NEC and not Hon Polye, then
  Treasury Minister who was
  also present at the NEC meeting that made the decision for the State
  to purchase shares in
  Oil Search Ltd.

  It was also revealed that the entire NEC was not present to
  deliberate on the NEC Policy
  Submission No: 67/2014 and there was no proper discussion on the
  same. The Commission
  notes that 14 out of 33 Ministers were not present in the NEC
  Special Meeting No: 08/2014
  amongst them, the Attorney-General who is the Principal Legal
  Advisor to the NEC.

  Mr Vele was the only Technical Official invited to address the NEC

• Page 200 of 475

• on the NEC Policy
  Submission for obvious reasons as he was personally involved in the
  whole transaction
  without the involvement of appropriate officers from the DoT.

  The buying of shares in a speculative market by the Government using
  huge Loans from a
  financial institution is highly inappropriate as it defeats the
  whole purpose of the
  government. That is, the Government was created by the people
  through their elected
  representatives to serve their needs by regulating and facilitating
  service delivery and not to
  take out huge Loans for the purpose of purchasing shares.

  The State had options available and these options should have been
  properly assessed and a
  strategic decision made after consultation conducted with all
  relevant authorities including
  BPNG, Treasury and appropriate State Owned Enterprises (SOEs).

  For instance, the State had the option to directly invest in the
  Elk/Antelope gas fields in the
  Gulf of Papua, instead of buying shares in Oil Search Ltd and
  indirectly participating in the
  Elk/Antelope project through its purchase of shares in Oil Search
  Ltd which was irregular.

  It appears the State helped Oil Search Ltd to acquire a 22.835%
  interest in PRL 15
  (Elk/Antelope) from PacLNG Group of Companies through funding given
  for it‘s purchase
  of new shares in Oil Search Ltd as alluded to in Oil Search
  announcement to the Australian
  Findings of Facts Page 69

  Stock Exchange. It is noted that under the Oil and Gas Act the State
  will be expected at
  some stage to take up its mandatory 22.5% interest in the same Elk/
  Antelope project and
  will require funding for that purpose.

  The State is part and partial of the Oil and Gas and Mineral
  exploration and operations in
  the country and that it will always benefit directly from Elk/
  Antelope project through its
  mandatory acquisition of 22.5% of interest under the Oil and Gas
  Act. This opportunity will
  arise in due course of time and the State will require funding for
  that purpose.

  However, the Prime Minister informed the people of Papua New Guinea
  that the State and

• Page 201 of 475

• the nation would benefit from the strategic move from the dividends
  gained from Oil Search
  Ltd and the LNG revenues.

  It is also noted that the NEC Policy Submission No: 67/2014 by the
  Prime Minister ignored
  the State Solicitor‘s advise that a loan of such magnitude should
  have been debated on and
  approved by the Parliament through the Budgetary process as it would
  have a large impact
  on the country‘s debt.

  The NEC Policy Submission No: 67/2014 and subsequent NEC Decision
  No: 79/2014
  improperly imposed obligations/liabilities on SOEs (ie Petromin and
  NPCP) without prior
  consultation with such entities on their capacity to take on
  additional liabilities arising
  from the UBS Loan transaction. It is noted also that the Draft Board
  Minutes and
  Resolutions for these SOEs were also prepared and formed part of the
  Transaction
  Documents for NEC approval, thereby pre-empting the SOE Board‘s
  decision and
  resolutions.

  It is noted that NEC also endorsed the issuance of COI to waiver
  tender by CSTB for the
  engagement of Consultants which was not proper and in direct breach
  of the requirements
  of Section 40(3)(b) of the Public Finance (Management) Act 1995 and
  Part 13, Division 4, Clauses
  13 and 14 of the Finance Management Manual.

  The NEC Decision No: 79/2014, Clause 2 (a), (b) and (c) stated that
  the NEC effectively
  approved the engagement of UBS AG as the lender of the Loan to
  purchase 149,390,244
  shares in Oil Search Ltd and also as Financial Advisor for the State
  and as the Implementer.
  It was evident that the Prime Minister had placed the NEC in an
  awkward position that
  consented and compromised it‘s position in terms of obtaining
  independent financial advise
  on the UBS Loan transaction.

  The Prime Minister should have known that the decision was not in
  the best interest of the
  people and hence should have taken all necessary measures to
  adequately and properly
  address the borrowing of UBS Loan in line with the PNG Fiscal
  Responsibility Act 2006 and
  Loans (Overseas Borrowing) (No. 2) Act (Chapter 133A).

• Page 202 of 475

• Therefore, it is apparent that the Prime Minister may have misled
  the NEC and the public
  on the borrowing of UBS AG AU$1.239 Billion Loan which was for the
  benefit of Oil Search
  Ltd to thwart the imminent take-over by IPIC of Abu Dhabi and to
  provide funding to Oil
  Search Ltd through purchase of shares in Oil Search Ltd to acquire
  22.835% interest in PRL
  15 Elk/Antelope from PacLNG Group of Companies.

  Findings of Facts Page 70

  [9] HON DON POLYE MP DECOMMISSIONED AS MINISTER FOR TREASURY

  On 27 January 2014, Minister Polye wrote to Mr Bakani and requested
  for a full brief on the
  implementation of the NEC Decision No: 479/2013 regarding the
  refinancing of IPIC
  Exchangeable Bond.

  On 6 March 2014, the NEC through its Decision No: 79/2014 shifted
  its intentions from
  borrowing a loan to re-finance the IPIC Exchangeable Bond to the
  borrowing of a Loan from
  UBS AG to purchase new shares in Oil Search Ltd.

  On even date, Mr Vele wrote to Minister Polye and advised that the
  Loan would not affect
  the State‘s debt program and that Petromin was the subscriber and
  nominee and then
  issued draft directions to the Minister for Treasury and his
  Authorization document to sign.
  Below is an extract from the letter:

  • You are then required to (in accordance with approval No.4)
  advise the Head of State
  (without limiting the authority of any other person as may be
  authorized to do so on behalf
  of the State) to:

  (a) approve the borrowing for purposes of purchase of the shares
  in Oil Search and for
  purposes of meeting the expenses of the borrowing and for the
  services of the State,
  and to agree with UBS the manner and the terms and the
  conditions that Borrowing,
  pursuant to Section 2(1) of the Loan (Overseas Borrowing) No.2
  Act; and

  (b) Execute under his signature on behalf of the State those of

• Page 203 of 475

• the agreements, deeds
  and other documents to which the State is party listed in Part
  2 of the Schedule A
  pursuant to Section 47 of the Public Finance (Management) Act
  1995.

  (c) These attached documents then allow for you to (in
  accordance with approval
  No.05) to:

  • Issue a direction pursuant to Section 2(11) of the Loans
  (Overseas Borrowings) No.2 Act
  that Section 13 and 14 of the Public Finance (Management) Act
  1995 do not apply to the
  State in relation to the borrowing.

  • Execute under his signature on behalf of the State those of the
  agreements, deeds and other
  documents to which the State is a party listed in Part 1 of
  Schedule A pursuant to Section
  2(7) of the Loan (Overseas Borrowing) No.2 Act.

  • Once these documents are executed, the documents related to the
  Governor-General will
  be presented to him for execution also. Please let me know if
  there are any further queries.

  On 9 March 2014, Minister Polye wrote back to Mr Vele and advised
  that he was not
  prepared to commit the State with a total of K6 Billion debt this
  fiscal year and that the
  proposed loan should have been debated on the floor of Parliament
  subject to Section 209 of
  the Constitution. He added that the borrowing itself breached the
  Papua New Guinea Fiscal
  Responsibility Act 2006 and that revenue from the LNG project will
  not be deposited in the
  Sovereign Wealth Fund, but will go into servicing the UBS AG Loan.

  On 10 March 2014, the Prime Minister through his mobile telephone
  number No. 73777777
  texted Minister Polye on his mobile telephone No. 70812280 the
  following message below:

  Don, I tried to call you but no response. I wish to inform you
  that I waited for you to carry
  out your responsibilities as directed by NEC without success. I
  am disappointed that cabinet
  solidarity has been undermined by your action and national
  interest including business
  confidence will be affected by your action. Therefore I have no
  alternative but to
  decommission you as Minister today. Thank you for your
  contribution in the last two years

• Page 204 of 475

• as treasurer. Peter
  Findings of Facts Page 71

  On even date, Minister Polye responded and texted back to the Prime
  Minister the
  following message below:

  PM. Bro. I was getting advice from Gov, BPNG n Treasury in the
  treasury conference room
  when you called….you are the Pm and you make decisions and you
  have just made one. ….I
  was applying CONSERVATIVE CONSCIENCE on this very bad deal I
  thought might
  destroy PNGs economy….but you decided otherwise…May Gods will
  be done!!!

  On even date, the Instrument of Determination of responsibilities of
  Ministers was
  executed decommissioning Mr Polye as Minister for Treasury and
  allowing the Prime
  Minister to assume the title of Minister for Treasury and assumed
  the responsibility for
  Treasury portfolio.

  On 28 April 2014, then Minister Polye wrote to Hon Theodore Zurenuoc
  MP, the Speaker of
  Parliament and reiterated that the GoPNG‘s borrowing of AU$1.239
  Billion Loan from UBS
  AG to purchase shares in Oil Search Ltd was bad.

  Comments

  Then Minister for Treasury, Mr Polye was not involved in the
  negotiations with Oil Search
  Ltd and UBS AG on the purchase of shares with funding from UBS AG
  nor was he involved
  in the preparation of the NEC Policy Submission to approve the UBS
  Loan to purchase the
  Oil Search shares. The Prime Minister and Acting Secretary for
  Treasury, Mr Vele took
  carriage of these matters.

  Then Minister Polye highlighted several issues he stated that should
  have been addressed
  and corrective measures taken in accordance with the relevant laws.
  For instance, Section
  209 of the Constitution should have been complied with for
  Parliamentary approval through
  the Budgetary process as the magnitude of the UBS AG Loan would rise
  over the country‘s
  debt ceiling of 125% as stipulated in Section 3 of the Loans
  (Overseas Borrowing) (No.2) Act
  (Chapter 133A).

• Page 205 of 475

• Section 209 of the Constitution states:

  1. Notwithstanding anything in this Constitution, the raising and
  expenditure of
  finance by the National Government, including the imposition
  of taxation and the
  raising of loans, is subject to authorization and control by
  the Parliament, and shall be
  regulated by an Act of the Parliament.

  2. For each fiscal year, there shall be a National Budget
  comprising–

  (a) estimates of finance proposed to be raised and estimates
  of proposed
  expenditure by the National Government in respect of the
  fiscal year; and

  (b) separate appropriations for the service of that year in
  respect of–

  (i) the services of the Parliament; and

  (ii) general public services; and

  (iii) the services of the Judiciary; and

  (c) such other supplementary Budgets and appropriations as are
  necessary.

  Findings of Facts Page 72

  Section 3 of the Loans (Overseas Borrowing) (No.2) Act 1976(Chapter
  133A) states:

  3. The sums which may be borrowed under Subsection (1) shall be
  such that the total
  value of overseas commercial debt which will be owed by the
  State after any
  borrowing shall not exceed 125% of the estimated internal
  revenue for the year in
  which the borrowing takes place except only as a result of any
  bridge financing and
  subject to Subsection 2(b).

  It seems that the borrowing of AU$1.239 Billion from UBS AG breached
  Section 3 of the
  Loans (Overseas Borrowing) (No.2) Act 1976 (Chapter 133A) and

• Page 206 of 475

• Section 4(c) of the Papua New
  Guinea Fiscal Responsibility Act 2006.

  Section 4(c) of the Papua New Guinea Fiscal Responsibility Act 2006
  states:

  4. Principles for sound fiscal management
  The principles for the sound fiscal management and implementation
  of the Government‘s
  Budgets are that:

  (d) Government will not raise the overall level of debt during
  its term;

  The UBS AG Loan exceeded the State‘s Gross Domestic Product to Debt
  ratio threshold of
  35%. Hence, the Papua New Guinea Fiscal Responsibility Act 2006
  being an Act to promote
  economic and financial transparency and accountability in the
  interests of a stable
  macroeconomic environment may not have been complied with.

  The borrowing exceeded the 125% of total value of overseas
  commercial debt to the
  estimated internal revenue for the Fiscal Year 2014 thereby
  breaching Section 2(3) of the
  Loans (Overseas Borrowing ) (No.2) Act (Chapter 133A).

  Hence, then Minister Polye‘s assertion that the borrowing was an
  unplanned activity and
  was not appropriated in the 2014 budget was correct and the
  borrowing breached the
  Appropriation Act 2014.

  The Commission‘s investigation revealed the following:

  1. That there was no wide consultation with relevant Government
  Agencies that
  included the BPNG. In fact the BPNG was only made aware that
  there was a list of
  potential financiers for the IPIC Exchangeable Bond and that it
  was required to
  evaluate the proposals.

  2. That there was no public tender by the State through its
  relevant agencies, including
  the CSTB to seek out the best and affordable financier to
  provide the loan to the
  State to buy shares in Oil Search Limited, thereby effectively
  owning 10.01% stake in
  Oil Search Ltd.

• Page 207 of 475

• 3. That the Prime Minister addressed the issue as an extension of
  the IPIC loan and the
  buyback of the Exchangeable Bond. When in fact the issue was
  whether or not the
  GoPNG should buy new shares in Oil Search Ltd.

  Findings of Facts Page 73

  According to the Prime Minister, then Minister Polye was part of the
  NEC Special Meeting
  No: 79/2014 that approved for the loan.

  However, evidence indicated that even though Hon Polye was present
  in the Special NEC
  Meeting No: 79/2014, he voiced his opposition and was against the
  NEC submission to
  approve for the purchase of shares in Oil Search Ltd.

  The Commission‘s investigation also indicated that when Hon Polye
  refused to sign the
  Payment Direction Deed and other instruments on the drawdown of the
  UBS AG Loan, he
  was decommissioned as Minister for Treasury by the Prime Minister
  who then assumed the
  responsibility of Minister for Treasury and signed the Transaction
  Documents for the draw-
  down of the UBS AG Loan.

  [10] INVOLVEMENT OF INDEPENDENT PUBLIC BUSINESS CORPORATION

  On 6 March 2014, the NEC in its Special Meeting No: 8/2014, Decision
  No: 79/2014,
  Clauses3 and 8(c) and (d), specifically stated that the IPBC to
  recommend to the Minister
  for Finance to approve the NPCP to execute the Payment Direction
  Deed to enable GloCo
  to forward all the proceeds from the PNG LNG project to UBS AG
  (Singapore). Below is an
  extract.

  3. approve to appoint Petromin PNG Holdings Limited as the State‘s
  eventual subscriber and
  nominee for this transaction;

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

• Page 208 of 475

• c) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B of
  the Independent
  Public Business Corporation of Papua New Guinea Act 2002,
  including the
  documentation listed in Part 3 of Schedule A; and

  d) approval of the payment direction to in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1997.

  On 7 March 2014, the Prime Minister informed IPBC of the GoPNG‘s
  decision to enter into
  the UBS AG Loan Agreement.

  On even date, the Prime Minister‘s Chief of Staff, Amb Isaac Lupari
  wrote to Mr Kumarasiri
  and advised that the NEC on 6 March 2014 resolved to approve the
  State to enter into
  certain borrowing arrangements with UBS AG in order to fund its
  acquisition of shares in
  Oil Search Ltd.

  On even date, Minister Micah wrote to the IPBC Board of Directors
  and directed the IPBC
  Board to approve the Payment Direction Deed and any other necessary
  documents. Below is
  an extract:

  the State, NPCP and UBS under which NPCP will instruct and direct
  Papua New Guinea
  Liquefied Natural Gas Global Company LDC (GloCo) to pay all
  payments, distributions or
  Findings of Facts Page 74

  other property (including by management or other fee, interest on
  shareholder loans,
  dividend, return of capital, repayment or redemption) that are
  payable to NPCP and UBS,
  including (but without limitation) exceptions for (1) funds
  necessary to support NPCP‘s
  ongoing cash call requirements for the PNG LNG project and (2) a
  pro rata portion of such
  proceeds from GloCo relevant to the PNG LNG Project area under the
  Umbrella Benefits

• Page 209 of 475

• Sharing Agreement when the option is exercised. Funds from this
  bank account will be
  applied to repay and prepay amounts owing under the borrowing
  arrangements (the
  Payment Direction). The State is required to procure that NPCP
  sign the Payment Direction
  on or before 9 March 2014.

  The Minister directs the Board and management of IPBC to urgent
  take all actions necessary
  to:

  approve NPCP entering into the Payment Direction and any documents
  as shall be necessary
  or ancillary to give effect to the Payment Direction or to satisfy
  the conditions precedent to
  funding under the borrowing arrangements (including, without
  limitation, passing any
  necessary resolutions of the Board or management of IPBC, passing
  any necessary resolutions
  of the shareholders of NPCP and directing NPCP and directing NPCP
  itself to enter into the
  Payment Direction to be entered into by National Petroleum Company
  PNG (Kroton)
  Limited (‖NPCP‖), Independent State of Papua New Guinea and UBS
  AG, Australia Branch
  (―UBS‖)

  (a) …As part of the arrangements, the Stat is required to
  procure that NPCP enter into
  a payment direction deed between Payment Direction); and

  (b) authorise any director, attorney or authorise representative
  of IPBC and NPCP (as
  applicable) to sign the documents referred to in paragraph
  (a) and to provide any
  necessary evidence and certifications to UBS in relation to
  the approvals referred
  to in paragraph (a), including any specimen signatures of any
  person that signs the
  Payment Direction),

  so that NPCP may sign the Payment Direction on or before 9 March
  2014.

  On 8 March 2014, Mr Vele sent an electronic mail to Dr Webster, then
  IPBC Chairman and
  Board Members and urging them to progress considerations of the
  matters with the IPBC
  Board on the State‘s acquisition of shares in Oil Search Ltd. The
  attachments in the
  electronic mail are as follows:

• Page 210 of 475

• 1. IPBC Board briefing pack – Memo with explanation of transaction
  and payment Direction
  2. Draft Payment Direction Deed
  3. IPBC Shareholder Approval of Payment Direction
  4. IPBC Board Approval
  5. NPCP Board Resolution for Payment Directions
  6. Power of Attorney

  On even date, Mr Kumarasiri issued the following directives to Mr
  Frank Kramer, the
  Chairman of NPCP:

  1. The National Petroleum Company of Papua New Guinea (Kroton)
  Limited as the Primary
  Party to the transaction in line with the 8. (c) of the NEC
  decision, on payment directions,
  NPCP Board has to pass a resolution immediately that covers the
  transaction and payment
  directives, special board resolution. Also recognize that to
  effect the transaction and
  payment directives, the resolution will require:

  Findings of Facts Page 75

  a. Section 110 Companies Act, Shareholder approval for Major
  Transactions

  b. IPBC ACT sec. 46 as it is over K1M and also unbudgeted
  transaction.

  2. Once the NPCP Board has completed its resolutions, NPCP
  Management should make an
  urgent submission to IPBC along with the documents prepared by A/
  Secretary Treasury to
  seeking:

  a. Section 46 approval

  b. Companies Act 110, Shareholder Resolution as the shareholder
  of NPCP

  3. Upon receipt of the above, IPBC Board to consider the above two
  requirements in a timely
  manner.

  …Please arrange your Board Resolutions urgently to facilitate
  the State‘s objective per the
  NEC Decision. I will forward you a copy of the Board Pack
  prepared by Dairi Vele for your
  information which will assist to fast tract this urgent initiate

• Page 211 of 475

• by the State.

  IPBC Management team waiting ready to take the matter to IPBC
  Board after NPCP Board‘s
  actions.

  On 9 March 2014, Mr Erastus Kamburi the Chief Legal Officer to the
  IPBC sent an
  electronic mail to the Chairman and Directors of IPBC and requested
  them to meet at the
  IPBC Board Room at 9:30am on Monday 10 March 2014. This was to
  discuss the Circular
  Resolutions and Explanatory Notes in relation to the directives from
  Minister Micah, Amb
  Isaac Lupari and the NEC Decision No: 79/2014.

  On even date, Mr Kumarasiri wrote to Hon James Marape, MP, Minister
  for Finance and
  requested his approval of the Memorandum of Approval to enable NPCP
  to enter into the
  Transaction Documents.

  On 10 March 2014, Mr Kumarasiri certified the Circular Resolution of
  the Board of
  Directors for IPBC that authorised the execution of the Payment
  Direction Deed by NPCP.
  On even date, Mr Kumarasiri also wrote a memorandum of
  recommendation that
  recommended for Minister Marape‘s approval that authorised NPCP to
  enter into the
  Transaction Documents.

  On 11 March 2014, Mr Kamburi wrote an inter-office memorandum to Mr
  Kumarasiri and
  advised that the Certificate did not include the Shareholder
  Resolution which was signed
  and hence he sent an amended and verified certificate for Mr
  Kumarasiri‘s signature.

  Comments

  The NEC changed its intentions from refinancing of the IPIC loan to
  purchasing of new
  shares in Oil Search Ltd and approved Petromin as the State‘s
  eventual subscriber and
  nominee for the loan transaction. However, in his letter to the IPBC
  Board, Minister Micah
  directed and instructed Dr Webster, Mr Kumarasiri and the IPBC Board
  that the NPCP was
  to enter into the Payment Direction on or before 9 March 2014.

  Minister Micah‘s letter and his directions contained therein were in
  direct breach of Section
  59 of the Independent Public Business Corporation of Papua New

• Page 212 of 475

• Guinea Act 2002. This particular
  Section prevented the Ministers or any Members of Parliament or
  Members of Provincial or
  Local-level Government influencing the Board and Management
  functions. Hence, Minister
  Micah had no authority to issue directives or instructions to the
  SOEs Managements and

  Findings of Facts Page 76

  Boards. The actions of the Minister Micah were seen as
  asserting political influence on the
  IPBC Board and Management.

  In addition, Minister Micah failed to present a report to
  Parliament regarding his directions to IPBC and that of Mr
  Vele and Amb Isaac Lupari as required by Section 59 of the
  to IPBC and that of Mr Vele and Amb Isaac Lupari as required
  by Section 59 of the
  Independent Public Business Corporation of Papua New Guinea
  Act 2002.

  Section 59 of the Independent Public Business Corporation of
  Papua New Guinea Act 2002 states:
  :

  59. POLITICAL INFLUENCE.

  (1) No Minister, member of the National Parliament or any
  member of a Provincial or
  Local-level Government may seek to direct or influence
  the exercise by a Director of
  his or her duties, powers or judgments or any Board
  decision other than through a
  written communication that is tabled concurrently in
  the National Parliament if it is
  in session or otherwise with the Speaker of the
  National Parliament (who shall table
  any such communications in the National Parliament at
  the next opportunity).

  (2) A Director who receives any representations made by or
  on behalf of such persons
  shall record the fact of, and the content of, such
  representations at the next Board
  meeting and table copies of any written communications
  containing such
  representations at the Board meeting and with the
  Speaker of the National Parliament
  within seven days of receipt.

  The actions of Amb Isaac Lupari to issue instructions to Mr

• Page 213 of 475

• Kumarasiri were also improper
  as he had no authority to issue such instructions.

  Mr Vele‘s actions were also improper when he issued
  directives and instructions to the
  IPBC Chairman and Board members regarding documents they were
  to consider on State‘s
  acquisition of shares in Oil Search Ltd as he had no
  authority to issue such directives and
  instructions.

  It is also noted that Mr Vele had already contemplated the
  decision of IPBC Board and
  NPCP Board and produced the final documentation to the two
  (2) Boards to facilitate
  which included the IPBC Board briefing pack; that included a
  Memorandum with
  explanation of transaction and payment Direction, a Draft
  Payment Direction Deed, IPBC
  Shareholder Approval of Payment Direction Deed, IPBC Board
  Approval, NPCP Board
  Resolution for Payment Directions and Power of Attorney.

  The Commission‘s investigations revealed that IPBC was not
  consulted nor involved in the
  discussions to borrow the UBS AG Loan to fund the purchase of
  new shares in Oil Search
  Ltd.

  The Commission‘s investigation also revealed that
  Parliamentary approval was not sought
  on the loan arrangement and that Minister Micah and Amb Isaac
  Lupari asserted their
  political influence on the IPBC Board and Management to
  convene and implement the NEC
  Decision No: 79/2014 Clause 8(d).

  Findings of Facts Page 77

  [11] INDEPENDENT PUBLIC BUSINESS CORPORATION BOARD DECISION

  On 6 March 2014, the NEC in its Special Meeting No: 8/2014, NEC
  Decision No:79/2014,
  specifically directed under Clauses 8(c) and (d) the IPBC to
  recommend to the Minister for
  Finance to approve the NPCP to execute the Payment Direction Deed to

• Page 214 of 475

• UBS AG.

  On 9 March 2014, Mr Kumarasiri prepared an Explanatory Note to the
  Board Circular
  Resolution outlining the purpose of the Special Board Meeting and
  request the Board to
  approve to empower any director to execute on behalf of the IPBC the
  resolution in lieu of
  meeting of shareholders and recommend to the Minister for Finance
  for his approval for
  NPCP to enter into the various Agreements.

  On even date, Mr Sonk the Managing Director for NPCP, forwarded to
  Mr Kumarasiri an
  Extract of Minutes of a Meeting of the Board of Directors that
  contained the resolutions
  that authorised the NPCP to effect the Payment Direction Deed and
  appoint members of
  Management as holders of Power of Attorney to execute the Payment
  Direction Deed and
  the executed copy of the Payment Direction Deed which became
  effective upon the IPBC
  approval.

  On 10 March 2014, the IPBC Board in its Special Board Meeting No:
  3/2014, noted the legal
  advice by the State Solicitor to Mr Vele and in particular the
  requirement to comply with
  Section 209 of the Constitution and further actions that were taken
  by the State to address
  the requirements and made the following resolutions as outlined
  below:

  a) That for the purpose of section 89 of the Companies Act 1997
  that the IPBC agrees to and
  concurs in the execution by the NPCP of each and every document
  referred to in the
  Schedule (the Transaction Documents) and the directors of NPCP
  are hereby authorized
  to enter into the Transaction Documents.

  b) That the transactions that subject of the Transaction Documents
  and the entry of NPCP
  into the Transaction Documents are approved by the IPBC in its
  capacity as sole
  shareholder of NPCP as a major transaction for the purpose of
  section 110 of the Companies
  Act.

  c) That any director be authorized to execute on behalf of the IPBC
  the resolution in lieu of
  meeting of shareholders under section 103 of the Companies Act by
  which IPBC, as sole
  shareholder of NPCP, gives effect to resolutions (a) and (b).

• Page 215 of 475

• d) To approve for the purpose of Section 46B(1) of the IPBC Act
  that the Managing Director
  of IPBC recommend to the Minister for Finance for approval, a
  proposal by National
  Petroleum Company of PNG (Kroton) Limited to enter into Agreement
  referred to in the
  Schedule to this document.

  On 28 March 2014, Mr Kumarasiri advised the Commission that the IPBC
  gave its approval
  for the Payment Direction Deed to be executed by the NPCP and for
  NPCP to go ahead with
  the execution of the transaction and referred the matter to the
  Minister for Finance.

  Comments

  As noted previously IPBC was not consulted nor involved in the
  discussions to borrow the
  UBS AG Loan to fund the purchase of new shares in Oil Search Ltd.

  The IPBC was aware of the State Solicitor‘s advice that Section 209
  of the Constitution must
  be complied with however it proceeded to make the decision approving
  NPCP‘s execution

  Findings of Facts Page 78

  of the Payment Direction Deed consistent with the Draft Board
  Resolution and other
  documents prepared by Mr Vele for this purpose.

  The appropriate measure that should have been followed by the IPBC
  was for the Chairman
  for IPBC Board through Minister Micah to have referred the documents
  to the Speaker of
  the Parliament for tabling in Parliament for approval of the Loan
  Transaction in accordance
  with Section 209 (Parliamentary Responsibility) of the Constitution.

  It appears that this was commercially not possible as the due date
  for the transaction to be
  finalised was to have taken place immediately within two weeks with
  the execution of the
  documents by the Prime Minister and GGPNG.

  The IPBC Board immediately convened and facilitated the NEC Decision
  which was relayed
  to them by Minister Micah and Amb Isaac Lupari, by approving for
  NPCP to execute a
  Payment Direction Deed concerning payments from PNGLNG Global

• Page 216 of 475

• Company to be
  diverted to UBS to repaying the Loan.

  As noted earlier, the IPBC Board Documents giving approval for NPCP
  to execute a
  Payment Direction Deed consistent with NEC Decision was prepared by
  Mr Vele and
  forwarded to the IPBC for this purpose pre-empting the decision of
  IPBC and the IPBC
  Board was rushed and pressured into making their decision.

  [12] INVOLVEMENT OF PETROMIN PNG HOLDINGS LIMITED

  On 6 March 2014, the NEC in Special Meeting No: 8/2014 made its
  Decision No: 79/2014
  and under Clause 3, appointed Petromin as the State‘s eventual
  subscriber and nominee for
  the transaction to acquire the shares and the liability for the
  repayment of the loan to UBS
  AG. Below is an extract.

  3. approve to appoint Petromin PNG Holdings Limited as the
  State‘s eventual subscriber
  and nominee for this transaction;

  On even date, Mr Vele advised then Minister Polye that the borrowing
  would not affect the
  State‘s debt program for the year 2014. Below is an extract:

  As you will be aware, on 6 March 2014, the National Executive
  Council (NEC) approved for
  the State to purchase 10.1% of Oil Search Limited (OSH).

  In the discussion, you raised the issue of exactly where the
  liability was going to sit, with the
  implication being that it was an unplanned borrowing that would
  affect the State‘s debt
  program over the fiscal year 2014.

  NEC then amended the recommendation to approve for Petromin
  Holdings (PNG) Limited
  (Petromin) as the eventual subscriber and nominee.

  After legal advice from the external legal counsel was that under
  the agreed structure, the
  State would conduct the borrowing in the first instance and then
  transfer both the asset and
  the liability to Petromin by no later than three months from date
  of commencement which is
  11 March 2014.

  You have also stated you preferred outcome is for Treasury to on-
  lend to Petromin. Treasury
  as the authority to agree and finalise on behalf of the State any

• Page 217 of 475

• terms of the Transaction
  Documents prior to submission to the Head of State.

  Findings of Facts Page 79

  You are then required to (in accordance with Approval No.4) advise
  the Head of State
  (without limiting the authority of any other person as may be
  authorised to do so on behalf
  of the State) to:

  1. Approve the Borrowing for the purpose of the purchase of
  shares in Oil Search and
  for the purpose of meeting the expenses of the Borrowing and
  for the services of the
  State, and to agree with UBS the manner and the terms and
  conditions of that
  borrowing, pursuant to section 2(1) of the Loans (Overseas
  Borrowings) No.2 Act;
  and

  2. Execute under his signature on behalf of the State those of
  the agreements, deeds
  and other documents to which the State is party listed in Part
  2 of Schedule A
  pursuant to section 47 of the Public Finance (Management) Act
  1995.

  These attached documents then allow for you to (in accordance with
  Approval No.5) to:

  a. issue a direction pursuant to section 2(11) of the Loans
  (Overseas Borrowings) No.2
  Act that sections 13 and 14 of the Public Finance (Management)
  Act 1995 do not
  apply to the State in relation to the Borrowing;

  b. execute under his signature on behalf of the State those of
  the agreements, deed and
  other documents to which the State is a party listed in Part 1
  of Schedule A pursuant
  to section 2(7) of the Loans (Overseas Borrowings) No.2 Act.

  Once these documents are executed, the documents related to the
  Governor-General will be
  present to him for execution also.

  Please let me know is there are any further queries.

  (signed)
  Mr Dairi Vele

• Page 218 of 475

• On 25 March 2014, Mr Basu wrote to the Commission and stated that
  Petromin was never
  involved in the transaction of the Oil Search Ltd shares, nor was it
  involved in the
  negotiation of the transaction or preparation of the related
  agreements.

  Section 4(a), (b) & (c) of the Petroleum PNG Holdings Limited
  Authorization Act 2007 outlines
  Petromin‘s role in the mineral and petroleum sector and it is
  clearly states:

  (a) to acquire from the State and from others, whether directly or
  as a nominee of the
  State, interests in mining and petroleum projects in Papua New
  Guinea;

  (b) to engage in mineral and petroleum exploration, evaluation and
  development and the
  production and recovery of any naturally occurring minerals and
  petroleum, whether
  in solid, liquid, or gaseous form or mixed together or with
  other material and
  substances, and to process, sell, or otherwise dispose of the
  same;

  (c) to engage in and carry on, in all means, transportation, in
  Papua New Guinea and any
  part of the world, of mineral and petroleum or their
  derivatives whether in solid,
  liquid, gaseous or mixed together, of with other substances,
  and to sell or dispose of
  the same

  Comments

  Petromin was established as a business arm of the Government that
  specialised in the
  mineral and petroleum sector to hold and develop mining and
  petroleum tenements in
  Papua New Guinea and either alone or with others and for that
  purpose. Hence, the NEC

  Findings of Facts Page 80

  Decision No: 79/2014 was in line with the Petromin Holding PNG
  Limited Authorization Act 2007
  in that Petromin would be the State‘s subscriber and nominee for the
  transaction.

• Page 219 of 475

• During his presenting of evidence to the Commission, Mr Kumarasiri
  furnished and
  produced Petromin‘s Balance Sheet that indicated that Petromin was
  not in a favourable
  and sound financial position to take on the Loan transaction.

  The Commission‘s investigation revealed that Petromin Holdings Ltd
  MD and Board were
  not consulted nor involved in the discussions to borrow the UBS AG
  Loan to fund the
  purchase of new shares in Oil Search Ltd.

  Therefore, it appears NEC was misled on the financial status of
  Petromin when it made the
  decision for Petromin to be the State‘s subscriber and nominee for
  the Loan transaction to
  purchase shares in Oil Search Ltd.

  [13] INVOLVEMENT OF NATIONAL PETROLEUM COMPANY OF PAPUA NEW
  GUINEA (KROTON) LIMITED

  On 3 February 2014, Minister Micah wrote to Mr Kramer and informed
  him on the progress
  on the IPIC Exchangeable Bond negotiations and the appointment of
  UBS AG.

  On even date, Minister Micah accepted the BPNG‘s recommendations and
  the NPCP‘s lead
  to re-finance IPIC Exchangeable Bond process on behalf of the State.

  On even date, the NPCP Management presented its financial position
  to the IPBC Board
  that indicated that the NPCP was financially struggling with support
  from the IPBC and
  the GoPNG through proceeds from the PNG LNG with payments from
  GloCo. Below is an
  extract:

  EXECUTIVE SUMMARY

  The National Petroleum Company of NPCP (―NPCP‖) is the State
  Nominee that holds a
  16.57% interest in the PNGLNG Project (the Project‖) the 3rd
  largest interest after Exxon
  Mobil and Oil Search. The total construction cost after the
  November 2012 US$3.3 billion
  cost increment, was revised up to US$19.4 billion. NPCP maintains
  its representation in
  regular Project meetings such as the Operating, Technical,
  Finance and Sales, Shipping &
  Marketing committee meetings and ongoing liaison with the Co-
  Venture partners.

  Following NPCP‘ revival as directed through NEC Decision 18/2013

• Page 220 of 475

• on 30 January 2013,
  separation from IPBC has progressed well culminating in the
  Separation Agreement being
  concluded in December. Additionally NPCP continued to build the
  company with
  emphasis on:

  • NPCP identity–building the NPCP identity, for example the
  design and construction
  of NPCP offices. Additionally the formal Separation Agreement
  with IPBC;

  • People–the identification of core competencies and the
  implementation of work plans
  to deliver upon these competencies (such as technical
  evaluation skills);

  • Processes–the design, construction and implementation of
  business processes such as
  Employee KPI Management; and

  • Governance–enhancing corporate governance through the
  implementation of policies,
  resolution of outstanding issues such as the 2010 Annual
  Accounts and adoption of a
  Board Manual.

  Findings of Facts Page 81

  Since its revival, the Company has had 8 (eight) Board
  meetings to steer and position itself
  for the future while the Kumul structure is being developed
  in the background. The Board
  comprising a mix of respected Papua New Guineans has played a
  significant role in guiding
  management with its immediate mandate to restore the
  Company‘s full functions while at
  the same time strategically focussing on its final landing
  place with the Kumul structure.

  This quarterly report summarises the operational and
  financial performance of NPCP as at
  the end of December 2013.

  Management Account
  1) Financial Performance
  Below is the management account for NPCP showing the Income
  Statement and Working
  Capital for the period ending and as at 31 December 2013. All
  numbers remain unaudited
  and are subject to adjustments subsequent to the date of
  release of this report:

• Page 221 of 475

• ACTUALS
  BUDGET MOVEMENT
  Revenue from Operation –
  – –

  Other Income
  Hides Gas to Electricity – Gas Sales 9,132
  6,480 2,652
  Budgetary support from IPBC – NEC Decision –
  3,600 (3600)
  Treasury Department Allocation –
  16,200 (16,200)

  ________ _______
  Total Gross Revenue 9,132
  26,280 2,652

  Operating Expenses
  Employee Benefits and expenses (4,729)
  (3,314) 1,415
  Travel expenses (264)
  (369) (104)
  Professional and consultancy services (2,146)
  (2,124) 22
  Directors‘ expenses (454)
  (360) 94
  Government Affairs expenses (8)
  8
  Other operating expenses (951)
  (1,562) (444)
  Total Operating expenses (8,553)
  (7,562) (991)
  Profit/(Loss) before tax and finance cost 579
  18,718 3,643

  Financial Position
  NPCP‘s Working Capital as at 31 December 2013 has positioned
  the Company in a Net
  Liability position. This position is mainly driven by the PNG
  LNG project cash calls which
  we are committed to contribute our share of the 16.57%. This
  project cash calls are paid
  directly on our behalf by GloCo (70% portion) and IPBC (30%)
  portion). Note that at the
  time of preparing this report we have yet to receive the PDL
  Project numbers for the month
  of December 2013. All numbers remain unaudited and are
  subject to adjustments
  subsequent to the date of release of this report:

  US$‘000
  US$‘000
  Current Assets Current

• Page 222 of 475

• Liabilities
  Cash and cash equivalents 22,153 Trade
  Creditors 9,967
  Advance cash call 14,958 Related party
  payable 1,249,185
  Prepayments 17,869 Taxes payable
  322
  Accounts Receivables 1,417 Provision for
  employment benefits 354
  Other Receivables 1,254 Other
  creditors and liabilities 78,762
  57,652
  1,338,590

  Non Current Assets Non Current
  Liabilities
  Property, plant and equipment 2,251 LTR payable
  153
  Oil and gas assets 2,823,660 Provision
  for employee benefits 359
  Inventories 18,124 Related
  party payable 2,061,667
  Investment in related party 17 Borrowings
  9,740
  2,844,052
  2,071,918

  TOTAL ASSETS 2,901,704 TOTAL
  LIABILITIES 3,410,508
  NET LIABILITIES
  508,803
  Findings of Facts
  Page 82

  On 6 March 2014, the NEC in its Special Meeting No: 8/2014 appointed
  the NPCP as the
  State‘s nominee to execute the Payment Direction Deed concerning
  payments from GloCo.
  Below is an extract.

  7. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents by
  the National Petroleum Company of PNG (Kroton) Limited
  concerning payments
  from Papua New Guinea Liquefied Natural Gas Global Company

• Page 223 of 475

• LDC, with the
  approval of the Minister for Finance on the recommendation of
  the Managing
  Director of the IPBC pursuant to section 46B of the
  Independent Public Business
  Corporation of Papua New Guinea Act 2002, including the
  documentation listed
  in Part 3 of Schedule A; and

  On 8 March 2014, Mr Kramer upon directives from Mr Kumarasiri
  submitted a proposal to
  the IPBC Board requesting its approval for NPCP to enter into the
  Payment Direction Deed.
  Below is an extract:

  The purpose of this memo is to inform the Independent Public
  Business Corporation
  (IPBC) Board of:

  • the proposed financial arrangements for an acquisition by the
  Independent State
  of Papua New Guinea (State) of 149,390,244 shares in the
  listed public company
  Oil Search Limited (Oil Search) (Transaction); and

  • the necessity of the payment direction from the National
  Petroleum Company of
  PNG (Kroton) Limited (NPCP) described below.

  A. Background to Transaction
  The Transaction involves the following:
  • the State is to obtain a 10.01% interest in Oil Search;

  • the State‘s shareholding will partially replace the IPBC
  shareholding under the
  previous exchangeable bond transaction with the International
  Petroleum
  Investment Corporation of Abu Dhabi (IPIC), which on 5 March
  2014 is
  exchanged and converts to a shareholding by IPIC in Oil
  Search, resulting in IPBC
  holding no shares in Oil Search;

  • an loan to the State of A$1.225 Billion from UBS AG (Australia
  Branch) (UBS),
  initially comprising two facilities (a A$330 million bridge
  loan facility and a A$904
  million collar loan facility), together with the engagement of
  UBS as advisers to the
  State on the acquisition of Oil Search and arranger of
  financing;

  • the bridge loan facility is intended to be refinanced as
  quickly as possible after its

• Page 224 of 475

• drawdown (by no later than 30 June 2014) and UBS, together
  with other
  international bankers as required, will be mandated to
  implement (on behalf of the
  State a sovereign bond issue (Sovereign Bond Issue)
  anticipated to be no later than
  30 June 2014 to replace the bridge loan.

  The Oil Search shares to be acquired are viewed as a strategic
  asset of the State which will
  provide benefit to the State and State-owned entities such as NPCP
  and IPBC by providing
  greater potential economic returns to the State through Oil Search
  involvement in the PNG
  LNG project.

  Background to Payment Direction

  Findings of Facts Page 83

  As part of the financing to be provided by UBS AG, Australia
  Branch (UBS) which will be
  used to fund the acquisition of shares of Oil Search;

  • UBS is the facility agent under a bridge facility of up to
  AUD330,000,000 proposed
  to be provided by UBS to the State (the Bridge Facility);

  • UBS require NPCP to enter into a payment direction deed
  between NPCP, Papua
  New Guinea Liquefied Natural Gas Global Company LDC (GloCo)
  and UBS (in its
  capacity as Facility Agent under the Bridge Facility) (Payment
  Direction);
  • Under that Payment Direction NPCP will irrevocably instruct
  and direct GloCo to
  pay all payments, distributions or other property that are
  payable to NPCP by
  GloCo instead to UBS;

  • Such proceeds are to be applied to repay and prepay amounts
  owing under the
  Bridge Facility. Such cash flows to be utilised to prepay the
  Bridge Facility to the
  extent the Bridge Facility is not previously refinanced by the
  Sovereign Bond Issue.
  The PNG LNG Case Flow Recourse is not a security interest and
  will not breach
  the sovereign negative pledge requirements; and

  • Provided that the State exercises its option to extend the
  maturity of the Bridge
  Loan for another 6 month, the State and NPCP will undertake to

• Page 225 of 475

• use their
  reasonable endeavours to procure within 1 month of the
  extension a first ranking
  security to be granted by NPCP over NPCP‘s interest in PNG LNG
  for the benefit
  of UBS under the Bridge Facility.

  It is a condition precedent of funding being advanced under the
  Bridge Facility that the
  Company grant the Payment Direction in a form and substance
  satisfactory to UBS.

  B. Documents and IPBC/NPCP approvals required
  In order to implement the above following documents and approvals
  are required;

  • the Payment Direction;
  • IPBC shareholder resolution approving that NPCP give the
  Payment Direction;
  • IPBC Board resolution approving that NPCP give the Payment
  Direction;
  • NPCP board minutes approving giving the Payment Direction and
  entry into a
  power of attorney; and
  • Power of attorney by NPCP appointing attorneys to execute the
  Payment
  Direction and associated documents.

  The grant of the Payment Direction is subject to approval by:

  • IPBC as the sole shareholder of NPCP, as a major transaction
  of NPCP pursuant to
  section 110 of the Companies Act 1997; and

  • by the Minister for Finance, upon the recommendation of the
  Managing Director
  of the IPBC, pursuant to section 46B of the Independent Public
  Business
  Corporation of Papua New Guinea Act 2002.

  C. Timing
  • The above transactions are extremely time critical for the
  State and its agencies, as
  there is a deadline of 4pm (Port Moresby Time) on Thursday 6
  March 2014 for the
  State and its agencies to approve the acquisition of shares
  and financing package
  (including approvals and signature by the Head of State), with
  relevant
  documentation to be executed by 5pm (Port Moresby Time) on the
  same date.

  • Additional facts and considerations

• Page 226 of 475

• • On Thursday 27 February 2014, Oil Search announced that it had
  agreed to acquire
  a 22.835% gross interest in PRL 15 (Elk Antelope) from the Pac
  LNG Group
  Companies for US900million to be funded through a placement of
  new shares to
  Findings of Facts Page 84

  the State. The State and Oil Search reached an agreement
  (subject to approvals)
  under which the State will be issued 149.39 million shares in
  Oil Search at a A$8.20
  per share. The State will have a 10.01% shareholding in Oil
  Search following the
  share placement. The State is funding the placement through a
  committed
  financing package from UBS. The State has until 4pm (Port
  Moresby Time) on
  Thursday 6 March to approve the share placement and until 5pm
  (Port Moresby
  Time) on Thursday 6 March for the relevant documentation to
  be executed. In the
  event the State chooses not to or fails to approve the share
  placement, the State
  will not secure a shareholding in Oil Search and Oil Search
  will issue shares to
  institutional investors.

  • Oil Search has agreed to acquire a 22.835% gross interest in
  Elk Antelope through
  the acquisition of the Pac LNG Group Companies for US900
  million. Oil Search
  has announced that this transaction is unconditional and is
  expected to settle on
  Tuesday 11 March 2014. Post this acquisition; Elk Antelope‘s
  ownership will be
  divided between InterOil (75.6%), Oil Search (22.8%) and
  other smaller private
  interests (1.6%).

  • Oil Search intends to fund this acquisition through the
  placement of 149.39 million
  shares to the State at A$8.20 per share. The State will hold
  a 10.01% shareholding
  in Oil Search following the share placement.

  • InterOil has released a press announcement stating it
  welcomes Oil Search as a
  joint venture partner and the acquisition creates a stable
  and sustainable joint
  venture partnership to develop Elk Antelope. The InterOil–
  Total sell-down
  transaction terms are likely to acquire change as a direct

• Page 227 of 475

• result of the Oil Search
  acquisition. Total has publicly stated that it is committed
  to completing the PRL
  15 acquisition, however there is no certainty this will
  occur. Oil Search‘s
  acquisition provides for pre-emptive rights and influence
  over the development
  plans for Elk Antelope, which potentially opens the door for
  co-operation with
  ExxonMobil and other PNG LNG project participants.

  • The Exchangeable Bond issued by the State through IPBC to
  IPIC in 2009 has a
  maturity date of 5 March 2014. The proceeds raised from the
  Exchangeable Bond
  financing were used to fund the State‘s share of project
  capital expenditure for
  PNG LNG, which is expected to begin commercial production
  during 2014.
  Repayment of the IPIC financing is via the bonds being
  exchanged for the current
  stake in Oil Search held by the IPBC.

  • Based on the impending transfer of IPBC‘s current stake in
  Oil Search, Oil Search
  has expressed a strong desire for the State to maintain a
  material shareholding in
  Oil Search so that the State shares in the additional upside
  from Oil Search‘s
  completed and producing projects, PNG LNG (in final
  commissioning) and the
  new Elk/Antelope gas field development.

  On even date, Mr Vele sent an electronic mail to Dr Webster and
  Board Members urging
  them to progress considerations of the matters on the State‘s
  acquisition of shares in Oil
  Search Ltd and attached electronic copies of documents intended for
  the IPBC Board to
  approve. Below are the titles of the documents sent to the IPBC
  Board:

  1. IPBC Board briefing pack – Memo with explanation of transaction
  and payment Direction
  2. Draft Payment Direction Deed
  3. IPBC Shareholder Approval of Payment Direction
  4. IPBC Board Approval
  5. NPCP Board Resolution for Payment Directions
  6. Power of Attorney

  Findings of Facts Page 85

• Page 228 of 475

• On 9 March 2014, Mr Sonk forwarded to Mr Kumarasiri an Extract of
  Minutes of a Meeting
  of the Board of Directors that contained the resolutions that
  authorised NPCP to effect the
  Payment Direction Deed and appoint members of Management as holders
  of Power of
  Attorney to execute the Payment Direction Deed and the executed copy
  of the Payment
  Direction Deed which became effective upon IPBC‘s approval.

  On even date, in its Special Board of Directors Meeting No: 02/2014,
  the NPCP Board passed
  resolutions that effected the signing of the Transaction Documents.
  Below is an extract
  from the Meeting Minute:

  (a) the Company enter into any Transaction Document necessary to
  give effect to the Payment
  Direction or to satisfy the conditions precedent to funding under
  the Bridge Facility; and

  (b) each Attorney is severally authorised, on behalf of the
  Company, to execute and deliver (or
  enter in any other way into) each Transaction Document and to do
  anything else that an
  Attorney is authorised to do under the Power of Attorney; and

  (c) the Power of Attorney to be executed by the Company by fixing
  the common seal to it and
  that the fixing of the common seal be witnessed by any two
  directors or any director and a
  Company secretary.

  Mr Sonk forwarded to Mr Kumarasiri an Extract of Minutes of a
  Meeting of the Board of
  Directors that contained the resolutions that authorised NPCP to
  effect the Payment
  Direction Deed and appoint members of Management as holders of Power
  of Attorney to
  execute the Payment Direction Deed and the executed copy of the
  Payment Direction Deed
  which became effective upon IPBC‘s approval.

  On even date, the NPCP Board of Directors gave the Power of Attorney
  to Mr Sonk and Mr
  Wato.

  On even date, Mr Sonk verified copies of the Shareholder resolutions
  of the NPCP Board
  dated 09 March 2014, Minutes of the Meeting and Power of Attorney of
  the NPCP.

  On even date, Minister Marape approved the Memorandum of Approval

• Page 229 of 475

• that enabled NPCP
  to enter into the Transaction Documents.

  On 10 March 2014, the IPBC Board in its Special Board Meeting No: 3
  of 2014, noted the
  legal advice by the State Solicitor to the DoT and in particular the
  requirement to comply
  with Section 209 of the Constitution and further actions that were
  taken by the State to
  address the requirements made the following resolutions as outlined
  below:

  (a) That for the purpose of section 89 of the Companies Act 1997
  the IPBC agrees to and
  concurs in the execution by the NPCP of each and every document
  referred to in the
  Schedule (the Transaction Documents) and the directors of NPCP
  are hereby authorized
  to enter into the Transaction Documents.

  (b) That the transactions that subject of the Transaction
  Documents and the entry of NPCP
  into the Transaction Documents are approved by the IPBC in its
  capacity as sole
  shareholder of NPCP as a major transaction for the purpose of
  section 110 of the Companies
  Act.

  (c) That any director be authorized to execute on behalf of the
  IPBC the resolution in lieu of
  meeting of shareholders under section 103 of the Companies Act by
  which IPBC, as sole
  shareholder of NPCP, gives effect to resolutions (a) and (b).

  Findings of Facts Page 86

  (d) To approve for the purpose of Section 46B(1) of the IPBC Act
  that the Managing Director
  of IPBC recommend to the Minister for Finance for approval, a
  proposal by National
  Petroleum Company of PNG (Kroton) Limited to enter into
  Agreement referred to in the
  Schedule to this document.

  On even date, the IPBC Board deliberated and passed a resolution in
  lieu of meeting of
  shareholders pursuant to Sections 103, 89 and 110 of the Companies
  Act 1997. Below is an
  extract:
  AGREEMENT OF SOLE SHAREHOLDER
  RESOLVED that for the purposes of section 89 of the Companies

• Page 230 of 475

• Act 1997 the shareholders
  agrees to and concurs in the execution by the Company of each
  and every document referred
  to in the Schedule (the Transaction Documents) and the directors
  of the Company are
  hereby authorised to enter into the Transaction Documents.
  MAJOR TRANSACTION

  RESOLVED as a special resolution that the transactions the
  subject of the Transaction
  Documents and the entry by the Company into the Transaction
  Documents are approved as
  a major transaction for the purposes of section 110 of the
  Companies Act 1997.

  On 11 March 2014, Minister Marape approved of the NPCP to enter into
  the execution of the
  Payment Direction Deed.

  On 11 April 2014, Mr Sonk wrote to Mr Graham and directed any
  distributions made to the
  NPCP to be paid to UBS AG (Singapore Branch).

  On even date both Mr Sonk and Mr Wato wrote to Mr Graham and issued
  the following
  instructions and directions on the release of funds to NPCP to pay
  the interest payment on
  the loan to UBS AG. Below is an extract of the letter.

  Papua New Guinea Liquefied Natural Gas Global Company LDC
  C/o Esso Highlands Limited (Co. No.1- 18948)
  Level 17 Central Plaza 1
  345 Queen Street, Brisbane, Qld 4000

  Attention: Peter Graham
  Managing Director
  Esso Highlands Limited
  [email protected]

  RE: PAYMENT DIRECTION
  The National Petroleum Company PNG (Kroton) Limited (―NPCP‖)
  hereby instructs and
  directs Papua New Guinea Liquefied Natural Gas Global Company
  LDC (GloCo) to pay
  immediately available funds, all Distributions which are to be
  paid from time to time to
  NPCP in relation to all shares or other securities held by NPCP
  in GloCo from time to time,
  to the following bank account:

  Correspondent Bank UBS AG, Stamford Branch
  Swift: UBSWUS33XXX
  Accountholder Bank:UBS AG, Singapore Branch
  Swift: UBSWSGSGXXX

• Page 231 of 475

• Account: 101-WA-216003-000
  For Credit to: National Petroleum Company of PNG (Kroton)
  Ltd
  Account: TC501650

  In this letter, ―Distribution‖ means any payment or distribution
  of money or other
  property (including by management or other fee, interest on
  shareholder loans, dividend,
  return of capital, repayment or redemption) to or for the
  benefit of any holder (in that
  capacity) of securities issued by GloCo.

  Findings of Facts Page 87

  This letter is a ―Transaction Document‖ for the purposes of
  paragraph (f) of the definition
  of ―Transaction Document‖ in clause 1.1 of the Bridge Facility
  Agreement dated 12 March
  2014 between the Independent State of Papua New Guinea, UBS AG,
  Australia Branch and
  UBS Nominees Pty Ltd.

  Yours sincerely,
  PETROLEUM COMPANY OF PNG (KROTON) LIMITED

  Each person who executes this document on behalf of a party under
  a power of attorney
  declares that he or she is not aware of any fact or circumstance
  that might affect his or her
  authority to do so under that power of attorney

  SIGNED, SEALED and DELIVERED for
  NATIONAL PETROLEUM COMPANY OF
  PNG (KROTON) LIMITED under power
  Of attorney in the presence of:

  ROGEN WATO WAPU SONK
  Company Secretary Managing Director

  On 3 June 2014, Mr Kramer wrote to the Commission and advised that
  the NPCP‘s
  involvement was limited to the execution of the Payment Direction
  Deed as per the IPBC
  Board direction. Below is an extract of Mr Kramer‘s letter.

  (d) My understanding of the transaction at that time (and my
  understanding has not
  changed) was that financing of the acquisition of Oil Search
  Shares included a Bridge
  Facility for an amount of about $AUD330 million.

• Page 232 of 475

• (e) NPCP was not a party to the relevant Bridge Facility
  agreement/document and had no
  opportunity to negotiate or affect the provisions of the
  document.

  (f) NPCP was directed to enter into the Payment Direction Deed
  which gives UBS a
  secondary source for loan repayment for the Bridge Facility
  amount only, against
  NPCP‘s cash flow in the event that the State fails to issue
  bonds to replace the Bridge
  Facility.

  (g) As you may be aware, NPCP is a Majority State Owned
  Enterprise under the
  Independent Public Business Corporation of PNG 2000 (IPBC
  Act) with 100% of its
  shares held by IPBC as Trustee of the General Business Trust
  for the State.

  (h) The IPBC Act provides in Section 46I that IPBC may, by notice
  to a majority State
  Owned Enterprise, set policies or give directions in any
  matter concerning the
  activities of the Majority State Owned Enterprise.

  (i) The IPBC Act further provides in Section 46J for sanctions
  and penalties for Directors
  who fail to comply with such direction as follows:

  (i) A majority State Owned Enterprise which fails…to give
  prompt effect to a
  direction given to it under Section 46I shall have
  contravened this Part VIA of
  the (IPBC) Act.

  (ii) If a majority State Owned Enterprise has contravened
  Part VIA, each of the
  Directors, including the Managing Director (if any) shall
  be deemed to have
  been involved in that contravention and thereby to have
  breached their duties
  as directors pursuant to Section 112 of the Companies Act
  1977 and be punished
  according under Section 413 of that Act.

  Section 112 of the Companies Act requires a Director of NPCP
  Kroton to act in good
  faith and in the best interest of NPCP Kroton‘s holding
  company (IPBC) when
  exercising his powers or performing his duties.

  Findings of Facts Page 88

• Page 233 of 475

• The effect of not complying with a Direction by IPBC under
  Section 461 of the IPBC
  Act is to establish a breach of the provisions of Section 112
  and by that make the
  directors liable to the penalties under Section 413 of the
  Companies Act. Section 413
  imposes fines up to K200,000.00 or imprisonment for a term not
  exceed 5 years, or
  both.

  (j) The directors to NPCP Board were confirmed in an Email dated
  8 March from Mr
  Wasantha Kumarasiri, the Managing Director of IPBC, and
  addressed to Mr Thomas
  Webster, the then Chairman of IPBC Board, with copies sent to a
  number of people
  including to members of his Board, the Managing Director of
  NPCP, Mr Wapu Sonk,
  and myself as Chairman of NPCP Board.

  The 8th March email set out the resolutions required to be passed
  under the IPBC Act and
  concluded specifically addressed to NPCP –

  ―Chairman NPCP and MD NPCP…Please arrange your NPCP Board
  Resolutions urgently to
  facilitate the State‘s objective per the NEC Decision. I will
  forward you a copy of the Board
  Pack prepared by Dairi Vele for your information which will
  assist to fast tract this urgent
  initiative by the State.‖

  (k) The effect of the Payment Direction Deed is for NPCP to
  direct that funds received by
  NPCP from the PNG LNG Project be deposited into an Escrow
  Account.

  2.
  (b) The Escrow Account is established in the name of NPCP with
  UBS AG Singapore and
  a direction has been provided to GloCo to make all payments due
  to NPCP into that
  nominated account.

  Comments

  It is noted that the NPCP was not a party to the Loan Negotiations
  in the first instance.
  However, Mr Kramer the Chairman for NPCP confirmed that pursuant to
  the Independent
  Public Business Corporation of PNG 2000 Act (Section 46I), the IPBC
  being the major
  Shareholder in NPCP (as Trustee for the State), can give directions

• Page 234 of 475

• in any matter
  concerning the activities of the NPCP as a SOE.

  Hence, the NPCP Board executed the directions from the IPBC Board in
  order to satisfy the
  NEC Decision of 6 March 2014 for execution of a Payment Direction
  Deed by NPCP
  concerning payments from GloCo to be diverted to UBS AG to repaying
  the Loan.

  In light of the above approvals and decisions, the NPCP Managing
  Director and Company
  Secretary under Power of Attorney directed MD of Esso Highlands, Mr
  Graham to divert
  from time to time all immediate available funds which are payable to
  NPCP, to be
  forwarded to paying the interest payment on the Loan to UBS AG.

  The Commission‘s investigation revealed that at and before the time
  that the GoPNG
  borrowed the Loan, the NPCP was a SOE that was operating at negative
  basis and had a lot
  of operational liabilities. Copies of various SOE‘s Balance Sheets
  obtained confirmed this.

  NPCP came into existence in order to divert the proceeds from PNG
  LNG Project away
  from Petromin and paid directly to UBS AG to offset or service the
  Loan.

  It is also noted that NPCP‘s existence to enforce the Payment
  Direction Deed is also
  questionable as it is not legally established under the proposed PNG
  Petroleum Company
  (Kroton) Act as this Act has not been certified by the Speaker of
  Parliament in order to be
  fully in force. Thus the involvement of NPCP in this whole process
  may be improper.

  Findings of Facts Page 89

  PART 2 ENGAGEMENT OF CONSULTANTS TO FACILITATE THE
  BORROWING OF UBS AG LOAN

  [1] ENGAGEMENT OF LEGAL CONSULTANTS

  On 25 June 2013, the Prime Minister wrote to Hon Kua, then Attorney-
  General and advised
  that while the Attorney-General has discretion whether or not to
  Brief-Out legal services,
  this discretion did not extend to the appointment of a specific
  legal firm. The Prime
  Minister then ended his letter by stating that it was clear

• Page 235 of 475

• therefore that legal services
  should be publicly tendered.

  On 13 June 2014, Hon Kua responded to the Commission‘s summons dated
  24 March 2014
  in which he denied categorically the allegations that he was
  personally involved in giving
  clearance for the UBS AG loan and in particular confirmed that he
  was not present in the
  NEC Meeting that approved the borrowing of the UBS AG loan.

  The Attorney-General has to be satisfied that individuals and legal
  firms have complied
  with the requirements outlined in Sections 8(4) of the Attorney-
  General Act 1989, an extract is
  outlined below:

  Sections 8(4) of the Attorney-General Act 1989 states:

  8. LEGAL ADVICE AND OPINION.

  (4) On matters affecting the conduct of the business of the
  State where legal issues
  arise or might arise, legal advice shall be provided by the
  Attorney-General,
  either in his capacity as principal legal adviser to the
  National Executive or
  under Subsection (2) or (3) to the exclusion of all other
  lawyers unless the
  Attorney-General, in his absolute discretion, authorizes the
  giving of legal
  advice by any other person.

  The Legal Consultants who provided legal services relating to the
  UBS AG Loan and
  purchase of Oil Search shares were engaged by Mr Vele without the
  Attorney-General‘s
  approval.

  Comments

  Commission‘s investigations revealed that Mr Vele did not seek the
  Secretary for DJAG or
  the Attorney-General‘s approval to engage Pacific Legal Group
  Lawyers, Ashurst Lawyers
  and Norton Rose Fulbright of Australia to provide legal services to
  the State through the
  DoT. Hence the unilateral act of Mr Vele to usurp the powers of
  Attorney-General was
  wrong and illegal.

  The CSTB stated in its Good Procurement Manual that the tender

• Page 236 of 475

• processes set down in
  law are non-negotiable and other contracting processes, such as
  direct price negotiation,
  pre-qualification, selective tendering are illegal and not
  acceptable.

  In other words, before any Government Agency or Department decides
  to engage a private
  legal firm, the Head of the Department or Agency must do a formal
  request to DJAG for
  Brief-Out of legal services by the Attorney-General.
  Findings of Facts Page 90

  Furthermore Mr Vele and the DoT should have conducted a public
  tender for provision of
  the legal services required by the Department with assistance from
  the CSTB pursuant to
  Sections 39(2), (a) & (b) and 40(1), (a) & (b) of the Public Finance
  (Management) Act 1995.

  Sections 39(2), (a) & (b) of the Public Finance (Management) Act
  1995 states:

  39. CENTRAL SUPPLY AND TENDERS BOARDS.

  (2) In the exercise of its powers under Subsection (1), the
  Central Supply and Tenders
  Board may–

  (a) invite a tender for any amount; and

  (b) enter into a contract for any amount up to
  K10,000,000.00,

  for and on behalf of the State.

  Section 40(1), (a) & (b) of the Public Finance (Management) Act 1995
  states:

  40. TENDERS FOR PROPERTY, STORES, WORKS AND SERVICES.

  (1) Subject to–

  (a) this section; and

  (b) Section 41,

  tenders shall be publicly invited and contracts let for the
  purchase or disposal of property or
  stores or the supply of works and services the estimated cost of

• Page 237 of 475

• which exceeds the
  prescribed amount.

  The CSTB Good Procurement Manual states that the tendering of
  contracts to attract the
  best supplier to execute a project at the least cost to effectively
  and efficiently execute a
  project, is the mandatory requirement of the State when deciding to
  engage contractors or
  consultants to implement projects using government funds.

  In this case, the proper procedure Mr Vele should have followed was
  for him to seek
  assistance from the Secretary for DJAG, Dr Kalinoe to obtain the
  Attorney-General‘s
  approval to engage private law firms to act on behalf of the State.

  The Commission‘s investigations revealed that Mr Vele did not
  request the CSTB to
  advertise the contracts for legal services to be outsourced by the
  DoT to engage private legal
  firms to facilitate the borrowing of the UBS AG Loan.

  It was also revealed that Dr Kalinoe and Hon Kua, then Attorney-
  General were not
  approached and consulted on any formal requests from Mr Vele to
  engage private legal firms
  relating to the borrowing of the UBS AG Loan. Therefore, it seemed
  that Mr Vele usurped
  the powers of the Attorney-General and breached Section 8 of the
  Attorney-General Act 1989,
  when he wrongly engaged private legal firms to provide legal
  services in relation to the UBS
  AG Loan.

  Findings of Facts Page 91

  [1.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [1] of
  the Report. Below is his response.

  [1] ENGAGEMENT OF LEGAL CONSULTANTS

  General Comment

  Unfortunately again, the findings of fact are incorrect, and this
  is due to the superficial and limited
  investigation into the facts that was conducted by the Ombudsman
  Commission.

• Page 238 of 475

• Only a limited amount of witnesses were interviewed with regards
  to this area and none of those
  interviewed were the Consultants.

  Consultants did approach the Ombudsman Commission to provide
  information and the factual
  circumstances, and despite some of those Consultants actually
  being named in the Directions by the
  Ombudsman Commission resulting in factual findings that are for
  the most part untrue.

  Response to Comments p65-66

  My comments below are in addition to my full statement in
  response to Findings of Fact Part 1

  1. There is an assumption that I retained Norton Rose Fulbright
  to provide legal services to the
  Department of Treasury at some stage in 2013 and prior to the
  NEC decision of 6 March 2014. This is
  incorrect.

  2. Norton Rose Fulbright was retained by IPBC on 5 December 2012,
  some 14 months earlier, to provide
  legal services with regards to the IPIC Bond Project. The work
  expressly included reviewing the terms
  and conditions of the IPIC Bond, review and advise option
  available to IPBC for refinancing of the loan
  and or a restructure of the terms of the existing loan.
  Specifically it was recognized in the scope of
  work that ―a significant aspect of this scope of work would
  involve meeting the objectives regarding
  the ownership of the Oil Search Shares‖. [see Letter 5
  December 2012].

  3. I was appointed Director of the Gas Project Co-ordination
  Office in December 2011.

  4. On 5 April 2013 the Cabinet explicitly authorised the Minister
  for Public Enterprises and IPBC to
  explore methods of raising money to redeem the Convertible
  Bonds. [see NEC meeting 03/2013,
  decision no 117/2013].

  Appointment of Members to IPIC Exchangeable Bond Review
  Committee – Dairi Vele Chairman

  5. In July 2013 Cabinet determined to look at ways to refinance
  the IPIC loan and to retain an interest in
  Oil Search. It appointed a committee under the direction of
  IPBC and the Minister for Public
  Enterprises, comprising of the Director of the Gas Projects
  Coordination Office, the Secretary of Public

• Page 239 of 475

• Enterprises, the Secretary of Treasury (or his nominee), the
  State Solicitor (or his nominee) and the
  MD of IPBC to advise on options available to the State to
  refinance and maintain an interest in Oil
  Search (the Committee). [See NEC Decision 241/2013 at meeting
  220/2013 attached].

  6. On 6 August I was appointed Acting Secretary for Treasury.

  7. We, the IPIC committee, had already set up meetings with
  various banks in Sydney to assess proposals
  from banks as to being the financial advisor and arranger to
  the State through IPBC for the refinancing
  of the IPIC Bond. Norton Rose Fulbright assisted with advice
  at these meetings.

  8. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I will still be a Member
  of the IPIC Committee due to Cabinet decision No 241/2013.

  9. I sought the advice of Norton Rose Fulbright from the time
  that I was appointed Chairman of the IPIC
  Bond and that was due to the fact the Committee was under the
  direction of IPBC, and IPBC had
  retained Norton Rose Fulbright to advise on the IPIC
  refinancing issue. I was aware that Treasury had
  only undertaken 3 other transactions and on each occasion
  engaged external lawyers as member of
  Treasury, and the Committee, had limited financial experience.

  10. This continued until special circumstances arose for them to
  be appointed to represent the State on the
  transaction pursuant to the NEC decision.

  Findings of Facts Page 92

  11. After the NEC Decision on 6 March 2014 which endorsed for a
  Certificate of Inexpediency for service
  and other contracts, for the purposes of giving effect to the
  NEC decision, and I was the person with
  the responsibility to implement it, I sought a certificate of
  inexpediency and to contract those
  consultants who were necessary for the transaction to proceed.

  12. I say that at all material times the issue with regards to
  compliance with the Attorney-General Kerenga
  Kua was aware of the NEC Decision of 6 March 2014 and the
  steps necessary to implement it.

  13. Mr Kua however did not raise an issue with regards to
  compliance with the Attorney-General Act and

• Page 240 of 475

• indeed by his lack of complaint allowed the Consultants to be
  retained as a result of the NEC Decision
  and the CSTB Certificate of Inexpediency.

  14. Mr Kua by his inaction at the time effectively waived any
  compliance issues, and indeed he was bound
  by the NEC decision, as we all were.

  15. Mr Kua did not raise any issue with the retainer of Legal
  Consultants until the time he was removed by
  the Prime Minister as Attorney-General in June 2014.

  16. It is incorrect to say that I usurped the powers of the
  Attorney-General, firstly as Norton Rose
  Fulbright has been retained by IPBC, and secondly as NEC has
  approved and endorsed the way
  forward with regards to service contracts which was to apply
  for a certificate to inexpediency due to
  the short commercial time limits that needed to be adhered to.

  17. With regards to Ashurts, they were paid for by the State as
  it was a term of the loan agreement with
  UBS AG that the legal services of the lender would be funded
  by the borrower. This is a normal
  commercial condition. They were not retained by me but by UBS
  AG.

  18. With regards to Pacific Legal Group, they were actually
  retained by Norton Rose Fulbright to act as
  their local Counsel for advice and assistance on procedures
  after Norton Rose Fulbright were asked to
  advice on the possibility of an UBS AG loan/Oil Search
  transaction in accordance with the terms of
  their retainer for IPBC. I did not retain them.

  19. At the time of the request for a Certificate of Inexpediency,
  it was considered by all that it would be
  much more convenient for all parties that Pacific Legal Group
  and Ashurts be paid for directly by the
  State in Papua New Guinea, rather than the State remitting
  funds to Norton Rose and UBS in Australia
  and then Norton Rose and UBS remitting funds back to Papua New
  Guinea to pay Pacific Legal Group
  and Ashursts respectively.

  20. Essentially, the request for the COI was to facilitate
  payment, as the only actual retainer was for
  Norton Rose Fulbright and not for Pacific Legal Group or
  Ashurts.

  21. Had the Ombudsman Commission interviewed Pacific Legal group
  or Norton Rose Fulbright or
  Ashurts, myself and asked the specific questions, this would
  have been made clear.

• Page 241 of 475

• 22. I deny that I breached any proper processes or procedure with
  regards to the engagement of legal
  consultants.

  23. I deny that I have breached the Attorney-General Act.

  Comments

  The Ombudsman Commission notes Mr Vele‘s comments in regard to the
  engagement of
  Legal Consultants to assist the State in facilitating the borrowing
  of the UBS AG Loan to
  purchase Oil Search Ltd shares.

  However, the Ombudsman Commission‘s original comments on Mr Vele not
  complying
  with the procedures and processes outlined in Section 8 of the
  Attorney-General Act 1989 and
  Sections 39 and 40 of the Public Finance (Management) Act 1995 are
  sustained. That is, Mr Vele
  should have consulted the Attorney-General and then requested the
  Central Supply &
  Tenders Board to conduct public tender for legal firms to be engaged
  to provide legal advice
  on the borrowing. Even if Mr Vele said that Mr Kua was aware of the
  NEC Decision of 6
  March 2014 and did not raise any issue with regards to compliance,
  for purpose of
  transparency and project of such magnitude, his checklist would have
  triggered the alarm.

  Findings of Facts Page 93

  [2] ENGAGEMENT OF FINANCIAL AND TECHNICAL CONSULTANTS
  [i] ENGAGEMENT OF UBS AG AS FINANCIAL ADVISOR AND LEAD
  ARRANGER FOR THE REFINANCING OF IPIC EXCHANGEABLE BOND
  On 6 August 2013, the NEC appointed Mr Vele, as the Acting Secretary
  for the DoT.

  On 12 August 2013, Mr Vele met with UBS AG officials at Sydney,
  Australia in regard to the
  refinancing of the IPIC Exchangeable Bond.

  On 13 August 2013, Mr Vele met with Morgan Stanley officials in
  Sydney, Australia.

  On 14 August 2013, Mr Vele met with JP Morgan officials at Sydney,
  Australia.

  On 15 August 2013, Mr Vele held a second meeting with UBS AG
  officials at Sydney,

• Page 242 of 475

• Australia.
  On 19 December 2013, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 approved that the BPNG provide final evaluations on the
  proposals from Citi Bank
  and UBS AG to re-finance the IPIC Exchangeable Bond.

  On 7 January 2014, Mr Bakani advised Minister Micah that the State
  re-negotiate the
  funding structure of the proposals with the two (2) Financiers the
  UBS AG and Citi Bank.

  On 15 January 2014, Minister Micah wrote to Mr Bakani and requested
  that the BPNG
  provide its final recommendations on the two (2) Financiers, UBS AG
  and Citi Bank.

  On 16 January 2014, Mr Bakani requested all parties including the
  BPNG, Minister Micah,
  IPBC, and the DoT to draft the Terms of Reference to be used during
  negotiations with
  potential Financiers to re-finance the IPIC Exchangeable Bond.

  17 January 2014, Mr Bakani wrote to and advised Mr Kumarasiri that
  the BPNG‘s
  evaluations and recommendations were based on information provided
  in accordance with
  the NEC Decision No: 479/2013 in its Special Meeting No: 37/2013 to
  borrow a loan to re-
  finance the IPIC Exchangeable Bond.
  On even date Mr Bakani requested Ms Natalie Yacoubian of PNP Paribas
  to resubmit PNP
  Paribas proposal incorporating the refined terms relating to the re-
  financing of the IPIC
  Exchangeable Bond.

  On even date Mr Bakani requested Mr Mitchell Turner of UBS AG to
  resubmit UBS AG
  proposal incorporating the refined terms relating to the re-
  financing of the IPIC
  Exchangeable Bond.

  On even date Mr Bakani requested Mr Philip Graham to resubmit Citi
  Bank‘s proposal
  incorporating the refined terms relating to the re-financing of the
  IPIC Exchangeable Bond.

  On even date Minister Micah advised Mr Bakani that he expected a
  recommendation from
  the BPNG regarding its evaluation of potential Financers to re-
  finance the IPIC
  Exchangeable Bond by Wednesday 22 January 2014.

• Page 243 of 475

• Findings of Facts Page 94

  On 23 January 2014, Mr Bakani recommended to the NEC to request the
  Abu Dhabi
  Government for an extension of six months, to allow time to improve
  on the proposal by
  BNP Paribas, the superior proposal, as well as the UBS AG, Citi Bank
  and ANZ/Barclays.

  On 27 January 2014, then Minister Polye wrote to Mr Bakani and
  requested for a full brief
  on the implementation of the NEC Decision No. 479/2013 regarding the
  re-financing of IPIC
  Exchangeable Bond.

  On even date, Mr Bakani wrote to Minister Micah and recommended that
  UBS AG be given
  the mandate to fund the IPIC Exchangeable Bond.

  On 30 January 2014, Mr Vele engaged UBS AG to act as the sole
  Financial Advisor and Lead
  Arranger in relation to the management of the State‘s investment in
  Oil Search Ltd and the
  associated matters flowing from the issuance in 2009 of Exchangeable
  Bonds in respect of
  the State‘s 196.6 million shares in Oil Search to the IPIC of Abu
  Dhabi (Exchangeable Bond).
  On even date, Minister Micah wrote to Mr Bakani and instructed him
  to confirm with UBS
  AG that it had been accepted as the financier for the IPIC
  Exchangeable Bond. Below is an
  extract:

  As we have discussed, could you please confirm with UBS that –

  (i) it can meet the full refinancing amount of A$1.7 Billion by
  5th March 2014, and

  (ii) it is able to provide sufficient funds above the A$1.7
  Billion if IPIC wants to
  exchange the bonds at a higher share price, i.e. above the
  strike price of A$8.55.

  The State will not be seeking an extension of six (6) months as
  you recommended because
  it will incur additional costs.

  On even date, Mr Bakani wrote to Mr Mitchel Turner the Director for
  Investment Banking,
  UBS AG and advised that the State had accepted its proposal to re-
  finance IPIC
  Exchangeable Bond worth AU$1.7 Billion. Below is an extract:

• Page 244 of 475

• Thank you and your team for the presentation and comprehensive
  discussion we had in
  Singapore on 20 January 2014.

  On the recommendation of the Bank of Papua New Guinea (Bank), the
  Independent State
  of Papua New Guinea (State) decided to accept the proposal by UBS
  to refinance the IPIC
  EB, by a combined structure of a Rollover Collar and Term Loan.

  Please note that, as discussed with you and the team, we need a
  written commitment from
  UBS, that a financing package of A$1.7 billion, will be in place
  as of the 5th of March 2014 to
  meet the total cost of refinancing the IPIC EB. This commitment
  by the UBS will be
  presented by the State to the Government of Abu Dhabi.

  Will you please be so kind to confirm in writing the commitment
  by UBS to fund the A$1.7
  billion IPIC EB on receipt of this letter.

  In the event that IPIC will request a premium above the A$8.55
  share price, we will discuss
  with the accommodation of the additional amount to cover the
  difference.

  In our meeting we brought to your attention that the Bank will
  recommend to the State to
  have a Government to Government meeting with Sheik Mansour Bin
  Zayed, Prime
  Minister of Abu Dhabi, and ask for an extension of the settlement
  date beyond the 5th of
  March 2014. If such an extension will be agreed on, we will
  inform you immediately.

  Findings of Facts Page 95

  On 3 February 2014, Minister Micah wrote to Mr Bakani and advised
  that he accepted the
  BPNG‘s recommendation to use UBS AG as the State‘s Financial Advisor
  for the re-
  financing of the IPIC Exchangeable Bond.

  On even date, Minister Micah also instructed Mr Kramer to seek
  approval from the NPCP
  Board and get other required approvals to formally mandate UBS AG as
  Financial Advisor
  for the IPIC Exchangeable Bond.

• Page 245 of 475

• On 7 February 2014, Mr Bakani re-assured Minister Micah on its
  recommendation to use
  UBS AG to re-finance IPIC Exchangeable Bond.

  On 25 February 2014, UBS AG wrote to Mr Vele and set out the terms
  on which the State
  engaged UBS AG with effect from 30 January 2014. Below is an
  extract:

  Dear Dairi,

  The purpose of this letter is to set out the terms on which The
  Independent State of Papua
  New Guinea (the ―State‖) has engaged UBS AG, Australia Branch (ABN
  47 088 129 613)
  (―UBS‖) with effect from 30 January 2014 (―Effective Date‖) to act
  as its Sole Financial
  Advisor and Sole Lead Arranger (―Engagement‖) in relation to the
  management of the
  investment of the Independent State of Papua New Guinea (―State‖)
  in Oil Search Limited
  (―Oil Search‖) and the associated matters flowing from the
  issuance in 2009 of
  Exchangeable Bonds in respect of the State‘s 196.6 million shares
  in Oil Search to the
  International Petroleum Investment Corporation (―IPIC‖) of Abu
  Dhabi (Exchangeable
  Bond‖).

  For the purpose of this letter, ―Transaction‖ means, whether
  effected directly or indirectly
  or in one transaction or a series of transactions:

  (a) The acquisition by the State of all or any part of the share
  capital of Oil Search by
  whatever means, including direct placement by Oil Search, on-
  market purchases and
  derivatives; or

  (b) Any acquisition, refinancing, redemption, cancellation or
  other business
  combination by the State or a third party of all or part of the
  Exchangeable Bonds;

  (c) The reduction or elimination of the need for the State to
  make a cash payment to
  IPIC in respect of the Oil Search shares to be exchanged under
  the Exchangeable
  Bonds at maturity in the event that the Exchangeable Bonds are
  not repurchased by
  the State.

  1. Role of UBS

• Page 246 of 475

• UBS will, as requested by the State, provide the following
  advisory services and assistance
  together with any additional assistance agreed in writing between
  UBS and the State.

  On 27 February 2014, four (4) days after his meeting with Mr Botten,
  Mr Aopi and Mr Vele,
  the Prime Minister wrote to Mr Fowler regarding the UBS AG‘s
  proposal to provide
  funding facilities to the State in connection with the subscription
  by the State for
  149,390,244 million shares in Oil Search Ltd for AU$8.20 per share.

  On even date, a Subscription Agreement was signed between UBS AG
  (the Equity
  Derivative Financier) and Oil Shares Ltd.

  On even date, UBS AG forwarded a Commitment Letter that was signed
  by the GGPNG
  which was witnessed by Mr Okuk as Commissioner of Oath.

  Findings of Facts Page 96

  On 4 March 2014, Ashurst Lawyers and Pacific Legal Group Lawyers
  forwarded draft
  documents from UBS AG to the State that outlined the financial
  package that UBS AG was
  offering the State.

  On 5 March 2014, Mr Fowler requested the Prime Minister to intervene
  in resolving the
  IPIC Exchangeable Bond issue, the PNG LNG direction-to-pay and the
  Sovereign Bond
  take-out of the Bridge Loan.

  On 6 March, UBS AG issued a Bridge Takeout Letter to Mr Vele which
  letter outlined the
  terms of the fees payable to UBS AG as Facility Agent under the
  Bridge Facility Agreement
  that was signed by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was

• Page 247 of 475

• signed by the GGPNG and witnessed by Mr Okuk.

  On even date, the Prime Minister submitted an NEC Policy Submission
  No: 67/2014 to the
  NEC.

  On even date, the NEC in its NEC Decision No: 79/2014 directed that
  the CSTB issue a COI
  and further directed the DoF to issue an APC to engage and pay the
  financial, legal and
  technical consultants for facilitating the borrowing. Below is an
  extract of the NEC
  Decision No:79/2014:

  2. noted the proposed Transaction Documents referred to in
  Schedule A (attached) and
  the transactions contemplated by them including:

  a) for the State to acquire 149,390,244 shares in Oil Search
  Limited (―Oil Search‖);

  b) for the State to borrow A$1.239 Billion from UBS AG
  (Australia Branch)
  (―UBS‖), initially comprising two facilities (an A$335
  million bridge loan
  facility and a A$904 million collar facility) (the
  ―Borrowing‖); and

  c) for the State to engage UBS as its Advisors on the
  financing and the acquisition
  of Oil Search shares, including that UBS implement (on
  behalf and upon the
  request of the State) a sovereign bond issue to replace the
  bridge loan, (the
  ―Transaction‖).
  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  On even date, Mr Vele requested Mr Eludeme to approve his request
  for a COI to be issued
  at the earliest to cover the advisory costs on the consultants who

• Page 248 of 475

• were engaged by him.

  Findings of Facts Page 97

  On even date, Mr Okuk representing Mr Vele, Pacific Legal Group
  Lawyers and Ashurst
  Lawyers delivered 28 documents pertaining to the UBS AG loan to Mr
  Rolpagarea, the State
  Solicitor, for his legal clearance.

  On 7 March 2014, Mr Vele explained to Mr Rolpagarea that the COI was
  needed to access
  funds to pay for fees relating to the State‘s acquisition of the
  shares in Oil Search Ltd.

  On even date, Mr Vele requested Mr Rolpagarea to issue legal
  clearance on the NEC
  Submission regarding the State‘s borrowing of the UBS AG Loan
  arrangements.

  On even date, Amb Isaac Lupari wrote to Mr Kumarasiri and advised
  that the NEC
  approved the State‘s intent to borrow from UBS AG to fund its
  acquisition of shares in Oil
  Search Ltd.

  On even date, the GGPNG signed the document enabling the State to
  borrow AU$335
  million from UBS AG under the Collar Loan structure to purchase
  shares in Oil Search Ltd
  and pay all expenses and services rendered to the State relating to
  the Borrowing.

  On even date, Mr Vele advised Mr Eludeme that the local and
  international consultants
  should be paid for services rendered relating to the borrowing of
  the UBS AG Loan.

  On even date, Dr Ngangan and Mr Vele signed and approved the APC
  form to release
  AU$14,555,759.00 that was paid to the Consultants that were engaged
  to facilitate the
  borrowing of the UBS AG Loan of AU$1.239 Billion to purchase
  149,390,244 shares from Oil
  Search Ltd.

  On 12 March 2014, Mr Naime advised Mr Rolpagarea that the CSTB
  awarded contracts to
  both local and international consultants to provide financial and
  technical advice to the
  State in regard to the borrowing of the UBS AG Loan.

• Page 249 of 475

• On even date, Mr Eludeme certified that the inviting of tenders for
  the provision of financial,
  legal and technical advisory services was impractical or
  inexpedient. That is, he approved
  for the issuance of the COI to be issued to waiver public tender of
  the contracts.

  On even date, Dr Ngangan approved Mr Vele‘s application for the
  Department complete and
  issued the APC for the above procurement indicating that there were
  funds available to pay
  the consultants.

  On even date, the State, the NPCP and UBS AG agreed to the terms and
  conditions upon
  signing the Payment Direction Deed that directed the State through
  GloCo to pay
  immediately all available funds to the NPCP to pay to UBS AG to
  offset or service the Loan.

  On even date, UBS AG confirmed with Mr Vele the terms and conditions
  of the financing
  transaction that were entered into between the State and UBS AG in
  respect to the
  purchasing of new shares in Oil Search Ltd.

  On even date, the Prime Minster, Mr Vele, UBS AG (the Arranger), UBS
  AG (the Facility
  Agent) and UBS Nominees Pty Ltd signed the Bridge Facility
  Agreement.

  On even date, the GGPNG signed the Specific Security Deed (CHESS
  Securities – Collar)
  with UBS AG that provided security to the loan acquisition. The
  signing was witnessed by
  Mr Okuk.

  Findings of Facts Page 98

  On even date, the GGPNG, signed the Security Trust Deed with UBS
  Nominees Pty Ltd
  that provided security to the loan acquisition. The signing was
  witnessed by Mr Okuk.

  On even date, the GGPNG, witnessed by Mr Okuk signed the Participant
  Sponsorship
  Agreement with UBS Nominees Pty Ltd.

  On even date, the Prime Minster, Mr Vele, UBS AG (the Arranger), UBS
  AG (the Facility
  Agent) and UBS Nominees Pty Ltd signed the Confirmation Side Letter.

• Page 250 of 475

• On even date, the GGPNG signed the Nominee Deed with UBS AG, UBS
  Nominees Pty Ltd
  and UBS Securities Australia for the Nominee (UBS Nominees Pty Ltd).
  The signing was
  witnessed by Mr Okuk.

  On even date, the Substantial shareholders notice was prepared and
  lodged with Port
  Moresby Stock Exchange (POMSox) and ASX lodged on 17 March 2014.

  On even date, the State (Subscriber) represented by the GGPNG
  witnessed by Mr Okuk
  signed the Subscription Agreement with Oil Search Limited (Issuer).

  On even date, Mr Stephen Gardiner, the Chief Financial Officer for
  Oil Search Ltd, advised
  that Goldman Sachs Financial Markets Pty Ltd with a Bank Account
  number 011-112034-
  041 was the recipient of the Subscription.

  Comments

  The Commission‘s investigation revealed that the manner in which Mr
  Vele and Minister
  Micah engaged the UBS AG to provide a Loan facility for the State to
  purchase 149,390,244
  shares in Oil Search Ltd was improper.

  For instance, the BPNG was initially engaged by the NEC in its NEC
  Decision No: 479/2013
  to re-finance the IPIC Exchangeable Bond loan. However, the State‘s
  intention was changed
  from re-financing the IPIC Exchangeable Bond to purchasing of new
  shares in Oil Search
  Ltd after the Prime Minister‘s meeting with Mr Botten and Mr Aopi
  when negotiations
  with IPIC and the Government of Abu Dhabi to buyback the IPIC
  Exchangeable Bond failed
  when IPIC did not respond to the GoPNG request.

  It was also revealed that on 30 January 2014, Mr Vele engaged UBS AG
  as the Sole Financial
  Advisor and Lead Arranger in relation to the management of the
  Investment of the State in
  Oil Search Ltd and associated matters flowing from the issuance of
  2009 IPIC Exchangeable
  Bond, without a formal NEC Decision advising of the UBS AG
  engagement to re-finance the
  IPIC Exchangeable Bond.

  It was also revealed that Mr Vele had engaged UBS AG to be the
  Financial Advisor, Leader
  Arranger and then later as the Lender of the loan to the State for
  the purpose of purchasing

• Page 251 of 475

• shares in Oil Search Ltd and this was done prior to the NEC Decision
  of 6 March 2014.

  In addition, the engagement of UBS AG as the Financial Advisor, Lead
  Arranger and Lender
  of the Bridge and Collar Loan totalling AU$1.239 Billion to the
  State to purchase
  149,390,244 shares in Oil Search Ltd was done without complying with
  the public tender
  process and requirements for COI to waiver the tender under the
  Public Finance Management
  Act 1995.

  Findings of Facts Page 99

  [2i] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [2(i)]
  of the Report. Below is his response.

  PART 2 ENGAGEMENT OF CONSULTANTS TO FACILITATE THE BORROWING OF
  UBS AG
  LOAN

  [2] ENGAGEMENT OF FINANCIAL AND TECHNICAL CONSULTANTS

  [i] ENGAGEMENT OF UBS AG AS FINANCIAL ADVISOR AND LEAD ARRANGER
  FOR THE
  REFINANCING OF IPIC EXCHANGEABLE BOND

  (i) Response to Comments page 72

  In addition to my response to Findings of Fact Part 1 of this
  Provisional Report, I make additional
  comments.

  1. On 30 January 2014, Mr. Bakani wrote to the Director of
  Investment banking UBS AG regarding
  the re-financing of the IPIC Loan and advised that the State
  accepted its proposal to re-finance
  the IPIC Exchangeable Bond by the combined structure of a
  Rollover Collar and term Loan. Mr
  Bakani also requested the UBS AG to confirm in writing its
  commitment to fun the AU$1.7
  Billion IPIC Exchangeable Bond.

  2. The finding is incorrect it is false the state that on 30
  January 2014 I engaged UBS AG to act as
  the sole Financial Advisor and Lead Arranger, in relation to
  the management of the investment
  of the State in Oil Search Ltd. I did not engage UBS AG on 30
  January 2014 or at any other time

• Page 252 of 475

• prior to 6 March 2014 or after.

  3. UBS AG were only actually engaged by the State following NEC
  decision no 79/2014. Following
  the advice from BPNG that the State had accepted UBS AG
  proposal, as essentially project
  manager of the IPIC Bond matter, I commenced negotiations and
  dealings with UBS AG, but
  their retainer was contingent on the NEC Decision of 6 March
  2014.

  4. It is also false to state that I engaged UBS AG as the Lender
  of the Loan. A proposal was put to
  NEC for the engagement of UBS AG as Financial advisor, Lead
  arranger and Lender on 6 March
  2014. It was only a decision of NEC that could determine to
  engage them. All parties involved
  were aware of this. No retainer agreements were signed until
  after the NEC Decision No
  79/2014 on 6 March 2014.

  5. I was working with them to put the essentially ―draft deal‖
  before NEC as BPNG had originally
  selected them as the preferred advisor and arranger.

  6. If NEC has decided against the deal then they would never have
  been officially retained. As to
  their fees for work done in assisting with putting together
  the draft deal to include in the
  proposal for NEC – consideration would have had to have been
  given to paying for the
  preparation work for the draft deal on a quantum meruit basis.

  Comments

  The Ombudsman Commission notes Mr Vele‘s comments in regard to the
  engagement of
  UBS AG as financial advisor and lead arranger for the refinancing of
  OPIC exchangeable
  bond.

  However, the Ombudsman Commission‘s original comments on Mr Vele not
  complying
  with the procedures and processes outlined in Sections 39 and 40 of
  the Public Finance
  (Management) Act 1995 remains.

  Mr Vele should have complied with the provisions of the Public
  Finance (Management) Act 1995
  and called for open tender inviting potential Financial Advisors and
  Lead Arrangers for the
  refinancing of the IPIC exchangeable bond.

• Page 253 of 475

• Findings of Facts Page 100

  There was no need for Mr Vele to request the NEC for a COI to be
  issued when there was
  no natural disaster or defence emergency or health emergency or a
  situation of civil unrest.
  In fact this was a blatant ignorance of the procedural requirements
  of the procurement and
  tender process and abuse of the COI.

  [ii] ENGAGEMENT OF KPMG AND PACIFIC CAPITAL LIMITED TO
  FACILITATE THE BORROWING OF UBS AG LOAN
  On 19 December 2013, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 approved that the BPNG provide final evaluations on the
  proposals from Citi Bank
  and UBS AG to re-finance the IPIC Exchangeable Bond.

  On 27 January 2014, Mr Bakani recommended the UBS AG to Minister
  Micah as the State‘s
  preferred Financer for the re-financing of the IPIC Exchangeable
  Bond.

  On 30 January 2014, Mr Vele engaged UBS AG to act as the Sole
  Financial Advisor and Lead
  Arranger, in relation to the management of the investment of the
  State in Oil Search Ltd and
  associated matters flowing from the issuance in 2009 of the IPIC
  Exchangeable Bond.

  On even date, Mr Bakani informed the Directors for Investment
  Banking, UBS AG that the
  State had accepted its proposal to re-finance IPIC Exchangeable Bond
  worth AU$1.7 Billion.

  On 7 February 2014, Mr Bakani re-assured Minister Micah on the
  BPNG‘s recommendation
  to use UBS AG to re-finance IPIC Exchangeable Bond.

  On 23 February 2014, the Prime Minister, Mr Botten, Mr Aopi and Mr
  Vele met at Grand
  Papua Hotel and decided for the State to buy 149, 390, 244 shares
  which translated to 10.01
  % shareholding in Oil Search Ltd.

  On 27 February 2014 four days after the meeting, the Prime Minister
  wrote to Mr Fowler
  regarding UBS AG proposal to provide funding facilities to the State
  in connection with the
  subscription by the State for approximately 149.39 million shares in
  Oil Search Ltd for
  AU$8.20 per share.

• Page 254 of 475

• On 4 March 2014, Ashurst Lawyers forwarded draft documents for its
  client UBS AG to the
  State that outlined the financial package that UBS AG was offering
  the State.

  On even date, Mr David Heathcote of KPMG presented KPMG‘s analysis
  on the monetised
  collars relating to financing the purchase of Oil Search Ltd shares
  to NPCP.

  On 5 March 2014, Mr Vele wrote to Mr Rolpagarea and stated that the
  documents related
  to a proposed transaction whereby the State entered into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd and
  requested for his legal
  clearance. The draft loan transaction documents and draft NEC Policy
  Submission and
  other documents were delivered to Mr Rolpagarea by Pacific Legal
  Group Lawyers,
  purportedly engaged by Mr Vele very late at night on the eve of the
  NEC Special Meeting
  scheduled for 6 March 2014.

  On even date, Mr Rolpagarea requested Mr Vele to provide to him
  details of confirmation
  and clear instructions on the engagement of Pacific Legal Group
  Lawyers and advised him
  on the need to comply with Section 209 of (Parliament
  Responsibility) of the Constitution by
  the NEC.
  Findings of Facts Page 101

  On 6 March 2014, the Prime Minister submitted an NEC Policy
  Submission No: 67/2014 to
  the NEC and the NEC in its Decision No: 79/2014 among other things
  approved the
  borrowing of the UBS AG Loan for purpose of purchase of Oil Search
  Ltd shares and for
  purpose of meeting the expenses of the borrowing and CSTB to issue a
  COI and APC to be
  executed by the DoF.

  On even date, Mr Vele requested Mr Eludeme to approve his request
  for COI at the earliest
  to cover the advisory costs pertaining to the facilitation of the
  borrowing of the UBS AG
  Loan. Below is an extract of Mr Vele‘s request:

  …It is imperative that State be provided with urgent relevant
  and necessary financial, legal
  and technical advisory services in connection with that purchase

• Page 255 of 475

• and related financing of the
  purchase by the State of the shares in Oil Search Limited. The
  transaction completing is to be
  completed at close of business on Sunday 9th March 4pm and
  therefore the appointment of
  the Legal, Financial and Technical Advisors were urgent and
  necessary. NEC has approved
  the appointments of the following firms on the recommendation of
  Department of Treasury:

  Norton Rose Fulbright of Australia (Overseas Lawyers),
  Pacific Legal Group Lawyers (local lawyers) and
  Pacific Capital Limited (Financial and Technical Advisors) to act
  for the State on this
  matter.

  It would be appreciated if you could consider and approve the
  Request for Certificate of
  Inexpediency enclosed at the earliest to cover the advisory fees
  of up to a limit of
  K9,000,000.00.

  On even date, the Prime Minister advised the GGPNG, that the NEC
  approved the
  borrowing of a loan for the purpose of purchasing shares in Oil
  Search Ltd and for the
  purpose of meeting the expenses of the borrowing itself.

  On even date, Mr Vele requested Dr Ngangan to approve the payment to
  UBS AG in relation
  to the acquisition of the shares.

  On even date, Mr Vele advised Mr Eludeme that the Local and
  International financial and
  legal Advisors engaged as Consultants should be paid for services
  rendered to the State in
  relation to the borrowing of the UBS AG loan.

  On 7 March 2014, Dr Ngangan approved the APC Expenditure Forms that
  indicated that
  there were funds available to pay the Local Consultants who
  facilitated the borrowing of
  the UBS AG Loan and purchase of shares in Oil Search Ltd. Below is
  an extract of Dr
  Ngangan‘s approval:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that he
  provisions of Part VII of the
  Public Finance (Management) Act 1995 have been complied with in
  relation to the
  purchase or supply of the property and services referred to in the
  Schedule and that funds
  will be available to meet the proposed schedule of payments for
  that property and those

• Page 256 of 475

• services authorised the pre-commitment of expenditure of up to
  K9,000,000.00 for the
  purchase or supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory services
  in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary
  shares in Oil Search Limited through UBS AG, Australia Branch
  (ARBN 088 129 613).

  Findings of Facts Page 102

  On 10 March 2014, Mr Eludeme advised Mr Vele that the CSTB resolved
  and approve the
  issuance of the COI for the awarding of contracts to both Local and
  International Advisors.
  Below is an extract of Mr Eludeme‘s response:

  The Board at its Meeting No: M-03/2014, held on Friday 07 March
  2014 carefully considered your
  submission and resolved to approve the issuance of certificates of
  inexpediencies for award of
  contracts to the following financial/legal/technical firms from
  Papua New Guinea and
  International Law firms.

  PNG Firms

  1. Pacific Legal Group Lawyers
  2. Pacific Capital Limited

  The fees to cover the cost is PG Kina Nine Million, only
  (PGK9,000,000.00)

  International Firms

  1. UBS AG Australia Branch
  2. Ashurst Lawyers,
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees to cover the cost is AU$ Fourteen Million, Five Hundred
  and Fifty Five Thousand
  Seven Hundred and Fifty Nine only (AU$14,555,759.00).

  The Board further advised that the contracts must be compiled
  separately with the exact

• Page 257 of 475

• amount for each firms.

  The Board‘s approval is subject to the State Solicitor‘s clearance
  together with the receiving
  an approved original Authority to Pre-Commit (APC) to confirm
  funding.

  The Board carefully noted the NEC Decision No: 79/2014 and is
  satisfied that all processes
  have been followed and the award was made in accordance to the
  provisions of the Public
  Finance (Management) Act 1995. The Secretariat will inform the
  respective firms through a
  Letter of Acceptance.

  You are hereby advised to prepare a draft Contract Agreement and
  refer back to the Central
  Supply and Tenders Board to obtain legal clearance from the State
  Solicitors Office. Upon
  obtaining clearance, the agreement will be executed by me for and
  on behalf of the State.

  Your original submission, stamped and signed is returned for your
  appropriate action.

  On even date, Mr Vele wrote to Mr Eludeme and sought clearance from
  the CSTB to pay the
  financial, legal and technical Advisors who were engaged by Mr Vele
  to facilitate the State‘s
  borrowing of the UBS AG loan to finance the acquisition of Oil
  Search Ltd shares. Below is
  an extract of Mr Vele‘s letter:

  The transaction has been completed and I would like to thank your
  office for your assistance
  in this matter.

  One final issue that has to be cleared before my office can
  process payment for the Local
  Legal Advisors and the Local Financial Advisors is a clearance
  letter from the Office of the
  State Solicitor.

  As you will note a loan to the State of A$1.225 Billion from UBS
  AG, Australia Branch (UBS),
  initially comprising two facilities (a A$330 million bridge loan
  facilities and a A$904 collar
  loan facility), together with the engagement of UBS as Advisors to
  the State on the
  acquisition of the Oil Search shares and arranger of the
  financing, including that UBS may be

  Findings of Facts Page 103

• Page 258 of 475

• further engaged to implement (on behalf) of the State) a
  sovereign bond issue anticipated to
  be no later than 30 June 2014 to replace the bridge loan.

  The Bridge Loan will to be urgently refinanced in the near future
  and the collar loan facility
  in the next 12 to 24 months hence my office requested that the
  office issue a COI for the local
  Advisors to be capped at nine million kina. The purpose was that
  the Acquisition of the Oil
  Shares and the financing of this transaction is the first phase
  of their consultancy services.
  On this basis they were retained to conclude this transaction for
  the following fees subject to
  clearance from your office and the office of the State Solicitor:
  (first stage)

  Pacific Legal Group Lawyers K1.6 million
  Pacific Capital Limited K1.25 million

  The Department has retained both Firms to continue work on the
  second phase of the
  transaction which is the refinancing of the Bridge and Collar
  Loan.

  To summarise the engagements of the two firms were:

  STAGE 1

  Discussion and possible negotiation with International Petroleum
  Investment Corporation
  (IPIC) of Abu Dhabi in respect of the deposition of the
  Exchangeable Bonds issued by the
  Independent Public Business Corporation (IPBC) in respect of the
  IPBC‘s holdings of the
  196.6 million shares ion Oil Search Limited (Oil Search).

  Assistance with the proposed subscription by the State (through
  Treasury) for a significant
  number of shares in Oil Shares under a placement arrangement in
  the event that discussions
  with IPIC do not result in the reacquiring all or part of the
  shares in Oil Search shares
  covered by the IPIC – issued Exchangeable Bonds.

  STAGE 2

  As a second phase to the above Project, assistance with the
  refinancing of all or part of the
  initial finance raised to acquire the interest in Oil Search.

  Since they have completed the first stage of their service to the

• Page 259 of 475

• Department I have endorsed
  the payment of the first phase fees as mentioned above subject to
  necessary clearance from
  your office and the office of the State Solicitor.

  On 11 March 2014, Mr Vele completed and endorsed an APC Form that
  requested for the
  release of AU$14,555,759 to be paid to the International Consultants
  that prepared and
  advised the State on the purchase of Oil Search Ltd shares.

  On even date, Dr Ngangan approved the APC Expenditure and stated:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that he
  provisions of Part VII of the
  Public Finance (Management) Act 1995 have been complied with in
  relation to the
  purchase or supply of the property and services referred to in
  the Schedule and that funds
  will be available to meet the proposed schedule of payments for
  that property and those
  services authorised the pre-commitment of expenditure of up to A
  $10,347,821.00 for the
  purchase or supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory services
  in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary
  shares in Oil Search Limited through UBS AG, Australia Branch
  (ARBN 088 129 613).

  Findings of Facts Page 104

  On 12 March 2014, Mr Vele endorsed an APC Form to release
  K1,250,000.11 that was paid to
  the Pacific Capital Ltd as consultancy fees.

  On even date, Dr Ngangan advised Mr Eludeme that he received two APC
  Forms from Mr
  Vele. Below is an extract:

  Department of Finance has received two APC applications from
  Treasury Department for
  deliberations.

  Proposed Procurement Amount

• Page 260 of 475

• PNG Financial & Technical Advisors K1,250,000.00
  Acquisition by State of Oil Search Shares

  State (PNG) Legal Advisors – Acquisition K1,600,000.00
  By State of Oil Search Shares

  Pursuant to the requirements of s47 of the Public Finances
  (Management) Act, I have
  approved the application for the Department for authority to
  pre-commit for the above
  Procurement. The approved forms are enclosed with this letter.

  I now recommend you for your deliberation and Board assistance
  with GoPNG
  procurement requirements and Board approval. A copy is given to
  the respective
  Department for the confirmation of the approved procurement.

  Yours sincerely,

  (signed)
  Dr KEN NGANGAN CMA CPA
  Acting Secretary

  Comments

  As noted previously the Commission‘s investigations revealed that Mr
  Vele engaged the
  financial and technical Consultants which included KPMG and Pacific
  Capital Ltd to
  facilitate the documentation to enable the State to borrow UBS AG
  Loan to purchase shares
  in Oil Search Ltd without complying with the public tender and
  procurement processes
  under the Public Finance (Management) Act 1995 and the Finance
  Management Manual.

  Instead, Mr Vele wrote to Mr Eludeme and requested for a COI to be
  issued in order to
  waiver the public tendering of the Contracts and to formalise the
  earlier engagement of
  these Consultants who provided financial and technical advisory
  services to the State
  through the DoT. Mr Vele also requested Mr Eludeme to approve the
  retrospective
  application of the COI as these Consultants had rendered their
  services prior to their formal
  engagement to facilitate the borrowing. This was improper and in
  breach of the Public
  Finance (Management) Act 1995 and the Finance Management Manual.

  In his interview with the Commission in regard to the borrowing of
  the UBS AG Loan, Mr
  Vele stated that the Legal, Financial and Technical Consultants were

• Page 261 of 475

• already engaged by
  the DoT to provide consultancy and advisory services to the
  Department before his
  appointment as Acting Secretary. However, there is no evidence to
  confirm Mr Vele‘s
  statement.

  Findings of Facts
  Page 105

  [2ii] RESPONSE FROM MR DAIRI VELE ON THE ENGAGEMENT OF KPMG
  AND PACIFIC CAPITAL LIMITED

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [2(ii)]
  of the Report. Below is his response.

  PART 2 ENGAGEMENT OF CONSULTANTS TO FACILITATE THE BORROWING OF
  UBS AG LOAN
  [2] ENGAGEMENT OF FINANCIAL AND TECHNICAL CONSULTANTS
  [ii] ENGAGEMENT OF KPMG AND PACIFIC CAPITAL LIMITED TO FACILITATE
  THE
  BORROWING OF UBS AG LOAN

  (i) Response to Commenting page 77

  2. On 25 February 2014 UBS AG wrote to me and outlined the terms
  of engagement, including fees
  charged in relation to the role as Financial Advisor and Legal
  Arranger as well as financial
  modelling.

  3. At about this time KPMG was also brought in as part of the
  State‘s due diligence to provide
  independent advice on the structure of the loan for the
  purchase of Oil Search shares. KPMG‘s
  role was to test the assumptions about the pricing auctions
  that UBS AG had developed and
  generally to ensure that UBS was providing good value for money
  to the State. We wanted to
  ensure that the State was getting value for money and that the
  financial calculations were correct.
  We thought this was the responsible and prudent course to take.

  4. I recall that KPMG‘s advice was ultimately that UBS‘s fees
  were on the high side but within the
  market range and therefore acceptable. Subsequent to this I had
  further negotiations with UBS

• Page 262 of 475

• and was able to get them to agree to further reduce their fees.

  5. There was no retainer agreement with KPMG at that stage and
  they were well aware that
  retainer and payment for their work very much depended upon
  whether or not Cabinet
  determined to go ahead with the transaction.

  6. While I had also received advice about the transaction from
  Pacific Capital. I wanted advice from
  KPMG in order to confirm this advice and it also provided some
  comfort to me and to the
  Cabinet that UBS loan structure was appropriate and the fees
  payable are reasonable.

  7. With regards to my communications with CSTB and a request for
  a COI, I say I at all times acted
  on the legal advice of the IPBC retained Norton Rose Lawyers,
  the State Solicitor and the Cabinet
  Decision No 79/2014. I made no decision on my own to request a
  COI. I was merely implementing
  the decision of Cabinet No 79/2014.

  8. I was advised by Norton Rose to seek clearances on all the
  transaction documents and required
  approvals. I sent the documents to the State Solicitor on 5
  March 2014.

  9. IThat State Solicitor quite clearly advised that there were
  statutory approvals and permissions
  needed and he advised that I should seek these after NEC had
  decided in favour of the deal. He
  made this at point 2 of his letter dated 6 March 2014 after the
  starting sentence ―I have also noted
  the recommendations and make the following comments‖. The COI
  was one of the
  recommendations he noted.

  10. The matter then went before Cabinet on 6 March 2014 and NEC
  determined to endorse a COI to
  be issued by SCTB and I was on the distribution List.

  11. I then wrote on 6 and 7 March 2014 to CSTB to apply for a COI
  to be issued on the advice of and
  in accordance with the advice of the State Solicitor, and in
  accordance and for the purposes of
  giving effect to the NEC decision No 79/2014.

  12. I did not make the decision to apply for a COI–NEC did. I did
  not made the decision to issue a
  COI-CSTB did.

  13. My conduct was not improper at all and certainly not in
  breach of the PFMA and Financial

• Page 263 of 475

• Management Manual.

  14. Norton Rose Fulbright was retained by IPBC on 5 December 2012
  to advice on IPIC refinancing
  and options, and their retainer letter evidences that.

  15. None of the other Consultants were engaged by me on behalf of
  the State prior to the 6 March
  2014 Cabinet decision.
  Findings of Facts Page 106

  [2iii] RESPONSE FROM MR FRANK KRAMER

  On 16 February 2015, Mr Frank Kramer responded to the Ombudsman
  Commission‘s
  Provisional Report. Below is an extract of his letter:

  Dear Sir

  Investigation in relation to the UBS Transaction & the Oil Search
  Shares

  I write to you to raise my concerns regarding the Commission‘s
  recent investigations and
  findings in relation to the above matter.

  I was been reliably informed that the findings of those
  investigations purport to implicate
  me in my former capacity as a Director of Pacific Capital Limited
  (the Company). Please
  allow me the opportunity to put the record straight.

  I was a former Chairman and non-executive Director of the Company
  and sold my interests
  (3.86%) in the company to Geefin Limited on 24th January 2012. The
  former Directors
  resigned with the exception of myself who was asked to stay on to
  facilitate certain formal
  transfers to the new owners. (Please refer to attached colies of
  notice of change of
  shareholders and directors).

  It was intended that I would resign immediately thereafter.
  However, due to an oversight by
  the Chief Accountant my cessation as Director of the Company and
  removal as a signatory to
  the Company‘s bank accounts were never effected from the date of
  sale of my interest in the
  Company on 24th January 2012, I have had no direct or indirect
  interest in Pacific Capital
  Ltd. My position as Chairman of the Company ceased effective from
  the date of appointment
  of new Director and representative of Geefin Ltd, Malcolm Gheno.

• Page 264 of 475

• To support my position, I attach herewith sworn statements by
  myself and the Company‘s
  secretary Bipin Agarwal. These sworn statements are self-
  explanatory.

  Should you have nay queries please do not hesitate to contact me.

  Yours sincerely,

  (signed)
  Frank M. Kramer

  Comments

  The Ombudsman Commission notes the comments made by Mr Vele and Mr
  Kramer in
  regard to this particular section of the Report.

  Mr Vele responded to the Provisional Report stating that the
  engagement of KPMG and
  Pacific Capital Ltd to facilitate the borrowing of UBS AG Loan was
  based advice from
  Norton Rose Fulbright, the State Solicitor and the NEC Decision No.
  79/2014.

  It was noted on Mr Vele‘s response to the Provisional Report that he
  failed to state how
  KPMG and Pacific Capital Ltd were engaged to provide financial and
  technical consultancy
  services to the State.

  The Ombudsman Commission noted Mr Kramer‘s response to the
  Provisional Report. It
  was also noted that Mr Kramer was then the Chairman of the NPCP at
  that material time
  when the NEC made its decision to engage NPCP to execute a Payment
  Direction Deed as
  one of the Transaction Documents to facilitate the borrowing and
  interest payments
  accordingly.

  Findings of Facts Page 107

  After assessing Mr Kramer‘s response and all other relevant
  documents before the
  Ombudsman Commission, it was established that the NPCP was never
  involved in the
  procedures leading up to the borrowing of the UBS AG Loan. The only
  time that NPCP was
  brought into the whole saga was when the State had to make
  repayments to UBS AG.

• Page 265 of 475

• In regard to Mr Kramer being a Director of Pacific Capital Ltd at
  the time that he was the
  Chairman of NPCP, Mr Kramer advised that he sold his shares in
  Pacific Capital Ltd on 24th
  January 2012 and hence he was no longer a Director in Pacific
  Capital Ltd.

  A search of company records with the Investment Promotion Authority
  (IPA) established
  that Mr Kramer became Director of Pacific Capital Ltd on 15 May 1997
  and that his
  Directorship ceased on 05 February 2015.

  However, Mr Kramer submitted evidence with supporting documents to
  the Commission
  that indicated that he had resigned as a Director of Pacific Capital
  Ltd. He further stated
  that even though he was no longer a Director, he was requested to
  stay on to formally
  transfer the shareholdership and Directorship to the new owners.

  The Ombudsman Commission further noted in Mr Kramer‘s response that
  at that material
  time that Mr Kramer was the Chairman of NPCP Board of Directors, he
  was still a Director
  of Pacific Capital Ltd.

  It was also noted that no evidence was provided to the Ombudsman
  Commission indicating
  that Mr Kramer declared his interest in Pacific Capital Ltd when
  NPCP was brought into
  the whole saga to execute the Payment Direction Deed. This created a
  conflict of interest
  situation in that Mr Kramer‘s position as Chairman of NPCP and his
  continued
  Directorship with Pacific Capital Ltd either directly or indirectly
  influenced Mr Vele to
  engage Pacific Capital Ltd to provide financial and technical advice
  to the State in regard to
  the borrowing of the UBS AG Loan.

  It was also noted that on 10 April 2014, a DoT cheque No: 005039
  with the amount
  K1,250,000.00 was deposited into Pacific Capital Ltd‘s bank account
  with Australia and
  New Zealand Banking Group (PNG) Ltd. Then between 15 April 2014 and
  27 June 2014,
  moneys were transferred from Pacific Capital Ltd to Pertusio Capital
  Partners Ltd, a
  company in which Mr Vele is a Shareholder and Director.

  [3] MR DAIRI VELE‘S, ACTING SECRETARY, DEPARTMENT OF TREASURY,
  ENGAGEMENT OF CONSULTANTS TO FACILITATE THE UBS AG LOAN

• Page 266 of 475

• TRANSACTION
  On 6 August 2013, the NEC appointed Mr Vele, as the Acting Secretary
  for DoT.

  Between 12 and 16 August 2013, Mr Vele met with officials of various
  Financial Institutions
  in Australia which included UBS AG, Morgan Stanley, JP Morgan and
  Credit Suisse.

  On 19 December 2013, the NEC during a Special Meeting No: 37/2013 in
  its Decision No:
  479/2013 approved that the BPNG provide final evaluations on the
  proposals from Citi Bank
  and UBS AG to re-finance the IPIC Exchangeable Bond.

  On 20 December 2013, Minister Micah wrote to Mr Bakani and requested
  the BPNG to
  evaluate the potential financiers‘ proposals to re-finance the IPIC
  Exchangeable Bond.
  Findings of Facts Page 108

  On 27 January 2014, Mr Bakani recommended the UBS AG to Minister
  Micah.

  On 30 January 2014, Mr Bakani informed the Directors for Investment
  Banking, UBS AG
  that the State had accepted its proposal to re-finance IPIC
  Exchangeable Bond worth
  AU$1.7 Billion.

  On even date, Mr Vele engaged UBS AG to act as the sole Financial
  Advisor and Lead
  Arranger in relation to the management of the investment of the
  State in Oil Search Ltd and
  associated matters flowing from the issuance in 2009 of Exchangeable
  Bond in request of
  the State‘s 196.6 million shares in Oil Search Ltd to IPIC of Abu
  Dhabi.

  On 23 February 2014, Prime Minister, Mr Vele, Mr Botten and Mr Aopi
  met at the Grand
  Papua Hotel and agreed to commit the State to purchasing shares in
  Oil Search Ltd which
  was formalised in the Prime Minister‘s letter dated 26 February 2014
  to Mr Botten.

  On 25 February 2014, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of
  UBS AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30
  January 2014, in relation to the management of the investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance in 2009 of the IPIC

• Page 267 of 475

• Exchangeable Bond in
  respect of the State‘s 196.6 million shares in Oil Search Ltd to the
  IPIC of Abu Dhabi. These
  terms were agreed to when the GGPNG signed the document and
  witnessed by Mr Okuk.

  On 26 February 2014, four (4) days after their meeting at Grand
  Papua Hotel in Port
  Moresby, the Prime Minister wrote to Mr Botten expressing the
  State‘s willingness to
  purchase shares in Oil Search Ltd.

  On 5 March 2014, Mr Vele wrote to Mr Rolpagarea and stated that the
  documents related
  to a proposed transaction whereby the State entered into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd and
  requested for his legal
  clearance. The draft loan transaction documents and draft NEC Policy
  Submission and
  related documents were delivered to Mr Rolpagarea very late at night
  by Pacific Legal
  Group Lawyers purportedly engaged by Mr Vele.

  On even date, Pacific Legal Group Lawyers and Mr Okuk representing
  Mr Vele, delivered 28
  draft documents on the UBS AG Loan that included Draft Board Minutes
  and Resolutions
  for the IPBC and NPCP pre-empting the Board Decisions.

  On even date, Mr Rolpagarea wrote to Mr Vele requesting confirmation
  and clear
  instructions from him regarding the engagement of Pacific Legal
  Group Lawyers and Norton
  Rose Fulbright Lawyers to act on behalf of the DoT, as the legal
  firm had drafted an NEC
  Submission that proposed for the State to enter into financial
  arrangements to fund the
  acquisition by the State of 149,390,244 shares in Oil Search Ltd. Mr
  Rolpagarea advised
  among other matters that Section 209 of the Constitution also
  requires that Parliament‘s
  approval be obtained for these Bridge and Collar Loans which total
  up to AU$1.225 Billion
  through the Budgetary process and that Mr Vele take appropriate
  steps to facilitate this
  constitutional requirement. He advised Mr Vele to proceed to NEC
  with the documents to
  be considered taking into account the advice he had given.

  On 6 March 2014, Mr Vele was called to attend the Special NEC
  Meeting 08/2014 to clarify
  the content of the NEC Policy Submission No: 67/2014. The NEC
  subsequently made a

• Page 268 of 475

• Decision No. 79/2014 among other things to engage UBS AG to be the
  Arranger, Financier
  and Advisor for the Loan to purchase 149,390,244 new shares in Oil
  Search Ltd; appointed

  Findings of Facts Page 109

  Petromin as the State‘s subscriber and nominee for the transaction;
  endorsed NPCP to
  execute the Payment Direction Deed concerning payments from GloCo
  with approval of
  Minister for Finance on recommendation of IPBC and endorsed the
  issuance of COI to
  tender by the CSTB under Section 40(3) of the Public Finance
  (Management) Act 1995 and an
  APC by the Secretary for Finance under Section 47B of the Public
  Finance (Management) Act
  1995.

  On even date, UBS AG issued a Bridge Takeout Letter to Mr Vele and
  outlined the terms of
  fees payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was
  signed by GGPNG, and witnessed by Mr Okuk.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr Okuk.

  On even date, Mr Vele advised Treasury Minister Polye that the Loan
  would not affect the
  State‘s debt program and that Petromin was the subscriber and
  nominee of the State for the
  Transactions.

  On even date Mr Vele wrote to Mr Eludeme and request for the CSTB to
  approve the
  request for COI at the earliest to cover the advisory costs.

  On 7 March, Mr Vele wrote to Mr Eludeme and explained that the COI
  was needed to
  access funds to pay for fees pertaining to the State‘s acquisition
  of the shares in Oil Search
  Ltd.

• Page 269 of 475

• On even date, Mr Vele wrote to Mr Rolpagarea and requested as a
  matter of importance and
  urgency for the legal clearance to be issued on the State‘s
  borrowing of loan arrangements.

  On 8 March 2014, Mr Vele sent an electronic mail to Dr Webster
  requesting for the
  documents to be progressed to the IPBC Board for its consideration
  and approval. The
  electronic mail included electronic copies of documents that Mr Vele
  had prepared for the
  Board to endorse and approve.

  On 10 March 2014, Mr Vele confirmed with Mr Rolpagarea that the
  GGPNG and Minster
  for Treasury were to execute the transaction documents to purchase
  Oil Search Ltd shares
  on behalf of the State, knowing with full knowledge that IPIC
  rejected GoPNG‘s proposal to
  buy the Exchange Bond on 24 February 2014.

  On even date, Mr Vele wrote to Dr Ngangan and requested that they
  approve a payment to
  UBS AG in relation to the acquisition of the shares.

  On 12 March 2014, UBS AG wrote to Mr Vele and the State and
  confirmed the terms and
  conditions of the financing transaction entered into between the
  State and UBS AG in
  respect of Oil Search Ltd shares.

  Findings of Facts Page 110

  On 14 May 2014, Mr Vele wrote to the Commission and advised that the
  State is required to
  make periodic interest payments to UBS AG as per the Loan Agreement
  that was signed on
  12 March 2014.

  On even date, the DoT raised Requisition and Expenditure Forms
  (Finance Forms No: 3 &
  4) and approved for AU$2,261,938.36 which is about K5,543,966.57 to
  be paid to UBS AG.

  On 15 May 2014, representatives of UBS AG, Mr Goldsworthy and Ms
  Raguine wrote to Mr
  Vele and pointed out to him the breach to clause 5.1(b) of the
  Agreement by the State, when
  the State failed to pay the interest for the loan on 14 May 2014 as
  a result of the Directions
  issued by the Commission under Section 27(4) of the Constitution.

• Page 270 of 475

• On even date, Mr Vele requested clearance from Commission on the
  interest payment to
  UBS AG.

  On 16 May 2014, Ms Betty Palaso, Commissioner-General for Internal
  Revenue Commission
  (IRC) issued a Tax Clearance Certificate to the DoT to transfer or
  remit moneys for the
  purpose of payment of interest on UBS AG Loan.

  On even date, a copy of the Notification (transmission) of Original
  indicated that the BPNG
  transferred AU$2,261,938.36 to the Reserved Bank of Australia.

  On 5 June 2014, Mr Eludeme confirmed that CSTB approved a request
  for application for
  COI from Mr Vele.

  On 6 June 2014, Mr Vele filed his affidavit pertaining to the
  National Court proceedings
  against the Commission and the State.

  On 4 July 2014, Mr Vele stated in his letter to the Commission that
  that the UBS loan
  transaction was constitutional and have been lawfully undertaken by
  the State and its
  related parties in every aspect.

  Comments:

  As noted earlier, Mr Vele was appointed by the NEC as the Acting
  Secretary for Department
  of Treasury on 6 August 2013. He was not a career public servant and
  hence was not very
  familiar with Government‘s public finance management process and
  procedures and the
  public service machinery.

  Between the period 12–16 August 2013, soon after Mr Vele‘s was
  appointed as Acting
  Secretary for DoT, he engaged in discussions with officials of
  various Financial Institutions
  in Australia which included UBS AG, Morgan Stanley, JP Morgan and
  Credit Suisse.

  On 19 December 2013, NEC during a Special Meeting No. 37/2013
  decided in Decision No.
  479/2013 to approve BPNG to provide final evaluations on the
  proposals from Citi Bank and
  UBS AG to re-finance that IPIC Exchangeable Bond and report back to
  Minister for Public
  Enterprises and State Investments by end of January 2014.

• Page 271 of 475

• On 27 January 2014 BPNG Governor, Mr Bakani recommended UBS AG to
  Minister Micah
  for him to report back to NEC. There is no evidence to confirm that
  Minister Micah
  reported back to NEC on BPNG‘s recommendations on engagement of UBS
  AG or that NEC
  approved the engagement of UBS AG to re-finance IPIC Exchangeable
  Bond.

  Findings of Facts Page 111

  Hence, Mr Vele had no authority and was wrong when he engaged UBS AG
  on 30 January
  2014, as the Sole Financial Advisor and Sole Lead Arranger and then
  Lender of the AU$1.239
  Billion loan to the GoPNG.

  The Commission‘s investigation revealed that Mr Vele engaged Legal
  and Financial
  Consultants to facilitate the Loan Transaction to purchase shares in
  Oil Search Ltd without
  complying with the tender procedures and requirements for issuance
  of COI under the
  Public Finance (Management) Act 1995 and Finance Management Manual.
  The preparations of the
  NEC Submission on this matter were done by the Consultants engaged
  by him.

  The Financial and Technical Consultants were UBS AG, KPMG and
  Pacific Capital Ltd
  whilst the Legal Consultants involved were Pacific Legal Group
  lawyers, Norton Rose
  Fulbright of Australia and Ashurst that acted for UBS AG. The Law
  Firms involved were
  not cleared by the Attorney-General to act on behalf of the DoT and
  the State in accordance
  with Section 8 of the Attorney-General Act 1989.

  The Commission‘s investigation also revealed that the engagement of
  UBS AG as the Lender
  of the Loan to the State to purchase shares in Oil Search in Oil
  Search Ltd came about as a
  result of Mr Vele‘s earlier engagement of UBS AG in January 2014 as
  the Sole Financier and
  Sole Lead Arranger in relation to management of investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance of 2009 IPIC
  Exchangeable Bond and their
  engagement was done without complying with the tender process and
  the requirements for
  issuance of COI under the Public Finance (Management) Act 1995 and
  Finance Management Manual.

• Page 272 of 475

• The five (5) Consultants; Norton Rose Fulbright of Australia,
  Pacific Legal Group Lawyers,
  Pacific Capital Ltd, Ashurst Lawyers and KPMG were all engaged by Mr
  Vele prior to the
  awarding of the contract by the CSTB and this was in breach of
  Section 40(1) of the Public
  Finance (Management) Act 1995 and Part 13, Division 4, Clause 13 of
  the Finance Management
  Manual.

  Part 13, Division 4, Clause 13 of the Finance Management Manual
  states:

  13. A Certificate of Inexpediency cannot be issued to
  retrospectively cover a contract
  already executed.

  Therefore, Mr Vele‘s statement that proper processes and procedures
  were complied with
  for the engagement of the Consultants was wrong and breached the
  above stated laws.

  The Commission‘s investigation also revealed that Mr Vele and DoT
  did not prepare the
  NEC submission on the UBS Loan Transaction to purchase new shares in
  Oil Search Ltd.
  The NEC Submission was prepared by the Legal and Financial
  Consultants engaged by Mr
  Vele.

  Findings of Facts Page 112

  [3.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [3] of
  the Report. Below is his response.

  [3] MR DAIRI VELE‘S, ACTING SECRETARY, DEPARTMENT OF TREASURY,
  ENGAGEMENT
  OF CONSULTANTS TO FACILITATE THE UBS AG LOAN TRANSACTION

• Page 273 of 475

• Response to Page 81 & 82 and Page 83 & 84

  The facts that are set out on pages 78-80 and 82-83 inclusive are
  inaccurate and I refer to my Response
  to the Chronology in this regard.

  With regards to the comments, I say as follows:-

  1. At all times during the assessment of financial institutions,
  the preparation of the draft deal for
  NEC and the implementation of the NEC Decision 79/2014, I
  followed advice of lawyers both
  external and State and all steps taken were in accordance with
  such advice and the NEC Decision
  No 79/2014.

  2. I engaged in discussions with Bank Officials between 12-16
  august 2013 as mandated by my role as
  Member of the IPIC Bond Committee and in my role as Secretary
  for Treasury.

  3. On 30 January, the finding is incorrect. It is false to state
  that I engaged UBS AG to act as the sole
  Financial Advisor and Lead Arranger, in relation to the
  management of the investment of the
  State in Oil Search Ltd. I did not engage UBS AG on 30 January
  2014 or at any other time prior to
  6 March 2014 or after.

  4. UBS AG was not only actually engaged by the State following
  Cabinet Decision no 79/2014.
  Following the advice from BPNG that the State had accepted UBS
  AG proposal, as essentially
  project manager of the IPIC Bond matter, I commenced
  negotiations and dealings with UBS AG
  to put together the proposal for NEC but their retainer was
  contingent on the NEC Decision of 6
  March 2014.

  5. It is also false to state that engaged UBS AG as the Lender of
  the Loan. A proposal was put to
  NEC for the engagement of UBS AG as Financial Advisor, Lead
  Arranger and Lender on 6 March
  2014. It was only a decision of NEC that could determine to
  engage them. All parties involved
  were aware of this. No retainer agreements were signed until
  after the NEC Decision No 79/2014
  on 6 March 2014.

  6. I was working with them to put the essentially ―draft deal‖
  before NEC as BPNG had originally
  selected them as the preferred advisor and arranger.

• Page 274 of 475

• 7. If NEC has decided against the deal then they would never have
  been officially retained. As to
  their fees for work done in assisting with putting together
  the draft deal to include in the
  proposal for NEC – consideration would have had to have been
  given to paying for the
  preparation work for the draft deal on a quantum meruit basis.

  8. I engaged no legal or financial consultants in breach of the
  Public Finance Management Act and
  Finance Manual before the Cabinet meeting of 6 March 2014 or
  after.

  9. Norton Rose Fulbright was retained by IPBC on 5 December 2012,
  some 14 months earlier, to
  provide legal services with regards to the IPIC Bond Project.
  The work expressly included
  reviewing the terms and conditions of the IPIC Bond, review
  and advise option available to IPBC
  for refinancing of the loan and or a restructure of them terms
  of the existing loan. Specifically it
  was recognised in the scope of work that ―a significant aspect
  of this scope of work would
  involve meeting the objectives regarding the ownership of the
  Oil Search Shares‖.

  10. I was appointed Director of the Gas Project Co-ordination
  Office in December 2011.

  11. On 5 April 2013 the NEC explicitly authorised the Minister
  for Public Enterprises and IPBC to
  explore methods of raising money to redeem the Convertible
  Bonds.

  12. In July 2013 NEC determined to look at ways to refinance the
  IPIC loan and to retain an interest
  in Oil Search. It appointed a committee under the direction of
  IPBC and the Minister for Public
  Enterprises, comprising of the Director of the Gas Projects
  Coordination Office, the Secretary of
  Public Enterprises, the Secretary of Treasury (of his
  nominee), the State Solicitor (or his nominee)

  Findings of Facts Page 113

  and the MD of IPBC to advise on options available to the State
  to refinance and maintain an
  interest in Oil Search (the Committee).

  13. On 6 August I was appointed Acting Secretary for Treasury.

  14. We, the IPIC committee, had already set up meetings with

• Page 275 of 475

• various banks in Sydney to assess
  proposals from banks as to being the financial advisor and
  arranger to the State through IPBC for
  the refinancing advisor and arranger to the State through IPBC
  for the refinancing of the IPIC
  Bond. Norton Rose Fulbright assisted with advice at these
  meetings.

  15. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I will still be a
  Member of the IPIC Committee due to NEC decision No 241/2013.

  16. I sought the advice of Norton Rose Fulbright from the time
  that I was appointed Chairman of the
  IPIC Bond and that was due to the fact the Committee was under
  the direction of IPBC, and
  IPBC had retained Norton Rose Fulbright to advise on the IPIC
  refinancing issues. I was aware
  that Treasury had only undertaken 3 other transactions and on
  each occasion engaged external
  lawyers as members of Treasury, and the Committee, had limited
  financial experience.

  17. This continued until special circumstances arose for them to
  be appointed to represent the State
  on the transaction pursuant to the NEC decision.

  18. After the NEC Decision on 6 March 2014 which endorsed for a
  certificate of inexpediency for
  service and other contracts, for the purposes of giving effect
  to the NEC decision, and I was the
  person with the responsibility to implement it as directed by
  the State Solicitor on 5 March 2014,
  I sought a certificate of inexpediency and to contract those
  consultants who were necessary for
  the transaction to proceed.

  19. I say that at all material times the then Attorney-General
  Kerenga Kua was aware of the NEC
  Decision of 6 March 2014 and the steps necessary to implement
  it.

  20. Mr Kua however did not raise an issue with regards to
  compliance with the Attorney-General
  Act and indeed by his lack of complaint allowed the Consultants
  to be retained as a result of the
  NEC Decision and the CSTB Certificate of Inexpediency.

  21. Mr. Kua by his inaction at the time effectively waived any
  compliance issues, and indeed he was
  bound by the NEC decision, as we all were.

  22. Mr Kua did not raise any issue with the retainer of Legal
  Consultants until the time he was

• Page 276 of 475

• removed by the Prime Minister as Attorney-General in June 2014.

  23. It is incorrect to say that I usurped the powers of the
  attorney-General, firstly as Norton Rose
  Fulbright has been retained by IPBC, and secondly as NEC has
  approved and endorsed the way
  forward with regards to service contracts which was to apply
  for a Certificate of Inexpediency
  due to the short commercial time limits that needed to be
  adhered to.

  24. With regards to Ashurts, they were paid for by the State as
  it was a term of the loan agreement
  with UBS AG that the legal services of the lender would be
  funded by the borrower. This is a
  normal commercial condition. They were not retained by me but
  by UBS AG.

  25. With regards to Pacific Legal Group, they were actually
  retained by Norton Rose Fulbright to act
  as their local Counsel for advice and assistance on procedures
  after Norton Rose Fulbright were
  asked to advice on the possibility of an UBS AG loan/Oil Search
  transaction in accordance with
  the terms of their retainer for IPBC. I did not retain them.

  26. At the time of the request for a Certificate of Inexpediency,
  it was considered by all that it would
  be much more convenient for all parties that Pacific Legal
  Group be paid directly by the State in
  Papua New Guinea, rather than the State remitting funds to
  Norton Rose in Australia and then
  Norton Rose remitting funds back to Papua New Guinea to pay
  Pacific Legal Group.

  27. Essentially, the request for the COI was to facilitate
  payment, as the only actual retainer was for
  Norton Rose, and not for Pacific Legal Group or Ashursts.

  28. Had the Ombudsman Commission interviewed Pacific Legal group
  or Norton Rose Fulbright or
  myself and asked the specific questions, this would have been
  made clear.

  29. I deny that I breached any proper processes or procedure with
  regards to the engagement of legal
  consultants.

  Findings of Facts Page 114

  Comments

• Page 277 of 475

• The Ombudsman Commission noted Mr Vele‘s response to the Provisional
  Report.

  The Ombudsman Commission also noted that Mr Vele stated that the
  State through the
  IPBC retained Norton Rose Fulbright and not Pacific Legal Group
  Lawyers or Ashursts. It
  was noted that Norton Rose Fulbright retained Pacific Legal Group
  Lawyers as it‘s in
  country partner, while Ashursts was retained by UBS AG as it‘s in
  country partner.

  Mr Vele also stated that due to time constraints, it was necessary
  for commercial purpose
  for the NEC to approve the issuance of the COI. He further stated
  that it was convenient for
  the State to pay UBS AG, KPMG, Pacific Capital Ltd, Pacific Legal
  Group Lawyers, Norton
  Rose Fulbright and Ashurst for services rendered under the COI which
  was applied
  retrospectively.

  However, as pointed out earlier in the original comment in the
  Provisional Report, the
  Ombudsman Commission maintains that Mr Vele failed to comply with
  the tender and
  procurement procedures outlined in the Public Finance (Management)
  Act 1995 and the Finance
  Management Manual. That is, Mr Vele‘s engagement of Norton Rose
  Fulbright, KPMG, Pacific
  Capital Ltd, Pacific Legal Group lawyers, and Ashursts to act as the
  Financial and Legal
  Consultants to provide financial, technical and legal advice on the
  borrowing of UBS AG
  Loan to purchase Oil Search Ltd shares was improper and wrong.

  [4] REQUEST FOR A CERTIFICATE OF INEXPEDIENCY FOR THE
  ENGAGEMENT OF CONSULTANTS

  On 6 March 2014, in its Special Meeting No: 08/2014, the NEC made a
  Decision No: 79/2014
  and endorsed that a COI should be issued by the CSTB to facilitate
  the process of making
  sure that the UBS AG Loan is secured. Below is an extract of the NEC
  decision:

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:
  a) issue of a certificate of inexpediency to tender by the

• Page 278 of 475

• Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B, of
  the Public Finance (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department
  of Treasury certifying
  that after the full amount of the borrowing pursuant to the
  Transaction
  Documents, the total value of overseas commercial debt which
  will be owed by
  the State will not exceed 125% of the estimated internal
  revenue of the State for
  the calendar year 2014 within the meaning of section 2(3) of
  the Loans (Overseas
  Borrowings) No. 2 Act;

  On even date, Mr Vele wrote to Mr Eludeme and requested the CSTB to
  approve his
  Request for COI to be issued.

  On 7 March 2014, Mr Vele signed on the Request for COI Form and
  stated that a COI was
  needed to access funds totalling K9 million to pay Norton Rose
  Fulbright Australia, Pacific
  Legal Group Lawyers and Pacific Capital Ltd as financial, legal and
  technical Advisors in
  connection with the purchase and related financing of the purchase
  by the State of 149.39
  million shares in Oil Search Ltd through UBS AG. However, he did not
  tick the appropriate

  Findings of Facts Page 115

  emergency situation (Natural Disaster, Defence Emergency, Health
  Emergency or Civil
  Unrest Emergency) nor did he provide any reason for the urgency, but
  referred to the
  appendix attached to the Request for COI form. At this juncture no
  shares in Oil Search Ltd
  were acquired. Below is an extract of the appendix:

  APPENDIX
  On Thursday 27 February, Oil Search announced that it had agreed
  to acquire a 22.835%
  gross interest in PRL 15 (Elk/Antelope) from the Pac LNG Group
  Companies for US$900
  million to fund through a placement of new shares to the State.
  The State and Oil Search
  reached an agreement (subject to approvals) under which the State
  will be issued 149.30

• Page 279 of 475

• million shares in Oil Search at A$8.20 per share. The State will
  have a 10.01% shareholding in
  Oil Search following the share placement. The State is funding
  the placement through a
  committed financing package from UBS. The State has until 4pm
  (Port Moresby Time) on
  Thursday 6 March to approve the share placement and until 5pm
  (Port Moresby Time) on
  Thursday 6 March for the relevant documents to be executed. In
  the event the State choose
  not to or fails to approve the share placement, the State will
  not secure a shareholding in Oil
  Search and Oil Search will issue shares to institutional
  investors. Failure to complete this
  transaction could expose the State to costs up to AUD$18 million.

  On 11 March 2014, Mr Vele and then Dr Ngangan signed and approved
  the APC form to
  release AU$14,555,759.00 to be paid to the Consultants relating to
  the purchasing of Oil
  Search Ltd shares.

  On 12 March 2014, Mr Eludeme certified that the inviting of tenders
  for the provision of
  financial, legal and technical advisory services was impractical or
  inexpedient and awarded
  the Contract to both local and international consulting firms.

  Comments

  Section 40(3)(b) of the Public Finance (Management Act) 1995 and
  Part 13, Division 4, Clauses 13
  and 14 of the Finance Management Manual clearly outline the
  situations when a Certificate of
  Inexpediency will be issued.

  Section 40(3)(b) of the Public Finance (Management Act) 1995 states:

  40. TENDERS FOR PROPERTY, STORES, WORKS AND SERVICES.

  (3) The preceding provisions of this section do not apply to
  the purchase or
  disposal of property or stores or the supply of works and
  services–

  (b) In respect of which a Board certifies that the inviting
  of tenders is
  impracticable or inexpedient; or

  Part 13, Division 4, Clauses 14 of the Finance Management Manual
  states:

• Page 280 of 475

• 14. Certificates of Inexpediency will only be issued in
  situations where a declared:
  a. Natural Disaster, or
  b. Defence Emergency, or
  c. Health Emergency, or
  d. Situation of Civil Unrest

  As noted earlier the NEC‗s Decision to endorse the issuance of a COI
  to waive tender by

  Findings of Facts Page 116

  CSTB for the engagement of Consultants, was not proper and in direct
  breach of the
  requirements of Public Finance (Management) Act 1995 and the Finance
  Management Manual
  referred to above.

  When Mr Vele forwarded a Request for COI form together with an APC
  Form to Dr
  Ngangan and stated that the contracts were for providing financial,
  legal and technical
  services in connection with the purchase and related financing of
  the State‘s 149,390,244
  million shares in Oil Search Ltd through UBS AG, this was improper
  as the procedures
  outlined in the Finance Management Manual pertaining to the issuance
  of COI and the
  approving of an APC form in order for funds to be released were not
  followed.

  Mr Vele requested Dr Ngangan to approve the APC Form without the
  endorsement of the
  COI by Mr Eludeme for the Contract to provide financial, legal and
  technical services and
  advice to the State to be awarded to Norton Rose Fulbright of
  Australia, Pacific Legal
  Group Lawyers, Pacific Capital, Ashurst Lawyers, KPMG and UBS AG.

  Mr Vele‘s reasons for a COI to be issued to engage the Consultants
  by bypassing the tender
  process was improper as none of the situations mentioned in Part 13,
  Division 4, Clause 14
  of the Finance Management Manual were stated in his reasons for a
  COI and that he failed to
  adhere to Mr Rolpagarea‘s advice in that the COI cannot be applied
  retrospectively as it
  breached the Public Finance (Management) Act 1995 and the Financial
  Management Manual.

  Contrary to Mr Rolpagarea‘s advice, Mr Vele also in his request for
  a COI to be issued by

• Page 281 of 475

• the CSTB, included the UBS AG to be awarded the contract as
  Consultant and this cost was
  also included to be paid from the AU$1.239 Billion loan to the
  State.

  [4.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [4] of
  the Report. Below is his response.

  [4] REQUEST FOR A CERTIFICATE OF INEXPEDIENCY FOR THE ENGAGEMENT
  OF
  CONSULTANTS

  Issuing of COI

  30 With regards to the Issuing of the COI, I followed the advice
  of external lawyers, the State
  Solicitor and the NEC Decision No 79/2014 with regards to my
  actions.

  31 As part of the documents delivered to the State Solicitor on 5
  March 2014, were
  recommendations for the NEC and for various statutory
  approvals. In his letter of advice dated
  5 March 2014, Mr Rolpagarea specifically noted the
  recommendations and advised that after
  the NEC determines to proceed with the deal, all statutory
  authorisations should be sort. The
  COI was one of those authorisations in the recommendations.
  The matters included in the
  recommendations were advised to me to be part of the required
  process by Norton Rose
  Fulbright.

  32 The NEC specifically endorsed the issuance of a COI by the
  CSTB in its decision of 6 March
  2014, which was based on the NEC Submission where this was
  recommended.

  33 After the decision I acted in accordance with the State
  Solicitor‘s and Norton Rose‘s advice
  AND the NEC decision and applied to CSTB for a COI.

  34 The CSTB, an Independent Tribunal met and awarded at COI for
  the Services contracts and
  engagements for consultants.

  35 This is of course in accordance with their power under PFMA,
  which gives the Board and an
  unfettered discretion to issue a COI if it determines that it
  is inexpedient or impracticable to

• Page 282 of 475

• require a tender process.
  Findings of Facts Page 117

  36 The contents of the Financial Manual are instructions issued
  by the Secretary pursuant to
  Section 117 of the PFMA. These instructions are only to be
  issued if they are ―not inconsistent‖
  with the PFMA.

  37 The financial instructions that limit the CSTB‘s discretion
  to four circumstances are
  inconsistent with the Act, and I would respond those
  instructions ar not valid.

  38 In any event, that is not the issue. The CSTB determined
  that a COI issue and then approved
  the payment contracts for services.

  39 I then acted upon their decision and in accordance with the
  NEC Decision and implemented
  those decisions.

  40. When I was later advised by CSTB that the COI was being
  revoked, I was also informed that
  the State Solicitor had advised that although the
  consultants that had been engaged by the
  State could not be paid under the COI–they could be paid on
  a quantum meruit basis as to what
  actual work they had done and that I, the Secretary for
  Treasury, would be then person best
  placed to assess what that quantum would be as I had been
  working with them on the
  preparation of the draft deal and then the transaction
  itself.

  41. That is then what happened. The payments made were on the
  basis of the work completed as
  proper bills had been performed before and after that time.

  42. I repeat, I did not engage any Consultants prior to the NEC
  Decision, or after the NEC Decision
  of 6 March 2014. Norton Rose had already been engaged by
  IPBC.

  43. I made the application to CSTB for a COI, not on my own
  decision, but following the advice of
  the external lawyers and State Solicitor–and as directed by
  the NEC. I was merely
  implementing an NEC decision which as Secretary for Treasury
  is my obligation to do.

  44. I believe I cannot be held responsible for decisions I did
  not make, and in any event, no

• Page 283 of 475

• decisions that were taken by CSTB or NEC were contrary to
  law.

  45. I deny that I breached any provision of the public Financnes
  (Management) Act 1995 or the
  Attorney-General Act.

  Comments

  The Ombudsman Commission noted Mr Vele‘s response to the Provisional
  Report.
  However, the Ombudsman Commission original comments on Mr Vele‘s
  abuse and
  misapplication of the COI remains.

  In addition, the Ombudsman Commission noted with concern Mr Vele‘s
  blatant disregard
  and non-compliance to the relevant laws and regulations that govern
  and guides the tender
  and procurement procedures that resulted in Consultants been engaged
  to facilitate the
  borrowing.

  [5] STATE SOLICITOR‘S ADVICE ON THE ENGAGEMENT OF CONSULTANTS
  TO FACILITATE THE BORROWING

  On 6 March 2014, the NEC in its Decision No: 79/2014, approved among
  other matters for
  the State to acquire 149,390,244 shares in Oil Search Ltd; for the
  State to borrow AU$1.239
  Billion from UBS AG; appointed Petromin as the State‘s subscriber
  and nominee for the
  transaction; approved execution of the Payment Direction Deed by
  NPCP on approval of
  IPBC; approved CSTB to issue a COI and Secretary for Finance to
  issue an APC Form to
  release public funds.

  On even date, Mr Vele requested Mr Eludeme to approve his request
  for COI to be issued
  for payment of the advisory costs of the six (6) financial, legal
  and technical Consultants he
  had engaged.

  Findings of Facts Page 118

  On 7 March 2014, Mr Vele signed the Request for COI Form and stated
  that a COI was
  needed to access funds totalling K9 million to pay Norton Rose
  Fulbright Australia, Pacific
  Legal Group Lawyers and Pacific Capital Ltd as financial, legal and

• Page 284 of 475

• technical Consultants in
  connection with the purchase of shares in Oil Search Ltd.

  On even date, the CSTB met and resolved to approve Mr Vele‘s request
  for issuance of a COI
  for awards of Contract to the six (6) financial, legal and technical
  firms from PNG and
  international as follows;

  PNG Consultants: Total value of K9 million
  (i) Pacific Legal Group Lawyers
  (ii) Pacific Capital Ltd

  International Consultants: Total value of AU$14,555,759.00
  (i) UBS AG (Australia)
  (ii) Ashurst Lawyers
  (iii) Norton Rose Fulbright (Australia)
  (iv) KPMG

  The CSTB approval was subject to the State Solicitor‘s clearance
  together with the receiving
  of an approved Original APC to confirm funding.

  On 12 March 2014, Mr Naime advised Mr Rolpagarea of CSTB‘s decision
  and sought legal
  clearance on the subject matter.

  On 20 March 2014, Mr Rolpagarea wrote to Mr Naime and gave his legal
  opinion on the
  request for the issuance of Legal Clearance – CSTB COI 02/04. Below
  is an extract Mr
  Rolpagarea‘s response:

  1. I refer to your letter and enclosures of 12th March, 2014
  requesting legal clearance for the
  subject matter.

  BACKGROUND

  2. The National Executive Council (‗NEC‘) approved in its Decision
  No. 79/2014 the
  transaction for the purchase of shares in Oil Search Limited with
  funds obtained under a
  UBS loan. Amongst others, NEC approved the engagement of
  financial, legal and technical
  Consultants within PNG and internationally.

  3. Due to the urgency of the matter, Consultants were engaged to
  provide services without
  complying with the procurement process under the Public Finance
  (Management) Act
  1995 (‗PNG‘).

  4. In a letter dated 6th March 2014, Acting Secretary for the

• Page 285 of 475

• Department of Treasury
  (―Treasury‖), Mr Dairi Vele sought approval from the Central
  Supply and Tenders Board
  (‗CSTB‘) for a Certificate of Inexpediency (‗COI‘) for the
  payment of services for the
  following Consultants:

  PNG Consultants to a total value of K9 million

  (i) Pacific Legal Group Lawyers
  (ii) Pacific Capacity Limited
  International Consultants to a total value of AU$14,555,759.00

  (i) UBS AG Australian Branch
  (ii) Ashurst Lawyers
  (iii) Norton Rose Fulbright of Australia
  Findings of Facts Page 119

  (iv) KMPG

  5. The CSTB convened on 7th March 2014 to consider the request from
  Treasury and approved
  the issuance of the COI subject to clearance from my Office.

  6. Having noted your request and the relevant documents pertaining
  to it, I now provide my
  advice on the following issues.
  Questions and Short Answer
  7. The questions and Short Answers are as follows:
  Q1: Whether a COI can be issued for the engagement of the
  Consultants (financial, legal
  and technical)?

  A1: No

  Q2: Whether CSTB has the power to approve retrospectively the
  payment of service for
  the engagement of the Consultants?

  A2: No

  Reasons

  Certificate of Inexpediency

  8. I note that the National Executive Council in Decision No.
  79/2014, amongst other things,
  endorsed the issuance of a COI for the captioned engagements.
  However, such issuance of a
  COI is subject to the relevant provisions of the PFMA and
  Financial Instructions.

  9. Section 40(3)(b) of the PFMA empowers CSTB to certify that the

• Page 286 of 475

• inviting of tenders is
  impractical or inexpedient. Part 13, Division 4.14 of the
  Financial Instructions limits the
  issuance of a COI to the following declared situations:

  1. Natural Disaster; or
  2. Defence Emergency; or
  3. Health Emergency; or
  4. Civil Unrest

  Furthermore, part 13, Division 4.13 of the Financial Instructions
  further provides that a COI
  cannot be issued to retrospectively cover a contract that has
  been performed. The
  principles of retrospectively will only apply if it is expressed
  in a law.

  10. In light of the above, the circumstances in this case do not
  warrant the issuance of a COI. I
  have noted that an Authority to Pre-Commit Funds has been issued
  and CSTB has also
  approved as requested by Secretary for the Department of
  Treasury. This shows approval
  for such engagement, however such approval came after the task
  was completed. All the
  arrangements obtain the requisite approvals should have been
  obtained prior to the
  engagement of the Consultants to be compensated for the work
  already carried out. This
  can be done on a Quantum Meruit basis.

  Quantum Meruit

  11. Quantum Meruit is an equitable principle which provides for the
  reasonable payment for
  the actual value of work that is done. The Courts held in the
  case of Fly River Provincial
  Government v Pioneer Health Services [2003] SC705 that where work
  has been performed
  on a contract not procured through the PFMA process, the party
  that has performed the
  work may obtain restitution under equity to avoid unjust
  enrichment by the other party to
  whom work has been performed for.

  12. You would note that the work carried out is a commercial
  transaction which requires
  significant effort. Treasury was involved from the beginning with
  the Consultants until the
  tasks were completed. Therefore Treasury would be better placed
  to work out the
  remuneration based on the principle of Quantum Meruit. This means
  the Consultants will

• Page 287 of 475

• Findings of Facts Page 120

  not be paid as per the initial amount agreed to, but for work done
  taking into account the
  nature of the transaction.

  Attorney-General Approval

  13. Section 8(4) of the Attorney-General Act 1989 provides:

  ―On matters affecting the conduct of the business of the State
  where legal issues arise or
  might arise, legal advice shall be provided by the Attorney-
  General, either in his capacity as
  principal legal adviser to the National Executive or under
  Subsection (2) or (3) to the
  exclusion of all other lawyers unless the Attorney-General, in his
  absolute discretion,
  authorizes the giving of legal advice by any other person.‖

  14. It is based on approval by the Attorney-General that legal
  services can be sought by
  government agencies from private firms both within PNG or
  internationally.

  15. In the given circumstances, the engagement and payment of legal
  services from private
  firms must be done in consultation with the Attorney-General.
  Payment for the provision
  of legal services should be made on a Quantum Meruit basis
  provided the State is fully
  satisfied with the services rendered. Treasury would in this case
  be in a position to make an
  assessment of the amount to be paid.

  16. I suggest that the prior to payment for legal services,
  Treasury should seek an audience
  with the Attorney-General as the person authorized by law to brief
  out to private law firms
  for the provision.

  17. Treasury should seek an audience with the Attorney-General as
  the person authorized by
  law to brief out to private law firms for the provision of legal
  services to the State.
  Way Forward

  18. Provided that a COI is not justified in these circumstances,
  Treasury and the Central Bank
  may consider paying for the services rendered by the Consultants
  on a Quantum Meruit
  basis as discussed above. In addition, the payment for legal
  services should be done in

• Page 288 of 475

• consultation with the Attorney-General.

  Comments

  As noted earlier, Mr Vele engaged the National and International
  Consultants referred to
  above to provide legal, financial and technical services to the DoT
  in relation to the UBS AG
  Loan Transaction for the State to purchase shares in Oil Search Ltd
  and they provided their
  services, before the necessary approvals were obtained including the
  request to CSTB to
  issue a COI to waiver the tender process for engagement of such
  Consultants, under the
  Public Finance (Management) Act 1995 and this was wrong.

  As noted earlier, Mr Vele engaged the legal consultants to provide
  legal services to DoT
  without the approval of the Attorney-General as required under
  Section 8(4) of the
  Attorney-General Act 1989.

  The proper thing for the CSTB to do after receiving Mr Vele‘s
  request for issuance of COI
  for the engagement of the Consultants, was to seek the advice of the
  State Solicitor (who is
  also a member of the CSTB) before making it‘s decision to approve
  the issuance of a COI for
  the engagement of the Consultants. The CSTB failed to do that. It
  sought the advice of State
  Solicitor after the event (ie after it had made its decision to
  approve the issuance of a COI)
  which was wrong. As noted earlier, the State Solicitor was not aware
  of the CSTB meeting
  and did not attend the Meeting to decide on the issuance of the COI.

  Findings of Facts Page 121

  The State Solicitor‘s advice on the engagement of the legal,
  financial and technical
  Consultants and the issuance of COI to facilitate their engagement
  and for retrospective
  approval of COI for payment of their services was in order
  consistent with the specific
  requirements of the Public Finance (Management) Act 1995 and the
  Financial Management Manual
  and the Attorney-General Act 1989.

  As a result, the issuance of the COI to engage the legal, financial
  and technical Consultants

• Page 289 of 475

• was improper as the circumstances did not warrant the issuance of a
  COI under the Public
  Finance Management Act 1995 and the Finance Management Manual.

  [6] CENTRAL SUPPLY & TENDERS BOARD APPROVED THE ISSUANCE OF
  THE CERTIFICATE OF INEXPEDIENCY

  On 6 March 2014, the NEC in its Decision No: 79/2014 made during
  it‘s Special Meeting No:
  8/2014 related to the financial arrangement for State acquisition of
  shareholding in Oil
  Search Ltd and State‘s borrowing from UBS AG for such purpose,
  approved among other
  matters for the CSTB to issue the COI. Below is an extract of the
  NEC Decision:

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  On even date, Mr Vele wrote to Mr Eludeme and stated:

  ―…It is imperative that State be provided with urgent relevant
  and necessary financial, legal
  and technical advisory services in connection with that purchase
  and related financing of the
  purchase by the State of the shares in Oil Search Limited. The
  transaction completing is to
  be completed at close of business on Sunday 9th March 4pm and
  therefore the appointment
  of the Legal, Financial and Technical Advisors were urgent and
  necessary. NEC has approved
  the appointments of the following firms on the recommendation of
  Department of Treasury:

  Norton Rose Fulbright of Australia (Overseas Lawyers), Pacific
  Legal Group Lawyers (local
  lawyers) and Pacific Capital Limited (Financial and Technical
  Advisors) to act for the State
  on this matter.

  It would be appreciated if you could consider and approve the

• Page 290 of 475

• Request for Certificate of
  Inexpediency enclosed at the earliest to cover the advisory fees
  of up to a limit of
  K9,000,000.00‖.

  On 7 March 2014, Mr Vele signed on the request for COI Form
  formalising his request for a
  COI in order to access funds totalling K9 million to pay Norton Rose
  Fulbright Australia,
  Ashurst Australia, Pacific Legal Group Lawyers, KPMG and Pacific
  Capital Ltd as Financial,
  Legal and Technical Advisors in connection with the purchase and
  related financing of the
  purchase by the State of 149, 390,244 million shares in Oil Search
  Ltd through UBS AG.
  Below is an extract:
  APPENDIX

  On Thursday 27 February, Oil Search announced that it had agreed
  to acquire a 22.835%
  gross interest in PRL 15 (Elk Antelope) from the Pac LNG Group
  Companies for US900
  million to be funded through a placement of new shares to the
  State. The State and Oil
  Findings of Facts Page 122

  Search reached an agreement (subject to approvals) under which
  the State will be issued
  149.39 million shares in Oil Search at A$8.20 per share. The
  State will have a 10.01%
  shareholding in Oil Search following the share placement. The
  State is funding the placement
  through a committed financing package from UBS. The State has
  until 4pm (Port Moresby
  Time) on Thursday 6 March for the relevant documentation to be
  executed. In the event the
  State chooses not to or fails to approve the share placement, the
  State will not secure a
  shareholding in Oil Search and Oil Search will issue shares to
  institutional investors. Failure
  to complete this transaction could expose the State to costs up
  to AUD$18 million.

  On even date, Mr Eludeme certified that the inviting of tenders for
  the provision of financial,
  legal and technical advisory services in connection with the
  purchase and related financing
  of the purchase by the State of 149, 390,244 million shares in Oil
  Search Ltd through the
  UBS AG Loan was impractical or inexpedient.

  On 10 March 2014, Mr Eludeme wrote to Mr Vele in regard to the
  issuance of the COI and

• Page 291 of 475

• advised that the CSTB was satisfied that all processes were followed
  and the award was
  made in accordance to the provisions of the Public Finance
  (Management) Act 1995. Below is an
  extract from Mr Eludeme‘s leter:

  The Board at its Meeting No: M-03/2014, held on Friday 07 March
  2014 carefully considered
  your submission and resolved to approve the issuance of
  certificates of inexpediencies for
  award of contracts to the following financial/legal/technical
  firms from Papua New Guinea
  and International Law firms.

  PNG Firms

  1. Pacific Legal Group Lawyers
  2. Pacific Capital Limited

  The fees to cover the cost is PG Kina Nine Million, only
  (PGK9,000,000.00)

  International Firms

  1. UBS AG Australia Branch
  2 Ashurst Lawyers,
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees to cover the cost is AU$ Fourteen Million, Five Hundred
  and Fifty Five Thousand
  Seven Hundred and Fifty Nine only (AU$14,555,759.00).

  The Board further advised that the contracts must be compiled
  separately with the exact
  amount for each firms.

  The Board‘s approval is subject to the State Solicitor‘s
  clearance together with the receiving
  an approved original Authority to Pre-Commit (APC) to confirm
  funding.

  The Board carefully noted the NEC Decision No: 79/2014 and is
  satisfied that all processes
  have been followed and the award was made in accordance to the
  provisions of the Public
  Finance (Management) Act. The Secretariat will inform the
  respective firms through a Letter
  of Acceptance.

  You are hereby advised to prepare a draft Contract Agreement and
  refer back to the Central
  Supply and Tenders Board to obtain legal clearance from the State
  Solicitors Office. Upon

• Page 292 of 475

• obtaining clearance, the agreement will be executed by me for and
  on behalf of the State.

  Your original submission, stamped and signed is returned for your
  appropriate action.

  Findings of Facts Page 123

  On even date, Mr Vele wrote to Mr Eludeme and sought clearance from
  the CSTB to pay the
  financial, legal and technical Advisors who were engaged by Mr Vele
  to facilitate the State‘s
  borrowing of the UBS AG loan to finance the acquisition of Oil
  Search Ltd shares. Below is
  an extract from Mr Vele‘s letter:

  The transaction has been completed and I would like to thank your
  office for your assistance
  in this matter.

  One final issue that has to be cleared before my office can
  process payment for the Local
  Legal Advisors and the Local Financial Advisors is a clearance
  letter from the Office of the
  State Solicitor.

  As you will note a loan to the State of A$1.225 Billion from UBS
  AG, Australia Branch (UBS),
  initially comprising two facilities (a A$330 million bridge loan
  facilities and a A$904 collar
  loan facility), together with the engagement of UBS as Advisors
  to the State on the
  acquisition of the Oil Search shares and arranger of the
  financing, including that UBS may be
  further engaged to implement (on behalf) of the State) a
  sovereign bond issue anticipated to
  be no later than 30 June 2014 to replace the bridge loan.

  The Bridge Loan will to be urgently refinanced in the near future
  and the collar loan facility
  in the next 12 to 24 months hence my office requested that the
  office issue a COI for the local
  Advisors to be capped at nine million kina. The purpose was that
  the Acquisition of the Oil
  Shares and the financing of this transaction is the first phase
  of their consultancy services.

  On this basis they were retained to conclude this transaction for
  the following fees subject to
  clearance from your office and the office of the State Solicitor:

• Page 293 of 475

• (first stage)

  1. Pacific Legal Group Lawyers K1.6 million
  2. Pacific Capital Limited K1.25 million

  The Department has retained both firms to continue work on the
  second phase of the
  transaction which is the refinancing of the Bridge and Collar
  Loan.

  To summarise the engagements of the two firms were:

  STAGE 1

  Discussion and possible negotiation with International Petroleum
  Investment Corporation
  (IPIC) of Abu Dhabi in respect of the deposition of the
  Exchangeable Bonds issued by the
  Independent Public Business Corporation (IPBC) in respect of the
  IPBC‘s holdings of the
  196.6 million shares in Oil Search Limited (Oil Search).

  Assistance with the proposed subscription by the State (through
  Treasury) for a significant
  number of shares in Oil Shares under a placement arrangement in
  the event that discussions
  with IPIC do not result in the reacquiring all or part of the
  shares in Oil Search shares
  covered by the IPIC – issued Exchangeable Bonds.

  STAGE 2

  As a second phase to the above Project, assistance with the
  refinancing of all or part of the
  initial finance raised to acquire the interest in Oil Search.

  Since they have completed the first stage of their service to the
  Department I have endorsed
  the payment of the first phase fees as mentioned above subject to
  necessary clearance from
  your office and the office of the State Solicitor.

  On 12 March 2014, Mr Naime wrote to Mr Rolpagarea and advised him on
  the CSTB‘s
  endorsement on the awarding of the contract to both local and
  international firms to
  facilitate the borrowing of the UBS AG Loan during its Meeting No:
  M-03/14 on 7 March
  2014. Below is an extract of the letter:

  Findings of Facts Page 124

  This contract was endorsed by the Board at its Meeting No M-03/14

• Page 294 of 475

• held on Friday 07th
  March 2014. The Board approved the award of the contract to both
  PNG and International
  Consulting firms.

  PNG Consultants

  Pacific Legal Group Lawyers
  Pacific Capital Ltd (PNG)
  The fees to cover the cost is up to an APC Limit K9,000,000.00

  International Consultants

  UBS AG Australia Branch
  Ashurst Lawyers
  Norton Rose Fulbright of Australia
  KPMG

  The fees for the above Consultants is up to a limit of AU
  $14,555,759.00.

  The Board understands that the state will finance the cost of the
  Local Consultants whilst
  the cost of the overseas Consultants will be paid from the UBS
  loan components.

  Attached is also a copy of the Board‘s decision with the Authority
  to Pre-Commit
  International for ease of reference.

  *Note that the APC for the PNG component together with Finance
  Secretary‘s cover letter
  have been processed and will be released as soon as signed by the
  financial delegate.

  On 20 March 2014, Mr Rolpagarea wrote to Mr Naime and advised among
  other issues
  raised that the issuance of a COI to waiver the tendering of the
  contract for the provision of
  advisory services by financial, legal and technical Advisors to
  facilitate the Borrowing was
  unjustified and improper and the Attorney-General should have been
  consulted. An extract
  of the letter is set out below:

  1. I refer to your letter and enclosures of 12th March, 2014
  requesting legal clearance for
  the subject matter.

  Questions and Short Answer

  2. The questions and Short Answers are as follows:

  Q1: Whether a COI can be issued for the engagement of the

• Page 295 of 475

• Consultants (financial, legal
  and technical)?

  A1: No

  Q2: Whether CSTB has the power to approve retrospectively the
  payment of service for
  the engagement of the Consultants?
  A2: No

  Reasons

  Certificate of Inexpediency

  3. I note that the National Executive Council in Decision No.
  79/2014, amongst other
  things, endorsed the issuance of a COI for the captioned
  engagements. However, such
  issuance of a COI is subject to the relevant provisions of the
  PFMA and Financial
  Instructions.

  Findings of Facts Page 125

  4. Section 40(3)(b) of the PFMA empowers CSTB to certify that
  the inviting of tenders is
  impractical or inexpedient. Part 13, Division 4.14 of the
  Financial Instructions limits
  the issuance of a COI to the following declared situations:

  1. Natural Disaster; or
  2. Defence Emergency; or
  3. Health Emergency; or
  4. Civil Unrest

  5. Furthermore, part 13, Division 4.13 of the Financial
  Instructions further provides that
  a COI cannot be issued to retrospectively cover a contract
  that has been performed.
  The principles of retrospectively will only apply if it is
  expressed in a law.

  In light of the above, the circumstances in this case do not
  warrant the issuance of a COI. I
  have noted that an Authority to Pre-Commit Funds has been issued
  and CSTB has also
  approved as requested by Secretary of Department of Treasury.
  This shows approval for such
  engagement, however such approval came after the task was
  completed. All the
  arrangements obtain the requisite approvals should have been
  obtained prior to the

• Page 296 of 475

• engagement of the Consultants to be compensated for the work
  already carried out. This
  can be done on a Quantum Meruit basis.

  Attorney-General Approval

  6. Section 8(4) of the Attorney-General Act 1989 provides:

  ―On matters affecting the conduct of the business of the State
  where legal issues arise or
  might arise, legal advice shall be provided by the Attorney-
  General, either in his capacity as
  principal legal adviser to the National Executive or under
  Subsection (2) or (3) to the
  exclusion of all other lawyers unless the Attorney-General, in
  his absolute discretion,
  authorizes the giving of legal advice by any other person.‖

  7. It is based on approval by the Attorney-General that legal
  services can be sought by
  government agencies from private firms both within PNG or
  internationally.

  8. In the given circumstances, the engagement and payment of
  legal services from private
  firms must be done in consultation with the Attorney-
  General. Payment for the
  provision of legal services should be made on a Quantum
  Meruit basis provided the
  State is fully satisfied with the services rendered.
  Treasury would in this case be in a
  position to make an assessment of the amount to be paid.

  9. I suggest that the prior to payment for legal services,
  Treasury should seek an
  audience with the Attorney-General as the person authorized
  by law to brief out to
  private law firms for the provision.

  10. Treasury should seek an audience with the Attorney-General
  as the person authorized
  by law to brief out to private law firms for the provision
  of legal services to the State.

  Way Forward

  11. Provided that a COI is not justified in these circumstances,
  Treasury and the Central
  Bank may consider paying for the services rendered by the
  Consultants on a Quantum
  Meruit basis as discussed above. In addition, the payment
  for legal services should be
  done in consultation with the Attorney-General.

• Page 297 of 475

• On 28 March 2014, Mr Eludeme wrote to Mr Vele in regard to the legal
  clearance of the COI
  for the engagement of financial, legal and technical Advisors in
  connection with the UBS
  AG Loan and the purchase of 149,390,244 shares in Oil Search Ltd and
  related financial
  advice of the purchase. Below is an extract from Mr Eludeme‘s
  letter:

  Your careful attention is drawn to the attached letter dated
  20th March, 2014 from the
  Solicitor in respect to the captioned subject matter.

  Findings of Facts Page 126

  You will note that the State Solicitor has declined to issue legal
  clearance due to technical
  issues and breach of the Part 13, Division 4.13 and 4.14 of the
  Financial Instruction.

  Firstly, a Certificate of Inexpediency cannot be issued for the
  engagement of Consultants
  for purposes other than Natural Disaster, Defence Emergency,
  Health Emergency or Civil
  Unrest. Secondly, the Board does not have powers to approve
  retrospectively the
  payments of services for the engagement of Consultants.

  Further, the necessary approvals for the APC and CSTB approval
  were obtained after the
  task was completed, as in a cart before the horse situation.

  However, the State Solicitor maintains that equity requires
  Consultants to be compensated
  for the work already carried out and this can be done on a Quantum
  Meruit basis. Since
  your department was involved in the beginning with the Consultants
  until the tasks were
  completed, they would be in a better position to work out the
  remuneration based on the
  principle of Quantum Meruit.

  The engagement and payment of legal services from private firms
  must be done in
  consultation with the Attorney-General. Payment for the provisions
  of legal services
  should be made on Quantum Meruit basis provided the State is fully
  satisfied with the
  services rendered.

  Your department therefore should seek an audience with the
  Attorney-General as the
  person authorised by law to brief out to private firms. Again,

• Page 298 of 475

• your department as the lead
  agency would be in a better position to make assessment of the
  amount to be paid.

  As a way forward, the State Solicitor has recommended that the
  Department of Treasury
  and the BPNG consider paying for the services rendered by the
  Consultants on Quantum
  Meruit basis. While the payment for legal services are done in
  consultation with the
  Attorney-General.

  The two local consulting firms and the Chief Secretary to the
  Government will be copied
  this letter for their information and records purposes.

  On 10 April 2014, Mr Eludeme advised Mr Vele on the CSTB‘s decision
  to rescind the
  issuance of COI to waiver the public tender of the contract relating
  to the facilitation of the
  UBS AG loan. Below is an extract.

  Further to my letter dated 28th March 2014 regarding the legal
  opinion received from the
  State Solicitor in respect to the captioned subject matter has
  reference.

  The Board at its meeting No. M 05/14 held on Thursday the 03rd
  April, 2014 carefully
  reviewed its decision to award contracts and resolved to rescind
  the award of contracts to;

  Local Consultants

  1. Pacific Legal Group Branch
  2. Pacific Capital Limited

  For the combined APC total of PG Kina Nine Million only
  PGK9,000,000.00

  International Consultants

  1. UBS AG Australia Branch
  2. Ashurst Lawyers
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees to cover the cost is AU$ Fourteen Million, Five Hundred
  and Fifty Five Thousand
  Seven Hundred and Fifty Nine only (AU$14,555,759.00)

  Findings of Facts Page 127

• Page 299 of 475

• The rescinding of the Board‘s decision effectively nullifies the
  issuance of the Certificate of
  Inexpediencies for these engagements.

  This decision is required to formally amend our records
  accordingly.

  Yours Sincerely,

  (signed)
  Philip Eludeme
  CHAIRMAN

  Comments

  It is noted that Mr Eledume and Mr Vele breached Section 39 and 40
  of the Public Finance
  (Management) Act 1995 and Part 13, Division 4, Clauses 13 and 14 of
  the Finance Management
  Manual which deal with the tender process for awarding of Contracts
  and issuance of COI
  to waiver the tender process.

  Firstly, the engagement of Consultants to provide legal, financial
  and technical services to
  DoT in relation to the financial arrangement for State‘s acquisition
  of shareholding in Oil
  Search Ltd and State‘s borrowing from UBS AG for such purpose, was
  not put on tender as
  required by Section 39 and 40 of the Public Finance (Management) Act
  1995.

  Secondly, the issuance of COI to waiver the tender process can only
  be issued where there is
  a Natural Disaster, Defence Emergency, Health Emergency or Civil
  Unrest Emergency and
  hence the issuance of the COI for the engagement of the Consultants
  was improper as it did
  not fall into the above prescribed situations.

  Thirdly, during the Ombudsman Commission‘s investigations, Mr
  Rolpagarea stated that
  the issuance of COI cannot be applied retrospectively and this is
  consistent with Part 13,
  Division 4, Clause 13 of the Finance Management Manual which states
  that a COI cannot be
  issued retrospectively to cover a contract that has been performed.
  Hence, Mr Vele and
  DoT‘s engagement of the Consultants prior to the awarding of the
  actual contract through
  the issuance of a COI was improper and breached the above mentioned
  laws.

• Page 300 of 475

• It is noted that Mr Eludeme and the CSTB took steps to rescind their
  decision to issue the
  COI after they had sought legal clearance from the State Solicitor
  on the matter and the
  State Solicitor refused to give them the legal clearance because of
  the breaches of the various
  laws referred to above.

  [6.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [6] of
  the Report. Below is his response.

  [6] CENTRAL SUPPLY & TENDERS BOARD APPROVED THE ISSUANCE OF THE
  CERTIFICATE
  OF INEXPEDIENCY

  Response to Comments p87 and p93-94
  It is completely untrue to say that I engaged any consultants to
  Department of Treasury or at all, before the
  necessary approvals were obtained or after. I never engaged any
  consultants.

  1. At all times during the assessment of financial institutions,
  the preparation of the draft deal for NEC
  Decision 79/2014, I followed advice of lawyers with such
  advice and the NEC Decision No 79/2014.

  Findings of Facts Page 128

  2. I engaged in discussions with Bank officials between 12-16
  August 2013 as mandated by my role as
  Member of the IPIC Bond Committee and in my role as Secretary
  for Treasury.

  3. On 30 January, the find is incorrect. It is false to state
  that I engaged UBS AG to act as the sole
  Financial Advisor and Lead Arranger, in relation to the
  management of the investment of the State in
  Oil Search Ltd. I did not engage UBS AG on 30 January 2014 or
  at any other time prior to 6 March
  2014 or after.

  4. UBS AG were only actually engaged by the State following
  Cabinet Decision no 79/2014. Following
  the advice from BPNG that the State had accepted UBS AG
  proposal, as essentially project manager
  of the IPIC Bond matter, I commenced negotiations and
  dealings with UBS AG to put together the
  proposal for NEC but their retainer was contingent on the NEC

• Page 301 of 475

• Decision of 6 March 2014.

  5. It is also false to state that I engaged UBS AG as the Lender
  of the Loan. A proposal was put to NEC
  for the engagement of UBS AG as Financial Advisor, Lead
  Arranger and Lender on 6 March 2014. It
  was only a decision of NEC that could determine to engage
  them. All parties involved were aware of
  this. No retainer agreements were signed until after the NEC
  Decision No 79/2014 on 6 March 2014.

  6. I was working with them to put the essentially ―draft deal‖
  before NEC as BPNG had originally
  selected them as the preferred advisor and arranger.

  7. If NEC has decided against the deal then they would never
  have been officially retained. As to their
  fees for work done in assisting with putting together the
  draft deal to include in the proposal for
  NEC – consideration would have had to have been given to
  paying for the preparation work for the
  draft deal on a quantum meruit basis.

  8. I engaged no legal or financial consultants in breach of the
  Public Finance (Management) Act and
  Finance Manual before the Cabinet meeting of 6 March 2014 or
  after.

  9. Norton Rose Fulbright was retained by IPBC on 5 December
  2012, some 14 months earlier, to provide
  legal services with regards to the IPIC Bond Project. The
  work expressly included reviewing the
  terms and conditions of the IPIC Bond, review and advise
  options available to IPBC for refinancing of
  the loan and or a restructure of the terms of the existing
  loan. Specifically it was recognized in the
  scope of work would involve meeting the objectives regarding
  the ownership of the Oil Search
  Shares.

  10. I was appointed Director of the Gas Project Co-ordination
  Office in December 2011.

  11. On 5 April 2013 the NEC explicitly authorised the Minister
  for Public Enterprises and IPBC to
  explore methods of raising money to redeem the Convertible
  Bonds.

  12. In July 2013 NEC determined to look at ways to refinance the
  IPIC loan and to retain an interest in
  Oil Search. It appointed a committee under the direction of
  IPBC and the Minister for Public
  Enterprises, comprising of the Director of the Gas Projects
  Coordination Office, the Secretary of

• Page 302 of 475

• Public Enterprises, the Secretary of Treasury (or his
  nominee), the State Solicitor (or his nominee)
  and the MD of IPBC to advise on options available to the
  State to refinance and maintain an interest
  in Oil Search (the Committee).

  13. On 6 August I was appointed Acting Secretary for Treasury.

  14. We, the IPIC Committee, had already set up meetings with
  various banks in Sydney to assess
  proposals from banks as to being the financial advisor and
  arranger to the State through IPBC for the
  refinancing of the IPIC Bond. Norton Rose Fulbright assisted
  with advice at these meetings.

  15. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I will still be a
  Member of the IPIC Committee due to NEC decision No 241/2013.

  16. I sought the advice of Norton Rose Fulbright from the time
  that I was appointed Chairman of the
  IPIC Bond and that was due to the fact the Committee was
  under the direction of IPBC, and IPBC
  had retained Norton Rose Fulbright to advise on the IPIC
  refinancing issues. I was aware that
  Treasury had only undertaken 3 other transactions and on each
  occasion engaged external lawyers as
  members of Treasury, and the Committee, had limited financial
  experience.

  17. This continued until special circumstances arose for them to
  be appointed to represent the State on
  the transaction pursuant to the NEC decision.

  18. After the NEC Decision on 6 March 2014 which endorsed for a
  certificate of inexpediency for services
  and other contract, for the purposes of giving effect to the
  NEC decision, and I was the person with

  Findings of Facts Page 129

  the responsibility to implement it as directed by the State
  Solicitor on 5 March 2014, I sought a
  certificate of inexpediency and to contract those consultants
  who were necessary for the transaction.

  19. I say that at all material times the then Attorney-General
  Kerenga Kua was aware of the NEC
  Decision of 6 March 2014and the steps necessary to implement
  it.

  20. Mr Kua however did not raise an issue with regards to

• Page 303 of 475

• compliance with the Attorney-General Act
  and indeed by his lack of complaint allowed the Consultants
  to be retained as a result of the NEC
  Decision and the CSTB Certificate of Inexpediency.

  21. Mr Kua by his inaction at the time effectively waived any
  compliance issues, and indeed he was
  bound by the NEC decision, as we all were.

  22. Mr. Kua did not raise any issue with the retainer of Legal
  Consultants until the time her was removed
  by the Prime Minister as Attorney-General in June 2014.

  23. It is incorrect to say that I usurped the powers of the
  Attorney-General, firstly as Norton Rose
  Fulbright has been retained by IPBC, and secondly as NEC has
  approved and endorsed the way
  forward with regards to service contracts which was to apply
  for a Certificate of Inexpediency due to
  the short commercial time limits that needed to be adhered
  to.

  24. With regard to Ashurst, they were paid for by the State as it
  was a term of the loan agreement with
  UBS AG that the legal services of the lender would be funded
  by the borrower. This is a normal
  commercial condition. They were not retained by me but by UBS
  AG.

  25. With regards to Pacific Legal Group, they were actually
  retained by Norton Rose Fulbright to act as
  their local Counsel for advice and assistance on procedures
  after Norton Rose Fulbright were asked
  to advise on the possibility of an UBS AG loan/Oil Search
  transaction in accordance with the terms of
  their retainer for IPBC. I did not retain them.

  26. At the time of the request for a certificate of Inexpediency,
  it was considered by all that it would be
  much more convenient for all parties that Pacific Legal Group
  be paid for directly by the State in
  Papua New Guinea, rather than the State remitting funds to
  Norton Rose Fulbright in Australia and
  then Norton Rose remitting funds back to Papua New Guinea to
  pay Pacific Legal Group.

  27. Essentially, the request for the COI was to facilitate
  payment, as the only actual retainer was for
  Norton Rose, and not for Pacific Legal Group or Ashursts.

  28. Had the Ombudsman Commission interviewed Pacific Legal Group
  or Norton Rose Fulbright or
  myself and asked the specific questions, this would have been
  made clear.

• Page 304 of 475

• 29. I deny that I breached any proper processes or procedures
  with regards to the engagement of legal
  consultants.

  Issuing of COI-

  30. With regards to the Issuing of the COI, I followed the advice
  of external lawyers, the State Solicitor
  and the NEC Decision No 79/2014 with regards to my actions.

  31. As part of the documents delivered to the State Solicitor on
  5 March 2014, were recommendations for
  the NEC and for various statutory approvals. In his letter of
  advice dated 5 March 2014, Mr.
  Rolpagarea specifically noted the recommendations and advised
  that after the NEC determines to
  proceed with the deal, all statutory authorisations should be
  sort. The COI was one of those
  authorisations in the recommendations. The matters included
  in the recommendations were advised
  to me to be part of the required process by Norton Rose
  Fulbright.

  32. The NEC specifically endorsed the issuance of a COI by the
  CSTB in its decision of 6 March 2014,
  which was based on the NEC Submission where this was
  recommended.

  33. After the decision I acted in accordance with the State
  Solicitor‘s and Norton Rose‘s advice AND the
  NEC decision and applied to CSTB for a COI.
  34. The CSTB, an Independent Tribunal met and awarded at COI for
  the service contracts and
  engagements of consultants.

  35. This is of course in accordance with their power under PFMA,
  which gives the Board an unfettered
  discretion to issue a COI if it determines that it is
  inexpedient or impracticable to require a tender
  process.

  Findings of Facts Page 130

  36. The contents of the Financial Manual are instructions issued
  by the Secretary pursuant to Section 117
  of the PFMA. These instructions are only to be issued if
  they are ―not inconsistent‖ with the PFMA.

  37. The financial instructions that limit the CSTB‘s discretion
  to four circumstances are inconsistent

• Page 305 of 475

• with the Act, and I would respond those instructions are not
  valid.

  38. In any event, that is not the issue. The CSTB determined
  that a COI issue and then approved the
  payment contracts for services.

  39. I then acted upon their decision and in accordance with the
  NEWC Decision and implemented those
  decisions.

  40. When I was later advised by CSTB that the COI was being
  revoked, I was also informed that the
  State Solicitor had advised that although the consultants
  that had been engaged by the State could
  not be paid under the COI – they could be paid on a quantum
  meruit basis as to what actual work
  they had done and that I, the Secretary for Treasury, would
  be the person best placed to assess what
  that quantum would be as I had been working with them on the
  preparation of the draft deal and
  then the transaction itself.

  41. That is then what happened. The payments made were on the
  basis of the work completed as proper
  bills had been performed before and after that time.

  42. I repeat, I did not engage any Consultants prior to the NEC
  Decision, or after the NEC Decision of 6
  March 2014. Norton Rose had already been engaged by IPBC.

  43. I made the application to CSTB for a COI, not on my own
  decision, but following the advice of the
  external lawyers and the State Solicitor – and as directed
  by the NEC. I was merely implementing an
  NEC decision which as Secretary for Treasury is my
  obligation to do.

  44. I believe I cannot be held responsible for decision I did
  not make, and in any event, no decisions that
  were taken by CSTB or NEC were contrary to law.

  Comments

  The Ombudsman Commission noted Mr Vele‘s response to this section of
  the Provisional
  Report. However, the Ombudsman Commission‘s original comments
  contained in the
  Provisional Report on this matter have not changed.

  [7] DR KEN NGANGAN, ACTING SECRETARY FOR DEPARTMENT OF
  FINANCE APPROVED THE AUTHORITY TO PRE-COMMIT FUNDS

• Page 306 of 475

• On 6 March 2014, the NEC in its Decision No: 79/2014 made during its
  Special Meeting No:
  8/2014 related to the financial arrangement for the State
  acquisition of shareholding in Oil
  Search Ltd and State‘s borrowing from UBS AG for such purpose,
  approved among other
  matters for the Acting Secretary for DoF to issue APC Forms for
  funds to be released. Below
  is an extract of the NEC decision:

  8. noted that the Transaction Documents are subject to the
  issue by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  b) issue of a certificate by the Secretary of the
  Department of Treasury certifying
  that after the full amount of the borrowing pursuant to
  the Transaction
  Documents, the total value of overseas commercial debt
  which will be owed by
  the State will not exceed 125% of the estimated internal
  revenue of the State for

  Findings of Facts Page 131

  the calendar year 2014 within the meaning of section 2(3) of
  the Loans
  (Overseas Borrowings) No. 2 Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B of
  the Independent
  Public Business Corporation of Papua New Guinea Act 2002,

• Page 307 of 475

• including the
  documentation listed in Part 3 of Schedule A; and

  d) approval of the payment direction to in paragraph (c) by
  the IPBC pursuant to
  section 110 of the Companies Act 1997.

  On even date, Mr Vele wrote to Mr Eludeme and requested for CSTB to
  approve his request
  for COI to be issued for payment of services to the six (6)
  Consultants he had engaged.
  On 7 March 2014, the CSTB met and resolved to approve Mr Vele‘s
  request for issuance of
  COI to engage and pay the Consultants subject to State Solicitor‘s
  clearance and receipt of
  approved original APC to confirm funding.

  On even date, Dr Ngangan approved the APC Expenditure Forms that
  indicated that there
  were funds available to pay the local Consultants who facilitated
  the borrowing of the UBS
  AG Loan and purchase of shares in Oil Search Ltd. Below is an
  extract:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that the
  provisions of Part VII of the
  Public Finance (Management) Act 1995 have been complied with in
  relation to the purchase
  or supply of the property and services referred to in the Schedule
  and that funds will be
  available to meet the proposed schedule of payments for that
  property and those services
  authorised the pre-commitment of expenditure of up to
  K9,000,000.00 for the purchase or
  supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory services
  in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary shares
  in Oil Search Limited through UBS AG, Australia Branch (ARBN 088
  129 613).

  On 10 March 2014, Mr Vele wrote to Dr Ngangan and requested that Dr
  Ngangan approve
  the payment to UBS AG in relation to the acquisition of the shares
  in Oil Search Ltd.

  On 11 March 2014, Mr Vele completed and endorsed an APC Form that
  requested for the
  release of AU$14,555,759 to be paid to the International Consultants
  that prepared and

• Page 308 of 475

• advised the State on the purchase of Oil Search Ltd shares.

  On even date, Dr Ngangan approved the APC Form and stated:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that the
  provisions of Part VII of
  the Public Finance (Management) Act 1995 have been complied with
  in relation to the
  purchase or supply of the property and services referred to in the
  Schedule and that funds
  will be available to meet the proposed schedule of payments for
  that property and those
  services authorised the pre-commitment of expenditure of up to A
  $10,347,821.00 for the
  purchase or supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory services
  in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary
  shares in Oil Search Limited through UBS AG, Australia Branch
  (ARBN 088 129 613).

  Findings of Facts Page 132

  On 12 March 2014, Mr Vele endorsed an APC form to release
  K1,250,000.11 that was paid to
  the Pacific Capital Limited as consultation fees.

  On even date, Dr Ngangan advised Mr Eludeme that he received two APC
  Forms from Mr
  Vele. Below is an extract:

  Department of Finance has received two APC applications from
  Treasury Department for
  deliberations.
  Proposed Procurement Amount
  1. PNG Financial & Technical Advisors K1,250,000.00
  Acquisition by State of Oil Search Shares
  2. State (PNG) Legal Advisors – Acquisition K1,600,000.00
  By State of Oil Search Shares
  Pursuant to the requirements of s47 of the Public Finances
  (Management) Act 1995, I have
  approved the application for the Department for authority to
  pre-commit for the above
  Procurement. The approved forms are enclosed with this letter.
  I now recommend you for your deliberation and Board assistance
  with GoPNG
  procurement requirements and Board approval. A copy is given
  to the respective
  Department for the confirmation of the approved procurement.

• Page 309 of 475

• Yours sincerely,

  (signed)
  Dr KEN NGANGAN CMA CPA
  Acting Secretary

  Comments

  Under Section 47B of the Public Finance (Management) Act 1995, the
  Secretary for DoF approves
  and issues to a requesting Departmental Head an APC in relation to
  purchase of properties,
  stores or for the supply of goods or services where he is satisfied
  that the proposed
  expenditure exceeds K500,000.00; and that the provisions of this
  Part of the Public Finance
  (Management) Act 1995 have been complied with in relation to the
  purchase or supply and
  funds will be available to meet the proposed schedule of payments
  for the purchase or
  supply. An APC Form shall specify the purchase of property or stores
  or the supply of goods
  or services to which it relates and the maximum amount to which the
  authority extends.

  The Ombudsman Commission‘s investigation revealed that there were
  four (4) APCs
  endorsed and approved by Mr Vele and Dr Ngangan. Neither Dr Ngangan
  nor Mr Vele
  indicated on the APC Forms from which Vote or Item on the
  Requisition Forms (FF3) and
  Expenditure Forms (FF4) the intended funds were to be accessed.

  In light of the above, it was revealed that the signed APC Forms
  were improper, not valid
  and of no effect on four (4) grounds:
  That the APC Form was not registered and allocated an APC number by
  the DoF

  That there was no CSTB number allocated to the APC Form

  That there was no current PGAS printout attached with the reasons
  for an APC Form to be
  approved

  That the Supplier of the service was not issued an original copy of
  the APC Form.

  Findings of Facts
  Page 133

  Even though both Dr Ngangan and Mr Vele were aware that the activity

• Page 310 of 475

• was unbudgeted
  for, they proceeded to sign the APC Forms committing funds that were
  not appropriated in
  the 2014 Budget.

  The APC Forms endorsed by Mr Vele and approved by Dr Ngangan were as
  follows:

  No Date APC No. Receiver
  Amount
  1 7 March 2014 None Local Consultants K9,000,000
  Pacific Capital Ltd
  Pacific Legal Group Lawyers
  2 10 March 2014 None Pacific Capital Ltd K1,250,000
  3 11 March 2014 None International Consultants AU
  $10,347,821.00*
  KPMG Mr Vele
  requested in
  Norton Rose Fulbright the APC
  for
  Ashurst Lawyers AU
  $14,555,759.
  UBS AG However,
  Dr Ngangan
  approved
  AU$10,347,821
  4 11 March 2014 None Pacific Capital Ltd
  K1,250,000.11
  5 12 March 2014 None Pacific Legal Group
  LawyersK1,600,000.00

  It is noted that the APC raised and approved on 7 March 2014 was for
  K9 million to cover
  for Local Consultants which included Pacific Capital Ltd and Pacific
  Legal Group Lawyers.
  However, further APCs for K1.25 million were raised on 10 and 11
  March 2014 for Pacific
  Capital Ltd and on 12 March 2014 for K1.6 million for Pacific Legal
  Group Lawyers
  indicating double payments may have been made to the Local
  Consultants.

  It is noted that the APC that was raised on 11 March 2014 was for AU
  $14,555,759.00 to
  cover for the International Consultants, however only AU
  $10,347,821.00 was approved by
  Dr Ngangan.

  It was also noted that the APC Forms did not have APC numbers
  allocated to them
  however, Mr Vele further indicated to the Commission that
  Consultants‘ fees would be paid
  out from the UBS AG Loan component.

• Page 311 of 475

• It is noted that the UBS AG Loan to purchase Oil Search Ltd shares,
  was transacted
  overseas in Australia and funds were not transferred into the PNG
  Government‘s Accounts
  in-country, so how could an APC Form be filled and approved for
  funds that were not held
  in-country nor part of the Government‘s Appropriation for 2014.

  The Ombudsman Commission‘s investigations revealed that the COI and
  APC for the
  engagement for those Consultants were issued after their tasks were
  completed and it was
  also noted that the Consultancy fees totalling K1.25 million for
  Pacific Capital Ltd (Local
  Consultant) was paid out by the DoT.

  [7.1] RESPONSE FROM DR KEN NGANGAN

  On 22 January 2015, Dr Ngangan, the Secretary for Department of
  Finance responded to the
  Commission‘s Section 17(4) of the OLOC Report and advised that they
  did deliberate on the
  APC and approved the release of K1,250,000.00 and K1,600,000.00 that
  were paid to the
  Financial and Technical and Legal Advisors in regard to the
  acquisition by State of Oil
  Search shares.

  Findings of Facts
  Page 134

  Comments:

  The Ombudsman Commission noted Dr Ken Ngangan‘s response to the
  Provisional Report.
  It was also noted that Dr Ngangan did not make any comments to
  defend his actions in his
  response to the Provisional Report. Therefore, the Ombudsman
  Commission maintains its
  original comments contained in the Provisional Report.

  [8] PRIVATE CONSULTANTS PREPARE POLICY SUBMISSION & OTHER
  DOCUMENTS FOR THE NATIONAL EXECTIVE COUNCIL

  On 30 January 2013, Mr Vele engaged UBS AG as Sole Financial Advisor
  and Sole Arranger
  in relation to the management of the investment of the State in Oil
  Search Ltd and
  associated matters flowing from the issuance of 2009 IPIC
  Exchangeable Bond.

• Page 312 of 475

• On 23 February 2014, the Prime Minister met with Mr Botten, Mr Aopi
  and Mr Vele where
  it was agreed to commit the State to purchase shares in Oil Search
  Ltd without prior
  approval of NEC.

  On 26 February 2014, the Prime Minister wrote to Mr Botten regarding
  State‘s willingness
  to buy shares in Oil Search Ltd without prior NEC approval.

  On 27 February 2014, the Prime Minister wrote to Mr Fowler regarding
  UBS AG proposal
  to provide funding facilities to the State in connection with the
  subscription by the State for
  approximately 149.39 million shares in Oil Search Ltd for AU$8.20
  per share.

  On 4 March 2014, Ashurst Lawyers forwarded draft documents for the
  UBS AG to Mr Vele
  that outlined the financial package that UBS AG was offering the
  State.

  On even date, Mr David Heathcote representing KPMG presented to Mr
  Vele KPMG‘s
  analysis report on the monetised collars relating to financing the
  purchase of shares in Oil
  Search Ltd.

  On 5 March 2014, Mr Vele requested Mr Rolpagarea to give legal
  clearance on the
  documents relating to the transaction for the State to acquire
  149,390,244 shares in Oil
  Search Ltd with loan from UBS AG.

  On even date, Mr Rolpagarea wrote to Mr Vele and requested
  confirmation and clear
  instructions from him regarding the engagement of Pacific Legal
  Group Lawyers to act on
  behalf of the State as the Documents were prepared and delivered to
  his Office by the Legal
  Firm on instructions of Mr Vele. Below is an extract from
  Rolpagarea‘s letter:

  FINANCIAL ACCOMMODATION FOR THE INDEPENDENT STATE OF PAPUA NEW
  GUINEA (The State)

  I refer to your letter dated 5th March 2014 on the above.

  Your letter makes reference to documents relating to the proposed
  transaction (transaction
  documents) whereby the State will enter into financial
  arrangements to fund the acquisition
  by the State of 149,390,244 shares in Oil Search Limited. These

• Page 313 of 475

• documents were delivered to
  my office this morning by way of personal service by Pacific Legal
  Group Lawyers upon your
  instructions. Your letter referred to above and delivered later
  during the day requests my
  urgent consideration of these documents and issuance of the legal
  clearance of National
  Executive Council‘s (NEC) consideration.

  Findings of Facts Page 135

  I noted from the documents that Norton Rose Fulbright and Pacific
  Legal Group Lawyers
  are the State lawyers engaged and instructed through your office
  in relation to the above
  subject. I also noted that the following transaction documents
  listed below were negotiated
  and finalised between the State‘s lawyers and respective parties.
  These documents are;

  1. Specific Security Deed between the State and UBS Nominees Pty
  Ltd ABN 32 001 450
  522.

  2. Bridge Facility Agreement between the State and UBS AG,
  Australia Branch and UBS
  Nominees Pty Ltd.

  3. Participants Sponsorship Agreement between the State and UBS
  Nominees Pty Ltd
  and UBS Securities Australia Limited.

  4. Payment Direction Deed between the State and the National
  Petroleum Company of
  PNG (Kroton) Limited, Papua New Guinea Liquefied Natural Gas
  Global Company
  LDC and UBS AG, Australia Branch.

  5. Security Trust Deed between the State and UBS Nominees Pty Ltd.

  6. Nominee Deed between the State and UBS AG, Australia Branch,
  UBS Nominees Pty
  Ltd and UBS Securities Australia Limited.

  7. Specific Security Deed (CHESS Securities-Collar) between the
  State and UBS AG,
  Australia Branch ABN 47 088 129 613.

  8. Subscription Agreement between the State and Oil Search
  Limited.

  I have gone through the above listed documents within the

• Page 314 of 475

• permitted time today and
  despite the lack of explanatory notes, I have formed the view that
  the terms of these
  agreements are a reflection of the State‘s negotiated position
  based on your instructions
  taking into account the State‘s intentions and as such are
  acceptable to the State.

  There are also other documents forming part of the transaction
  documents and listed below
  as:

  1. Advice to Governor-General

  2. Verification Certificate from the State to UBS AG, Australia
  Branch

  3. Minutes of a meeting of the Board of Directors of IPBC

  4. Resolution In Lieu of Meeting of shareholders pursuant to
  Sections 103, 89 and 110 of
  the Companies Act 1997

  5. Minutes of a meeting of the Board of directors of National
  Petroleum Company of
  PNG (Kroton) Limited held at Port Moresby with no specific
  dates

  6. Power of Attorney from the National Petroleum Company of PNG
  (Kroton) Limited
  (the Grantor) and

  7. Letter from Norton Rose Fulbright to the Independent State of
  PNG, care of the
  Acting Secretary of Treasury, Mr Dairi Vele, March 2014.

  I have read that these documents listed immediately above are yet
  to be signed and/or
  approved by the respective individuals or company boards. Please
  facilitate such
  signatures/or board meetings.

  I have read the NEC Decision and noted the background information
  particularly the State‘s
  intention to acquire a 10.01% interest in Oil Search.

  Findings of Facts Page 136

  On 6 March 2014, the Prime Minister personally sponsored the NEC
  Policy Submission No:
  67/2014 for NEC‘s consideration at its Special Meeting No: 8/2014
  relating to the financial

• Page 315 of 475

• arrangement to fund the State‘s acquisition of shares in Oil Search
  Ltd. The NEC in
  Decision No: 79/2014 approved among other matters for the State to
  acquire 149,390,244
  shares in Oil Search Ltd and for State to borrow AU$1.239 Billion
  from UBS AG to fund this
  acquisition.

  On even date, Mr Vele wrote to Mr Eludeme and urged him to engage
  the private
  consultants to provide financial, legal and technical advisory
  services to the State.

  On 7 March 2014, Mr Vele signed on the request for COI form
  formalising his request for a
  COI. However, he did not tick the appropriate emergency situations
  (Natural Disaster,
  Defence Emergency, Health Emergency or Civil Unrest Emergency) nor
  did he provide any
  reason for the urgency as required by the Public Finance
  (Management) Act 1995 and the Finance
  Management Manual.

  On even date, Mr Eludeme certified that the inviting of tenders for
  the provision of financial,
  legal and technical advisory services in connection with the
  purchase and related financing
  of the purchase by the State of 149.39 million shares in Oil Search
  Ltd through UBS AG was
  impractical or inexpedient.

  On 9 March 2014, Norton Rose Fulbright of Australia wrote to the
  GGPNG and then
  Minister Polye regarding financing of the acquisition of the shares
  and possible options to
  refinance following completion.

  On 10 March 2014, Mr Eludeme wrote to Mr Vele in regard to the
  issuance of the COI for
  the engagement of financial, legal and technical Advisors in
  connection with the purchase
  and related financing of the purchase by the State. Below is an
  extract from Mr Eludeme‘s
  letter:

  I refer to your letter dated 06th March 2014 operating to the
  captioned applications.

  The Board at its Meeting No: M-03/2014, held on Friday 07 March
  2014 carefully considered
  your submission and resolved to approve the issuance of
  certificates of inexpediencies for
  award of contracts to the following financial/legal/technical
  firms from Papua New Guinea

• Page 316 of 475

• and International Law firms.

  PNG Firms

  1. Pacific Legal Group Lawyers
  2. Pacific Capital Limited

  The fees to cover the cost is PG Kina Nine Million, only
  (PGK9,000,000.00)

  International Firms

  1. UBS AG Australia Branch
  2. Ashurst Lawyers
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees to cover the cost is AU$ Fourteen Million, Five Hundred
  and Fifty Five Thousand
  Seven Hundred and Fifty Nine only (AU$14,555,759.00).

  The Board further advised that the contracts must be compiled
  separately with the exact
  amount for each firms.

  Findings of Facts Page 137

  The Board‘s approval is subject to the State Solicitor‘s
  clearance together with the receiving
  an approved original Authority to Pre-Commit (APC) to confirm
  funding.

  The Board carefully noted the NEC Decision No: 79/2014 and is
  satisfied that all processes
  have been followed and the award was made in accordance to the
  provisions of the Public
  Finance (Management) Act 1995. The Secretariat will inform the
  respective firms through a
  Letter of Acceptance.

  You are hereby advised to prepare a draft Contract Agreement and
  refer back to the Central
  Supply and Tenders Board to obtain legal clearance from the State
  Solicitors Office. Upon
  obtaining clearance, the agreement will be executed by me for and
  on behalf of the State.

  Your original submission, stamped and signed is returned for your
  appropriate action.

  On even date, Mr Vele wrote to Mr Eludeme and sought clearance from
  the CSTB to pay the
  financial, legal and technical Advisors who were engaged in

• Page 317 of 475

• facilitating the State‘s
  borrowing of the UBS AG Loan. Below is an extract of Mr Vele‘s
  response:

  FINANCING FOR THE ACQUISITION OF SHARES IN OIL SEARCH LIMITED

  I refer to your letter of 6th March 2014.

  The transaction has been completed and I would like to thank your
  office for your assistance
  in this matter.

  One final issue that has to be cleared before my office can
  process payment for the Local
  Legal Advisors and the Local Financial Advisors is a clearance
  letter from the Office of the
  State Solicitor.

  As you will note a loan to the State of A$1.225 Billion from UBS
  AG, Australia Branch (UBS),
  initially comprising two facilities (a A$330 million bridge loan
  facilities and a A$904 collar
  loan facility), together with the engagement of UBS as Advisors
  to the State on the
  acquisition of the Oil Search shares and arranger of the
  financing, including that UBS may be
  further engaged to implement (on behalf) of the State) a
  sovereign bond issue anticipated to
  be no later than 30 June 2014 to replace the bridge loan.

  The Bridge Loan will to be urgently refinanced in the near future
  and the collar loan facility
  in the next 12 to 24 months hence my office requested that the
  office issue a COI for the local
  Advisors to be capped at nine million kina. The purpose was that
  the Acquisition of the Oil
  Shares and the financing of this transaction is the first phase
  of their consultancy services.

  On this basis they were retained to conclude this transaction for
  the following fees subject to
  clearance from your office and the office of the State Solicitor:
  (first stage)

  1. Pacific Legal Group Lawyers K1.6 million
  2. Pacific Capital Limited K1.25 million

  The Department has retained both firms to continue work on the
  second phase of the
  transaction which is the refinancing of the Bridge and Collar
  Loan.

  To summarise the engagements of the two firms were:

• Page 318 of 475

• STAGE 1

  Discussion and possible negotiation with International Petroleum
  Investment Corporation
  (IPIC) of Abu Dhabi in respect of the deposition of the
  Exchangeable Bonds issued by the
  Independent Public Business Corporation (IPBC) in respect of the
  IPBC‘s holdings of the
  196.6 million shares ion Oil Search Limited (Oil Search).

  Findings of Facts Page 138

  Assistance with the proposed subscription by the State (through
  Treasury) for a significant
  number of shares in Oil Shares under a placement arrangement in
  the event that discussions
  with IPIC do not result in the reacquiring all or part of the
  shares in Oil Search shares
  covered by the IPIC – issued Exchangeable Bonds.

  STAGE 2

  As a second phase to the above Project, assistance with the
  refinancing of all or part of the
  initial finance raised to acquire the interest in Oil Search.

  Since they have completed the first stage of their service to the
  Department I have endorsed
  the payment of the first phase fees as mentioned above subject to
  necessary clearance from
  your office and the office of the State Solicitor.

  On 12 March 2014, Mr Naime advised Mr Rolpagarea on the CSTB‘s
  endorsement during its
  Meeting No.M-03/14 that was held on 7 March 2014 and advised that
  the CSTB endorsed,
  approved and awarded the contract to both local and international
  consulting firms to
  facilitate the borrowing of AU$1.239 Billion from UBS AG to purchase
  149,390,244 shares in
  Oil Search Ltd.

  Comments

  The preparation of the NEC Policy Submission No. 67/2014 was highly
  irregular as such
  documents were prepared by Legal Firms and other Consultants
  previously engaged by Mr
  Vele and were not prepared by Government Officials nor were
  Government Officials
  involved in the preparation of these Documents for NEC.

• Page 319 of 475

• As noted previously, Mr Vele engaged the Legal Firms and other
  Technical Consultants to
  prepare documents including the NEC Submission relating to the
  borrowing of AU$1.239
  Billion from UBS AG to purchase shares in Oil Search Ltd, without
  complying with the
  tender process and process for COI under the Public Finance
  (Management) Act 1995 and Finance
  Management Manual and without obtaining the approval of the
  Attorney-General as required
  by Section 8 of the Attorney-General Act 1989 for the engagement of
  Legal Firms.

  Section 8(4) of the Attorney-General Act 1989 states clearly how a
  Legal Firm or Lawyer is to
  be engaged by any Government Body or Agency to act on behalf of the
  Department or
  Agency or the State.

  Therefore, Mr Vele‘s conduct was wrong and improper when he usurped
  the powers of the
  Attorney-General and engaged private Legal Firms to provide legal
  services to the State by
  preparing legal documents that included NEC Submission for the
  State.

  The Ombudsman Commission‘s investigation revealed that the NEC
  Submission together
  with the 28 Attachments were delivered by the Pacific Legal Group
  Lawyers to Mr
  Rolpagarea for legal clearance late in the evening on the eve of the
  NEC Special Meeting
  scheduled for 6 March 2014. Some of the Documents attached to the
  NEC Submission were
  yet to be signed or approved by respective Government Agencies or
  Boards of SOEs, eg
  IPBC and NPCP. This confirms the haste in which this matter was
  dealt with and the lack
  of consultation with relevant Government Agencies and SOEs.

  Findings of Facts Page 139

  [8.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to the Provisional Report, in
  particular Part 2 [8] of

• Page 320 of 475

• the Report. Below is his response.

  [8] PRIVATE CONSULTANTS PREPARE POLICY SUBMISSION & OTHER
  DOCUMENTS FOR
  THE NATIONAL EXECTIVE COUNCIL

  Response to Comments p101

  The Factual findings are incorrect and the comments are also
  incorrect.

  The Submission was prepared by myself with assistance and advice
  from external consultants and was
  put before the Prime Minister and NEC only after the State
  Solicitor had cleared it.

  1. I as Secretary for Treasury complied with the NEC submission
  along with the very experienced
  consultants that had been working on the Draft Proposal for
  the loan and purchase of Oil Search
  shares.

  2. I was aware that Treasury had only undertaken 3 other
  transactions and on each occasion
  engaged external lawyers as members of Treasury, and the IPIC
  Committee, had limited financial
  experience.

  3. Norton Rose Fulbright was first engaged by IPBC on these
  issues on 5 December 2012 and
  continue to be engaged by IPBC. I therefore referred to them
  for advice on these matters given the
  committee was under the Direction of IPBC.

  4. The NEC Submission and enclosed recommendations were examined
  by the State Solicitor and
  found to be in order.

  5. I did not fail to advise the NEC that I had already engaged
  the UBS AG in January to refinance the
  IPIC Exchangeable Bond as I had NOT so engaged UBS AG. Their
  engagement was contingent on
  the NEC Decision. They had commenced work on the matter due to
  Mr Bakani‘s advice on 30
  January 2014.

  6. I did not fail to advise the NEC that the engagement of the
  financial, legal and technical
  consultants was improper and in breach of tender requirements
  of the Public Finance
  (Management) Act 1995 and the Attorney-General Act 1986, as it
  was not in breach of the Public
  Finance (Management) Act 1995 and the Attorney-General Act
  1986.

• Page 321 of 475

• 7. There is an assumption that I retained Norton Rose Fulbright
  to provide legal services to the
  Department of Treasury at some stage in 2013 and prior to the
  NEC decision of 6 March 2014.
  This is incorrect.

  8. Norton Rose Fulbright was retained by IPBC on 5 December 2012,
  some 14 months earlier, to
  provide legal services with regards to the IPIC Bond Project.
  The work expressly included
  reviewing the terms and conditions of the IPIC Bond, review
  and advise option available to IPBC
  for refinancing of the loan and or a restructure of the terms
  of the existing loan. Specifically it was
  recognised in the scope of work that ―a significant aspect of
  this scope of work would involve
  meeting the objectives regarding the ownership of the Oil
  Search Shares. [see Letter 5 December
  2012.

  9. I was appointed Director of the Gas Project Co-ordination
  Office in December 2011.

  10. On 5 April 2013 the Cabinet explicitly authorised the
  Minister for Public Enterprises and IPBC to
  explore methods of raising money to redeem the Convertible
  Bonds.

  11. In July 2013 Cabinet determined to look at ways to refinance
  the IPIC loan and to retain an
  interest in Oil Search. It appointed a committee under the
  direction of IPBC and the Minister for
  Public Enterprises, comprising of the Director of the Gas
  Projects Coordination Office, the
  Secretary of Public Enterprises, the Secretary of Treasury (or
  his nominee) the State Solicitor (or
  his nominee) and the MD of IPBC to advise on options available
  to the State to refinance and
  maintain an interest on Oil Search (the Committee).

  12. On 6 August I was appointed Acting Secretary for Treasury.

  Findings of Facts Page 140

  13. We, the IPIC Committee, had already set up meetings with
  various banks in Sydney to assess
  proposals from banks as to being the financial advisor and
  arranger to the State through IPBC for
  the refinancing of the IPIC Bond. Norton Rose Fulbright

• Page 322 of 475

• assisted with advice at these meetings.

  14. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I will still be a
  Member of the IPIC Committee due to Cabinet decision No
  241/2013.

  15. I say that at all material times the then Attorney-General
  Kerenga Kua was aware of the NEC
  Decision of 6 March 2014 and the steps necessary to implement
  it.

  16. Mr. Kua however did not raise an issue with regards to
  compliance with the Attorney-General
  Act 1986 and indeed by his lack of complaint allowed the
  Consultants to be retained as a result of
  the NEC Decision and the CSTB Certificate of Inexpediency.

  17. Mr Kua by his inaction at the time effectively waived any
  compliance issues, and indeed he was
  bound by the NEC decision, as we all were.

  18. Mr Kua did not raise any issue with the retainer of Legal
  Consultants until the time he was
  removed by the Prime Minister as Attorney-General in June 2014.

  19. It is incorrect to say that I usurped the powers of the
  Attorney-General, firstly as Norton Rose
  Fulbright has been retained by IPBC, and secondly as NEC has
  approved and endorsed the way
  forward with regards to service contracts which was to apply
  for a Certificate of Inexpediency
  due to the Short commercial time limits that needed to be
  adhered to.

  20. With regards to Ashursts, they were paid for by the State as
  it was a term of the loan agreement
  with UBS AG that the legal services of the lender would be
  funded by the borrower. This is a
  normal commercial condition. They were not retained by me but
  by UBS AG.

  21. With regards to Pacific Legal Group, they were actually
  retained by Norton Rose Fulbright to act
  as their local Counsel for advice and assistance on procedures
  after Norton Rose Fulbright were
  asked to advise on the possibility of an UBS A loan/Oil Search
  transaction in accordance with the
  terms of their retainer for IPBC. I did not retain them.

  22. It was clear to me that the State Solicitor did not think the
  submission was n breach of the Public
  Finance (Management) Act 1995 and the Attorney-General Act
  1986.

• Page 323 of 475

• 23. There was no improper conduct regarding the NEC submission.

  Comments

  The Ombudsman Commission noted Mr Vele‘s response to this section of
  the Provisional
  Report. However, the Ombudsman Commission maintains its original
  comment contained
  in the Provisional Report.

  [9] EXECUTION OF THE LOAN CONTRACT

  On 6 March 2014, NEC met and made it‘s Decision No: 79/2014 among
  other matters to
  approve the borrowing of AU$1.239 Billion from UBS AG to purchase
  149,390,244 shares in
  Oil Search Ltd.

  On even date, the Prime Minister advised the GGPNG that in its
  Special Meeting No:
  08/2014 the NEC approved the borrowing of a loan for the purpose of
  purchasing shares in
  Oil Search Ltd and for the purpose of meeting the expenses of
  Borrowing.

  On 9 March 2014, the GGPNG signed the document enabling the State to
  borrow AU$1.239
  Billion from UBS AG to purchase shares in Oil Search Ltd and meet
  expenses relating to the
  Borrowing and for the services of the State.

  On 10 March 2014, the State and Oil Search Ltd signed the
  subscription Agreement.

  Findings of Facts Page 141

  On even date, Hon Polye was decommissioned by the Prime Minister due
  to the fact that he
  refused to sign and authorise the Payment Direction Deed and other
  related documents to
  facilitate the borrowing of the UBS AG Loan to purchase shares in
  Oil Search Ltd and also
  to facilitate the interest payments to UBS AG.

  On even date, the decommissioning of Hon Don Polye as Minister for
  Treasury was gazetted
  in the National Gazette No. G83 and G89. The Prime Minister then
  became the Minister for
  Treasury.

• Page 324 of 475

• On 12 March 2014, the State, NPCP and UBS AG agreed to the terms and
  conditions upon
  signing the Payment Direction Deed that directed the State through
  PNG Liquefied Natural
  Gas Global Company (GloCo) to pay immediately available funds to
  NPCP to be paid to an
  Account with UBS (Singapore).

  On even date, the State represented by the Prime Minster as the
  Minister for Treasury and
  Mr Vele, UBS AG (the Arranger), UBS AG (the Facility Agent) and UBS
  AG Nominees Pty
  Ltd signed the Bridge Facility Agreement.

  On even date, the State represented by the GGPNG and witnessed by Mr
  Okuk, as the
  Consultant engaged by the DoT, signed the Specific Security Deed
  (CHESS Securities –
  Collar) with UBS AG that provided security to the loan acquisition.
  On even date, the State represented by the GGPNG and witnessed by Mr
  Okuk signed the
  Participant Sponsorship Agreement with UBS AG Nominees Pty Ltd. Mr
  Okuk was not a
  registered lawyer with PNGLS nor was he a Commissioner for Oaths
  under the Oaths and
  Affirmation Act.

  On even date, the State represented by the Prime Minster and Mr Vele
  and the UBS AG (the
  Arranger), UBS AG (the Facility Agent) and UBS AG Nominees Pty Ltd
  signed the
  Confirmation Side Letter that confirmed certain terms and conditions
  of the letter
  agreement.

  On even date, the GGPNG signed the Nominee Deed with UBS AG, UBS AG
  Nominees Pty
  Ltd and UBS AG Securities for the Nominee (UBS Nominees Pty Ltd) to
  act on the terms
  set out in the deed as Trustee for the State. The signing was
  witnessed by Mr Okuk.

  On even date, the State (Subscriber) represented by the GGPNG
  witnessed by Mr Okuk
  signed the Subscription Agreement with Oil Search Ltd (Issuer).

  Comments

  The Prime Minister and Mr Vele ill-advised the GGPNG by stating that
  all technical
  requirements regarding the UBS AG loan of AU$1.239 Billion were
  correct and that legal
  clearance on the same was sought, contrary to Mr Rolpagarea‘s advice

• Page 325 of 475

• contained in a letter
  dated 5 March 2014 to Mr Vele, that Section 209 (Parliamentary
  Responsibility) of the
  Constitution should have been complied with.

  We note that the signing of the UBS AG Loan Agreement by the Prime
  Minister as Treasury
  Minister and the GGPNG was done in secret and without much publicity
  given the
  magnitude of the loan and its impact on the country‘s debt and
  budget implications, unlike
  in other instances where the State has signed Loan Agreements with
  other Parties including
  Donor Agencies and the signing ceremony was given much publicity
  through the media.
  Findings of Facts Page 142

  We also note that the GGPNG executed the UBS AG Loan Agreement and
  other
  Transaction Documents without the presence of all parties concerned
  including
  Government Officials. This was facilitated after official hours and
  without a prior
  appointment made through the Office of the Official Secretary to the
  GGPNG. This was
  improper.

  We note that the counterpart provisions were included in the Loan
  Agreement for UBS AG
  to allow for the GGPNG to sign without their presence and presence
  of all concerned
  parties. Below is an extract of what is contained as a counterpart
  provision:

  Counterparts
  This document may be executed in counterparts. Delivery of a
  counterpart of this
  document by email attachment or fax constitutes an effective mode
  of delivery.

  We also note the lack of ―natural disaster‖ provisions in the Loan
  Agreement.

  We also note that the Contract Documents are governed by the laws of
  the State of New
  South Wales, Australia.

  We note that the GGPNG also signed the Agreement on the terms and
  conditions of
  engagement of UBS AG, on 25 February 2014, which was witnessed by Mr
  Okuk, prior to
  the NEC‘s Decision on 6 March 2014 approving the borrowing of AU
  $1.239 Billion from

• Page 326 of 475

• UBS AG to purchase 149,390,244 shares in Oil Search Ltd. Questions
  arise as to who
  advised the GGPNG to sign such Agreement without an NEC Decision in
  place to effect
  such purpose as required by Section 86(2) of the Constitution which
  states that the GGPNG
  shall act only with and in accordance with the advice of the NEC.

  Findings of Facts Page 143

  PART 3 PAYMENTS MADE TO CONSULTANTS AND UBS AG AS PER
  NEC DECISION NO. 79/2014

  [1] PAYMENTS MADE TO UBS AG (AUSTRALIA BRANCH)

  On 30 January 2014, Mr Bakani advised UBS AG that the State decided
  to accept the
  proposal by UBS to refinance the IPIC Exchangeable Bond, by a
  combined structure of
  Rollover Collar and Term Loan.

  On even date, Mr Vele engaged UBS AG to act as the sole Financial
  Advisor and Lead

• Page 327 of 475

• Arranger, in relation to the management of the investment of the
  State in Oil Search Ltd.

  On 25 February 2014, UBS AG wrote to Mr Vele and outlined the terms
  of engagement of
  UBS AG as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30
  January 2014, in relation to the management of the investment of the
  State in Oil Search Ltd
  and associated matters flowing from the issuance in 2009 of
  Exchangeable Bond in respect
  of the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi. These terms
  were agreed to when the GGPNG signed the document that was witnessed
  by Mr Okuk on
  the same day.

  On 27 February 2014, UBS AG responded by issuing a Commitment Letter
  to the attention
  of Mr Vele and incorporated the Equity Derivative Term Sheet and
  Debt Term Sheet that
  outlined the terms and conditions which are perceived to be
  prejudicial to the State, in
  particularly the acceptance of its appointment as the arranger to
  arrange and participate in
  the facility contained in the letter which is disclosed below.

  1. Appointment

  1.1 The State appoints UBS as the exclusive arranger of the
  facility to arrange and
  participate in the facility on the basis of the Commitment
  Documents
  9.2 Unless this mandate terminates in accordance with
  paragraph 14
  (Termination):

  a) no other person shall be appointed as arranger or
  other similar position
  b) no other titles should be awarded; and
  c) except as provided in the Commitment Document, no
  other compensation
  shall be paid to any other person.
  In connection with the Facility or other financial
  accommodation to be provided to the State
  for purposes similar to those for which the facilities are to
  be provided without the prior
  written consent of UBS.

  On 5 March 2014, Mr Guy Fowler, Head of Australian Investment
  Banking, UBS AG wrote
  to the Prime Minister and requested the Prime Minister‘s direct
  intervention to assist with
  resolving the most challenging issues such as IPIC Exchangeable

• Page 328 of 475

• Bond, Papua New Guinea
  Liquefied Natural Gas direction-to-pay and Sovereign Bond take-out
  of the Bridge Loan.

  On even date, Mr Fowler responded to the letter of Prime Minister of
  27 February 2014,
  advising him that he had responded to the Prime Minister on the same
  date.

  Findings of Facts Page
  144

  On 6 March 2014, the NEC Special Meeting No: 8/2014 effectively
  engaged UBS AG to be
  the Advisor, Arranger and Financier to the loan to purchase new
  Shares in Oil Search Ltd.
  Below is an extract of the NEC Decision No: 79/2014.

  2. noted the proposed Transaction Documents referred to in
  Schedule A (attached) and
  the transactions contemplated by them including:

  a) for the State to acquire 149,390,244 shares in Oil Search
  Limited (―Oil Search‖)

  b) for the State to borrow A$1.239 Billion from UBS AG
  (Australia Branch) (―UBS‖),
  initially comprising two facilities (an A$335 million bridge
  loan facility and a
  A$904 million collar facility) (the ―Borrowing‖); and

  c) for the State to engage UBS as its Advisors on the
  financing and the acquisition of
  Oil Search shares, including that UBS implement (on behalf
  and upon the request
  of the State) a sovereign bond issue to replace the bridge
  loan, (the
  ―Transaction‖).

  6. approve to advise the Head of State (without limiting the
  authority of any other
  person as may be authorized to do so on behalf of the State)
  to:

  a) approve the Borrowing for the purpose of the purchase of
  shares in Oil Search
  and for the purpose of meeting the expenses of the Borrowing
  and for the
  services of the State, to agree with UBS the manner and the
  terms and conditions
  of that Borrowing, pursuant to section 2(1) of the Loans

• Page 329 of 475

• (Overseas Borrowing)
  No.2 Act; and

  b) execute under his signature on behalf of the State those of
  the agreements, deeds
  and other documents to which the State Party is listed in
  Part 2 of the Schedule
  A pursuant to section 47 of the Public Finance (Management)
  Act 1995 and are
  attached to the State Solicitor‘s certificate set out in
  Schedule E.

  On even date, UBS AG issued a Bridge Takeout Letter to Mr Vele and
  outlined the terms of
  fees payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was
  signed by GGPNG, and witnessed by Mr Okuk on 25 February 2014.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by GGPNG and witnessed by Mr Okuk on 25 February 2014.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr Okuk on 25 February 2014.

  On 10 March 2014, Mr Eludeme wrote to Mr Vele in regard to the
  issuance of COI and
  advised that the CSTB met on 7 March 2014 and approved the issuance
  of COI for awarding
  of Contracts to both Local and International Consulting firms. Below
  is an extract of Mr
  Eludeme‘s advice:

  I refer to your letter dated 06th March 2014 operating to the
  captioned applications.

  The Board at its Meeting No: M-03/2014, held on Friday 07 March
  2014 carefully considered
  your submission and resolved to approve the issuance of
  certificates of inexpediencies for
  award of contracts to the following financial/legal/technical
  firms from Papua New Guinea
  and International Law firms.

  Findings of Facts Page 145

• Page 330 of 475

• PNG Firms

  1. Pacific Legal Group Lawyers
  2. Pacific Capital Limited

  The fees to cover the cost is PG Kina Nine Million, only
  (PGK9,000,000.00)

  International Firms

  1. UBS AG Australia Branch
  2. Ashurst Lawyers
  3. Norton Rose Fulbright of Australia
  4. KPMG

  The fees to cover the cost is AU$ Fourteen Million, Five Hundred
  and Fifty Five Thousand
  Seven Hundred and Fifty Nine only (AU$14,555,759.00).

  The Board further advised that the contracts must be compiled
  separately with the exact
  amount for each firms.

  The Board‘s approval is subject to the State Solicitor‘s
  clearance together with the receiving
  an approved original Authority to Pre-Commit (APC) to confirm
  funding.

  The Board carefully noted the NEC Decision No: 79/2014 and is
  satisfied that all processes
  have been followed and the award was made in accordance to the
  provisions of the Public
  Finance (Management) Act. The Secretariat will inform the
  respective firms through a Letter
  of Acceptance.

  You are hereby advised to prepare a draft Contract Agreement and
  refer back to the Central
  Supply and Tenders Board to obtain legal clearance from the State
  Solicitors Office. Upon
  obtaining clearance, the agreement will be executed by me for and
  on behalf of the State.

  Your original submission, stamped and signed is returned for your
  appropriate action.

  On 12 March 2014, UBS AG wrote to the Mr Vele and the State and
  confirmed the terms and
  conditions of the financing transaction entered into between the
  State and UBS AG in
  respect of Oil Search Ltd shares.

  On even date, the loan agreement was executed by the GGPNG and UBS

• Page 331 of 475

• AG witnessed by
  Mr Okuk.

  On 15 May 2014, representatives of UBS AG, Mr Goldsworthy and Ms
  Raguine wrote to Mr
  Vele and pointed out to him the breach to clause 5.1(b) of the
  Agreement by the State, when
  the State failed to pay the interest for the loan on 14 May 2014
  because of Directions issued
  by the Commission under Section 27 (4) of the Constitution.

  Comments

  The Ombudsman Commission‘s investigation revealed that the State
  through the DoT had
  proceeded to pay the UBS AG various fees even though there was no
  formal execution of the
  Loan Agreement prior to 12 March 2014. Examples of such fees include
  the Facility Agent
  fee, Security Trustee fee, Advisory fee and Bridge Facility fee that
  were paid to UBS AG.

  It is also noted that Mr Vele‘s request for CSTB‘s issuance of COI
  for awarding of Contracts
  to International Consultants included UBS AG‘s costs and their
  lawyer‘s costs (ie. Ashurst
  Lawyers). Mr Vele indicated that funds would be derived from the UBS
  AG Loan to pay for
  the Consultants fees. Hence, the costs of the engagement of
  Consultants including UBS

  Findings of Facts Page 146

  AG‘s various fees and their Lawyer‘s fees, was paid out of the total
  Loan UBS AG provided
  to the State. This was in addition to the Loan and Interest payments
  to UBS AG by the
  State.

  [2] PAYMENTS TO OTHER CONSULTANTS

  On 6 March 2014, the Prime Minister personally sponsored the NEC
  Policy Submission No:
  67/2014 relating to the financial arrangement to fund the State‘s
  acquisition of shares in Oil
  Search Ltd, for NEC‘s consideration at it‘s Special Meeting No:
  8/2014. The NEC in Decision
  No: 79/2014 approved among other matters for the State to acquire
  149,390,244 shares in Oil
  Search Ltd and for the State to borrow AU$1.239 Billion from UBS AG
  to fund its
  acquisition. Below is an extract of the NEC Decision No: 79/2014:

• Page 332 of 475

• 2. noted the proposed Transaction Documents referred to in
  Schedule A (attached) and
  the transactions contemplated by them including:

  a) for the State to acquire 149,390,244 shares in Oil Search
  Limited (―Oil Search‖);

  b) for the State to borrow A$1.239 Billion from UBS AG
  (Australia Branch) (―UBS‖),
  initially comprising two facilities (an A$335 million bridge
  loan facility and a
  A$904 million collar facility) (the ―Borrowing‖); and

  c) for the State to engage UBS as its Advisors on the financing
  and the acquisition of
  Oil Search shares, including that UBS implement (on behalf and
  upon the request
  of the State) a sovereign bond issue to replace the bridge
  loan, (the ―Transaction‖).
  3. approve to appoint Petromin PNG Holdings Limited as the State‘s
  eventual subscriber
  and nominee for this transaction;
  4. noted the receipt of certificate correctness from the State
  Solicitor in relation to the
  Transaction Documents to which the State is a party, as set out
  in Schedule E
  (attached);
  5. confirmed the authority for the Minister for Treasury to agree
  and finalise on behalf of
  the State any of the terms of the Transaction Documents
  referred to in this submission
  which for reasons of commercial sensitivity or otherwise, are
  not set out in this
  submission or its attachments, prior to the submission of the
  Transaction Documents
  to the Head of State for execution on behalf of the State;

  6. approve to advise the Head of State (without limiting the
  authority of any other
  person as may be authorized to do so on behalf of the State)
  to:

  a) approve the Borrowing for the purpose of the purchase of
  shares in Oil Search and
  for the purpose of meeting the expenses of the Borrowing and
  for the services of
  the State, to agree with UBS the manner and the terms and
  conditions of that
  Borrowing, pursuant to section 2(1) of the Loans (Overseas
  Borrowing) No.2 Act;
  and

  b) execute under his signature on behalf of the State those of
  the agreements, deeds

• Page 333 of 475

• and other documents to which the State Party is listed in Part
  2 of the Schedule A
  pursuant to section 47 of the Public Finance (Management) Act
  1995 and are
  attached to the State Solicitor‘s certificate set out in
  Schedule E.

  7. approved to advise the Minister for Treasury to:

  a) issue a direction pursuant to section 2 (11) of the Loans
  (Overseas Borrowings) No.
  2 Act, that sections 13 and 14 of the Public Finance
  (Management) Act 1995 do not
  apply to the State in relation to the Borrowing;

  Findings of Facts Page 147

  b) execute under his signature on behalf of the State those of
  the agreements, deeds
  and other documents to which the State is a party listed in
  Part 1 of Schedule A
  pursuant to section 2(7) of the Loans (Overseas Borrowings)
  No.2 Act and
  attached to the State Solicitor‘s certificate as set out in
  Schedule E; and

  c) authorise in writing and appoint as the State‘s Authorized
  Representative, the
  Secretary of the Department of Treasury and any other
  officers of the Department
  of Treasury as the Minister may determine and authorize each
  of them to execute
  any of the documents referred to in paragraph (b) and any
  documents as may be
  necessary to give effect to, or which are ancillary to, the
  documents referred to in
  paragraph (b), including any drawdown notice and any
  certificates.

  And

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and Tenders

• Page 334 of 475

• Board under section 40(3)(b), and an authority to pre-commit
  expenditure by the
  Secretary of the Department of Finance under section 47B, of
  the Public Finance
  (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department
  of Treasury certifying that
  after the full amount of the borrowing pursuant to the
  Transaction Documents, the
  total value of overseas commercial debt which will be owed by
  the State will not
  exceed 125% of the estimated internal revenue of the State
  for the calendar year
  2014 within the meaning of section 2(3) of the Loans
  (Overseas Borrowings) No. 2
  Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents by
  the National Petroleum Company of PNG (Kroton) Limited
  concerning payments
  from Papua New Guinea Liquefied natural Gas Global Company
  LDC, with the
  approval of the Minister for Finance on the recommendation of
  the Managing
  Director of the IPBC pursuant to section 46B of the
  Independent Public Business
  Corporation of Papua New Guinea Act 2002, including the
  documentation listed
  in Part 3 of Schedule A; and

  d) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1997.

  On even date, Mr Vele wrote to Mr Eludeme and stated:

  …It is imperative that State be provided with urgent relevant
  and necessary financial, legal
  and technical advisory services in connection with that purchase
  and related financing of the
  purchase by the State of the shares in Oil Search Limited. The
  transaction completing is to
  be completed at close of business on Sunday 9th March 4pm and
  therefore the appointment
  of the Legal, Financial and Technical Advisors were urgent and
  necessary. NEC has approved
  the appointments of the following firms on the recommendation of
  Department of Treasury:

  Norton Rose Fulbright of Australia (Overseas Lawyers),
  Pacific Legal Group Lawyers (local lawyers) and
  Pacific Capital Limited (Financial and Technical Advisors) to act

• Page 335 of 475

• for the State on this
  matter.

  It would be appreciated if you could consider and approve the
  Request for Certificate of
  Inexpediency enclosed at the earliest to cover the advisory fees
  of up to a limit of
  K9,000,000.00.

  Findings of Facts Page 148

  On 10 March 2014, the DoT deposited in Pacific Capital Ltd‘s account
  with Australia and
  New Zealand Banking Group (PNG) Ltd an amount of K1,250,000.00 for
  services rendered
  to the State.

  Note

  Other relevant facts related to this Section are covered in Part 2
  on the CSTB and issuance
  of the COI.

  Comments

  As noted previously, Mr Vele engaged the Legal Firms and Financial
  and Technical
  Consultants to prepare documents including the NEC Submission
  relating to the
  borrowing of AU$1.239 Billion from UBS AG to purchase shares in Oil
  Search Ltd, without
  complying with the tender process and process for COI under the
  Public Finance (Management)
  Act 1995 and the Finance Management Manual and without obtaining the
  approval of the
  Attorney-General as required by Section 8 of the Attorney-General
  Act 1989 for the
  engagement of Legal Firms.

  The fees or costs of the Legal Firms and Financial and Technical
  Consultants referred to
  above were paid by the State from the UBS Loan as follows:

  Payee Amount

  UBS advisory fee AU$4,207,938
  Ashurst Lawyers AU$ 812,500
  Norton Rose Fulbright AU$ 600,000
  KPMG AU$ 166,221
  Pacific Capital Limited PGK1,250,000
  Pacific Legal Group Lawyers PGK1,600,000

• Page 336 of 475

• It is noted that after receipt of State Solicitor‘s advice that the
  circumstances in this case did
  not warrant the issuance of a COI under the Public Finance
  (Management) Act 1995 and Finance
  Management Manual, the CSTB later rescinded it‘s decision to approve
  issuance of a COI to
  facilitate the engagement of these Consultants including UBS AG
  thereby nullifying their
  earlier decision on COI which was the initial basis for the above
  payments to be made to
  these Consultants.

  The Ombudsman Commission‘s investigations revealed that one of the
  Shareholders and
  Director of Pacific Capital Ltd is Mr Frank Kramer, who is the
  Chairman of NPCP Board.

  As noted in this Report, out of the payment Pacific Capital Ltd
  received, payments totaling
  K660,000.00 were made to Pertusio Capital Partners Ltd of which Mr
  Vele is a Shareholder
  and Director. Below is an extract of a Bank Statement:
  Account Number: 12386296
  Currency: PGK
  Type: C/A – CORPORATE

  Findings of Facts Page 149

  Name: PACIFIC CAPITAL LTD – MANAGED ACCOUNT
  Address: PACIFIC CAPITAL LIMITED
  PO BOX 2064
  PORT MORESBY

  Transaction Description Amount
  Balance
  Date
  BALANCE B/F
  934.72
  10/04/2014 CREDIT 1,250,000.00
  1,320,751.93
  REF:DOTCHQ005039
  SPECIAL ANS PACIFIC CAPITAL LTD
  15/04/2014 TRANSFER 100,000.00
  1,193,684.93
  REF:337
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED
  TRANSFER TO 13552050

  25/04/2014 TRANSFER 200,000.00
  862,667.93
  REF:339
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED

• Page 337 of 475

• TRANSFER TO 13552050

  06/05/2014 TRANSFER 100,000.00
  562,722.01
  REF:341
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED
  TRANSFER TO 13552050

  05/06/2014 TRANSFER 60,000.00
  462,753.47
  REF:343
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED
  TRANSFER TO 13552050

  12/06/2014 TRANSFER 50,000.00
  412,753.47
  REF:344
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED
  TRANSFER TO 13552050

  27/06/2014 TRANSFER 150,000.00
  212,663.47
  REF:346
  TRF INF PERTUSIO CAPITAL PARTNERS LIMITED
  TRANSFER TO 13552050

  [2.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to Part 3 [2] of the Ombudsman
  Commission‘s
  Provisional Report. Below is his response.

  PART 3 PAYMENTS MADE TO CONSULTANTS AND UBS AG AS PER NEC
  DECISION NO.
  79/2014

  [2] PAYMENTS TO OTHER CONSULTANTS

  I respond that all facts and relevant information as to these
  findings are contained in my responses as
  to Findings of Fact 1 and 2.

  I repeat with regards to payment of Consultants, I say

  I never engaged any legal or financial Consultants (including
  UBS AG), before or after the NEC
  Decision 79/2014 made on 6 March 2014.

  Consultants were engaged by the State after 6 March 2014
  pursuant to the NEC Decision 69/2014 and
  the COI issued by CSTB in accordance with such decision.

• Page 338 of 475

• Findings of Facts
  Page 150

  Following the State Solicitor‘s advice on 20 March 2014 that the
  COI was not issued correctly, and the
  COI issued by CSTB in accordance with such decision.
  This was following and in accordance with the State Solicitor‘s
  advice that the consultants could be
  paid for work performed on a quantum meruit basis and the best
  person to determine what the
  quantum was myself, the Secretary for Treasury.

  Comments

  The Ombudsman Commission noted Mr Vele‘s response to this section of
  the Provisional
  Report. However, the Ombudsman Commission maintains its original
  comment contained
  in the Provisional Report.

  [3] DR KEN NGANGAN, ACTING SECRETARY FOR DEPARTMENT OF
  FINANCE APPROVED THE RELEASE OF FUNDS FOR CONSULTANTS

  On 6 March 2014, the NEC during its Special Meeting No: 8/2014
  relating to the financial
  arrangement to fund the State‘s acquisition of shares in Oil Search
  Ltd, made its Decision
  No: 79/2014, which approved among other matters for the State to
  acquire 149,390,244
  shares in Oil Search Ltd and for State to borrow AU$1.239 Billion
  from UBS AG to fund this
  acquisition and for Secretary for DoF to issue an APC expenditure
  under Section 47B of the
  Public Finance (Management) Act 1995. Below is an extract of the NEC
  Decision:

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a. issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

• Page 339 of 475

• On 7 March 2014, Dr Ngangan approved the APC Expenditure in relation
  to payments made
  to national Consultants and stated:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that he
  provisions of Part VII of the
  Public Finance (Management) Act 1995 have been complied with in
  relation to the purchase
  or supply of the property and services referred to in the
  Schedule and that funds will be
  available to meet the proposed schedule of payments for that
  property and those services
  authorised the pre-commitment of expenditure of up to
  K9,000,000.00 for the purchase or
  supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory services
  in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary shares
  in Oil Search Limited through UBS AG, Australia Branch (ARBN 088
  129 613).

  On 10 March 2014, Mr Vele wrote to Dr Ngangan and requested that
  they approve a
  payment to UBS AG in relation to the acquisition of the shares in
  Oil Search Ltd.

  On even date, the DoT deposited K1.250,000.00 into Pacific Capital
  Ltd‘s bank account
  with Australia and New Zealand Banking Group (PNG) Ltd for services
  rendered to the
  State.

  Findings of Facts Page 151

  On 11 March 2014, Mr Vele completed and endorsed an APC Form and
  requested for the
  release of AU$14,555,759 to be paid to the financial and legal firms
  that prepared and
  advised the State on acquisition of Oil Search Ltd shares.

  On even date, Dr Ngangan approved the APC Form in relation to
  payments made to
  international Consultants and stated:

  I, Dr Ken Ngangan, Secretary of Finance being satisfied that he
  provisions of Part VII of the
  Public Finance (Management) Act 1995 have been complied with in
  relation to the purchase

• Page 340 of 475

• or supply of the property and services referred to in the
  Schedule and that funds will be
  available to meet the proposed schedule of payments for that
  property and those services
  authorised the pre-commitment of expenditure of up to A
  $10,347,821.00 for the purchase or
  supply of that property and those services.

  SCHEDULE

  The provision of financial, legal and technical advisory
  services in connection with that
  purchase and related financing of the purchase by the State of
  149.39 million ordinary shares
  in Oil Search Limited through UBS AG, Australia Branch (ARBN 088
  129 613).

  On 12 March 2014, Mr Vele endorsed the second APC Form to release
  K1,250,000.11 to be
  paid to the Pacific Capital Ltd as consultation fees.

  On even date, Dr Ngangan advised Mr Eludeme that he received two APC
  Forms from Mr
  Vele. Below is an extract:

  Department of Finance has received two APC applications from
  Treasury Department for
  deliberations.

  Proposed Procurement Amount

  1. PNG Financial & Technical Advisors K1,250,000.00
  Acquisition by State of Oil Search Shares

  2. State (PNG) Legal Advisors – Acquisition K1,600,000.00
  By State of Oil Search Shares

  Pursuant to the requirements of s47 of the Public Finances
  (Management) Act, I have
  approved the application for the Department for authority to
  pre-commit for the above
  Procurement. The approved forms are enclosed with this letter.

  I now recommend you for your deliberation and Board assistance
  with GoPNG procurement
  requirements and Board approval. A copy is given to the
  respective Department for the
  confirmation of the approved procurement.

  Comments

  Although both Dr Ngangan and Mr Vele were aware that the activity
  was unbudgeted, they
  proceeded to sign the APC Form committing funds that were not

• Page 341 of 475

• appropriated in the 2014.

  The Ombudsman Commission‘s investigations revealed that neither Dr
  Ngangan nor Mr
  Vele indicated on the APC Forms dated 7, 11 and 12 March 2014, from
  which Vote Item the
  funds were to be accessed. Mr Vele indicated on the form that the
  funds would be from the
  UBS AG Loan. However, it was revealed that the completion of the APC
  Form was
  improper on two grounds:

  1. That the name of the suppliers were not indicated on the form
  and

  Findings of Facts Page
  152

  2. That the CSTB Chairman did not endorse the Form.

  It is also noted that the UBS AG Loan to purchase Oil Search Ltd
  shares, was transacted
  overseas in Australia and funds were not transferred into the PNG
  Government‘s Accounts
  in-country so how could an APC Form be filled and approved for funds
  that were not held
  in-country nor part of the Government‘s Budget Appropriation for
  2014.

  As noted earlier, on 10 April 2014 the DoT raised a Cheque No:
  005039 for K1,250,000.00 in
  favour of Pacific Capital Ltd, a company owned by Mr Kramer,
  Chairman of NPCP. Then
  from 15 April 2014 to 27 June 2014, Pacific Capital Ltd transferred
  various amounts from its
  bank account to Pertusio Capital Partners Ltd, a company owned by Mr
  Vele. Hence, Mr
  Kramer and Mr Vele both benefited from the UBS AG Loan transaction
  by the State.

  [3.1] RESPONSE FROM DR KEN NGANGAN

  On 22 January 2015, Dr Ngangan the Secretary for DoF responded to
  the Commission‘s
  Section 17(4) of the OLOC Report and advised that they did
  deliberate on the APC and
  approved the release of K1,250,000.00 and K1,600,000.00 that were
  paid to the Financial
  and Technical and Legal Advisors in regard to the acquisition by
  State of Oil Search shares.

  Department of Finance has received two APC applications from
  Treasury Department for

• Page 342 of 475

• deliberations.

  Proposed Procurement Amount

  1. PNG Financial & Technical Advisors K1,250,000.00
  Acquisition by State of Oil Search Shares

  2. State (PNG) Legal Advisors – Acquisition K1,600,000.00
  By State of Oil Search Shares

  Pursuant to the requirements of s47 of the Public Finances
  (Management) Act, I have
  approved the application for the Department for authority to
  pre-commit for the above
  Procurement. The approved forms are enclosed with this letter.

  I now recommend you for your deliberation and Board assistance
  with GoPNG procurement
  requirements and Board approval. A copy is given to the
  respective Department for the
  confirmation of the approved procurement.

  Yours sincerely,

  (signed)
  Dr KEN NGANGAN CMA CPA
  Acting Secretary

  Comments

  The Ombudsman Commission noted Dr Ken Ngangan‘s response to this
  section of the
  Provisional Report. It was also noted that Dr Ngangan‘s response did
  not provide new
  information to change the Ombudsman Commission‘s original comments
  contained in the
  Provisional Report.

  Therefore, the Ombudsman Commission maintains its original comments
  contained in the
  Provisional.

  Findings of Facts
  Page 153

  [4] PAYMENTS MADE TO UBS AG BY NATIONAL PETROLEUM COMPANY OF
  PAPUA NEW GUINEA (KROTON) LIMITED

  On 6 March 2014, the NEC during its Special Meeting No: 8/2014
  relating to the financial
  arrangement to fund the State‘s acquisition of shares in Oil Search
  Ltd, made it‘s Decision

• Page 343 of 475

• No: 79/2014 which approved among other matters for NPCP to execute
  the Payment
  Direction Deed concerning payments from GloCo. Below is an extract.

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B
  of the Independent
  Public Business Corporation of Papua New Guinea Act 2002,
  including the
  documentation listed in Part 3 of Schedule A; and

  b) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1995.

  On 8 March 2014, Mr Vele sent an electronic mail to Dr Webster and
  Board Members
  urging them to progress considerations of the matters with the IPBC
  Board on the State‘s
  acquisition of shares in Oil Search Ltd. The attachments in the
  electronic mail are as
  follows:

  1. IPBC Board briefing pack – Memo with explanation of transaction
  and payment Direction
  2. Draft Payment Direction Deed
  3. IPBC Shareholder Approval of Payment Direction
  4. IPBC Board Approval
  5. NPCP Board Resolution for Payment Directions
  6. Power of Attorney

  On even date, Mr Kramer upon directives from Mr Kumarasiri submitted
  a proposal with
  the subject titled ―Financial arrangements for State‘s acquisition
  of shareholding in Oil
  Search Ltd and State borrowing and need for payment direction by
  NPCP‖ to the IPBC
  Board.

• Page 344 of 475

• On 9 March 2014, in its Special Board of Directors Meeting No:
  02/2014, the NPCP Board
  passed resolutions that effected the signing of the Transaction
  Documents. Below is an
  extract from the Meeting Minute:

  a) the Company enter into any Transaction Document necessary to
  give effect to the
  Payment Direction or to satisfy the conditions precedent to
  funding under the Bridge
  Facility,
  b) each Attorney is severally authorised, on behalf of the
  Company, to execute and deliver
  (or enter in any other way into) each Transaction Document and
  to do anything else
  that an Attorney is authorised to do under the Power of
  Attorney; and
  c) the Power of Attorney to be executed by the Company by fixing
  the common seal to it
  and that the fixing of the common seal be witnessed by any two
  directors or any
  director and a Company secretary.
  Findings of Facts Page 154

  On even date, Mr Sonk verified copies of the Shareholder resolutions
  of the NPCP dated 09
  March 2014, Minutes of a Meeting of the Board of Directors and Power
  of Attorney of the
  NPCP.

  On 9 March 2014, Mr Sonk forwarded to Mr Kumarasiri an Extract of
  Minutes of a Meeting
  of the Board of Directors that contained the resolutions that
  authorised NPCP to effect the
  Payment Direction and appoint members of Management as holders of
  Power of Attorney to
  execute the Payment Direction Deed and the executed copy of the
  Payment Direction Deed
  which became effective upon IPBC approval.

  On even date, the NPCP Board of Directors gave the Power of Attorney
  to Mr Sonk and Mr
  Wato.

  On even date, Minister Marape approved the Memorandum of Approval
  that enabled NPCP
  to enter into the Transaction Documents.

  On 10 March 2014, the IPBC Board in its Special Board Meeting No: 3
  of 2014, noted the
  legal advice by the State Solicitor to the DoT and in particular the
  requirement to comply
  with Section 209 of the Constitution and further actions that were

• Page 345 of 475

• taken by the State to
  address the requirements made the following resolutions as outlined
  below:

  a) That for the purpose of section 89 of the Companies Act 1997
  that the IPBC agrees to
  and concurs in the execution by the NPCP of each and every
  document referred to in
  the Schedule (the Transaction Documents) and the directors of
  NPCP are hereby
  authorized to enter into the Transaction Documents.
  b) That the transactions that subject of the Transaction
  Documents and the entry of NPCP
  into the Transaction Documents are approved by the IPBC in its
  capacity as sole
  shareholder of NPCP as a major transaction for the purpose of
  section 110 of the
  Companies Act.
  c) That any director be authorized to execute on behalf of the
  IPBC the resolution in lieu
  of meeting of shareholders under section 103 of the Companies
  Act by which IPBC, as
  sole shareholder of NPCP, gives effect to resolutions (a) and
  (b).
  d) To approve for the purpose of Section 46B(1) of the IPBC Act
  that the Managing
  Director of IPBC recommend to the Minister for Finance for
  approval, a proposal by
  National Petroleum Company of PNG (Kroton) Limited to enter
  into Agreement
  referred to in the Schedule to this document.

  On even date, the IPBC Board deliberated and passed a resolution in
  lieu of meeting of
  Shareholder pursuant to Sections 103, 89 and 110 of the Companies
  Act 1997. Below is an
  extract:

  AGREEMENT OF SOLE SHAREHOLDER

  RESOLVED that for the purposes of section 89 of the Companies Act
  1997 the shareholders
  agrees to and concurs in the execution by the Company of each and
  every document referred
  to in the Schedule (the Transaction Documents) and the directors
  of the Company are
  hereby authorised to enter into the Transaction Documents.
  MAJOR TRANSACTION

  RESOLVED as a special resolution that the transactions the
  subject of the Transaction
  Documents and the entry by the Company into the Transaction
  Documents are approved as
  a major transaction for the purposes of section 110 of the

• Page 346 of 475

• Companies Act 1997.

  On 11 March 2014, Minister Marape approved NPCP to enter into
  Payment Direction Deed.

  Findings of Facts Page 155

  On even date, Mr Sonk wrote to Mr Graham and directed any
  distributions made to NPCP
  to be paid to UBS AG (Singapore Branch).

  On even date both Mr Sonk and Mr Wato wrote to Mr Graham and issued
  instructions and
  directions for all NPCP‘s payments from PNGLNG held by GloCo be made
  payable to UBS
  AG (Singapore) to offset the UBS AG Loan.

  On 3 June 2014, Mr Kramer advised the Ombudsman Commission that NPCP
  was only
  involved and limited to the execution of the Payment Direction Deed
  as per the IPBC Board
  request and direction. He also stated as indicated in the extract
  below:

  a) My understanding of the transaction at that time (and my
  understanding has not
  changed) was that financing of the acquisition of Oil Search
  Shares included a
  Bridge Facility for an amount of about $AUD330 million.

  b) NPCP was not a party to the relevant Bridge Facility
  agreement/document and had
  no opportunity to negotiate or affect the provisions of the
  document.

  c) NPCP was directed to enter into the Payment Direction Deed
  which gives UBS a
  secondary source for loan repayment for the Bridge Facility
  amount only, against
  NPCP‘s cash flow in the event that the State fails to issue
  bonds to replace the
  Bridge Facility.

  d) As you may be aware, NPCP is a Majority State Owned Enterprise
  under the
  Independent Public Business Corporation of PNG 2000 (IPBC Act)
  with 100% of its
  shares held by IPBC as Trustee of the General Business Trust
  for the State.

  e) The IPBC Act provides in Section 46I that IPBC may, by notice
  to a majority State
  Owned Enterprise, set policies or give directions in any

• Page 347 of 475

• matter concerning the
  activities of the Majority State Owned Enterprise.

  The IPBC Act further provides in Section 46J for sanctions and
  penalties for
  Directors who fail to comply with such direction as follows:

  (i) A majority State Owned Enterprise which fails…to give
  prompt effect to a
  direction given to it under Section 46I shall have
  contravened this Part VIA of
  the (IPBC) Act.

  (ii) If a majority State Owned Enterprise has contravened Part
  VIA, each of the
  Directors, including the Managing Director (if any) shall be
  deemed to have
  been involved in that contravention and thereby to have
  breached their duties
  as directors pursuant to Section 112 of the Companies Act
  1977 and be
  punished according under Section 413 of that Act.

  Section 112 of the Companies Act requires a Director of NPCP
  Kroton to act in good
  faith and in the best interest of NPCP Kroton‘s holding
  company (IPBC) when
  exercising his powers or performing his duties.

  The effect of not complying with a Direction by IPBC under
  Section 461 of the IPBC
  Act is to establish a breach of the provisions of Section 112
  and by that make the
  directors liable to the penalties under Section 413 of the
  Companies Act. Section 413
  imposes fines up to K200,000.00 or imprisonment for a term not
  exceed 5 years, or
  both.

  f) The directions to NPCP Board were confirmed in an Email dated
  8 March from Mr
  Wasantha Kumarasiri, the Managing Director of IPBC, and
  addressed to Mr Thomas
  Webster, the then Chairman of IPBC Board, with copies sent to
  a number of people
  including to members of his Board, the Managing Director of
  NPCP, Mr Wapu
  Sonk, and myself as Chairman of NPCP Board.

  Findings of Facts Page 156

  The 8th March email set out the resolutions required to be

• Page 348 of 475

• passed under the IPBC
  Act and concluded specifically addressed to NPCP –

  ―Chairman NPCP and MD NPCP,….Please arrange your NPCP Board
  Resolutions
  urgently to facilitate the State‘s objective per the NEC
  Decision. I will forward you a
  copy of the Board Pack prepared by Dairi Vele for your
  information which will assist
  to fast tract this urgent initiative by the State.‖

  g) In light of the above advice on the effect of Section 46I of
  the IPBC Act and Sections
  112 and 413 of the Companies Act, it was my view that the NPCP
  Directors had no
  option other than to pass the resolutions as directed and to
  execute the Payment
  Direction Deed.
  h) The effect of the Payment Direction Deed is for NPCP to direct
  that funds received
  by NPCP from the PNG LNG Project be deposited into an Escrow
  Account.
  2.
  (b) …The Escrow Account established in the name of NPCP with
  UBS AG Singapore and
  a direction has been provided to GloCo to make all payments
  due to NPCP into that
  nominated account.

  Comments

  The NPCP Board executed the directions from the IPBC Board in order
  to facilitate the NEC
  Decision that was made on 6 March 2014 for NPCP to execute a Payment
  Direction Deed
  concerning payments from GloCo.

  In light of the above approvals and decisions, Mr Sonk and Mr Wato
  directed Mr Graham,
  MD for Esso Highlands to divert from time to time all immediate
  available funds payable to
  NPCP from proceeds from the PNG LNG project to be forwarded to
  paying the interest
  payment on the loan to UBS AG (Singapore).

  The execution of the Payment Direction Deed by NPCP was a condition
  precedent for UBS
  AG approval of funding for the Loan facility to the State. It was
  intended that revenue from
  the LNG Project would not go into the Sovereign Wealth Fund but it
  would go into
  servicing the UBS Loan.

  At and before the time that the GoPNG borrowed the UBS AG Loan, the

• Page 349 of 475

• NPCP was a State
  Owned Enterprise that had no cash flow and an unfavourable Balance
  Sheet.

  This was confirmed when the Ombudsman Commission obtained various
  SOEs‘ Balance
  Sheets from IPBC. It was notable that Balance Sheet for NPCP was in
  the negative and with
  operational liabilities.

  The involvement of NPCP to execute the Payment Direction Deed is
  questionable as it is
  not legally established as the proposed PNG Petroleum Company
  (Kroton) Act has not
  been certified by the Speaker of Parliament in order to be fully in
  force. Thus the
  involvement of NPCP in this whole process was improper.

  Findings of Facts Page 157

  [5] LOAN AND INTEREST PAYMENT TO UBS AG (AUSTRALIA BRANCH)

  On 30 January 2014, Mr Vele engaged UBS AG to act as the Sole
  Financial Advisor and Lead
  Arranger in relation to the management of the investment of the
  State in Oil Search Ltd and
  associated matters flowing from the issuance in 2009 of the
  Exchangeable Bond in respect
  of the State‘s 196.6 million shares in Oil Search Ltd of the IPIC of
  Abu Dhabi.

  On 23 February 2014, the Prime Minister, Mr Peter Botten, MD of Oil
  Search Ltd, Mr Gerea
  Aopi, Board Chairman for Oil Search Ltd and Mr Vele met at Grand
  Papua Hotel and
  decided for the State to buy 149, 390, 244 shares which translated
  to 10.01 % shareholding in
  Oil Search Ltd.

  On 24 February 2014, Hon Rimbink Pato, MP, Minister for Foreign
  Affairs and Immigration
  (FAI) advised HH Sheikh Abdullah bin Zayed Al Nahyan, the Minister
  for FAI, Abu Dhabi,
  United Arab Emirates, that the GoPNG wanted to retain ownership of

• Page 350 of 475

• the Oil Search Ltd
  shares.

  On 25 February 2014, trading in Oil Search Ltd shares halted ahead
  of its announcement
  issuing shares to existing shareholders and interested buyers.

  On even date, UBS AG wrote to Mr Vele and outlined the terms of
  engagement of UBS AG
  as the Sole Financial Advisor and Sole Lead Arranger that was
  effected on 30 January 2014,
  in relation to the management of the investment of the State in Oil
  Search Ltd and
  associated matters flowing from the issuance in 2009 of Exchangeable
  Bond in respect of
  the State‘s 196.6 million shares in Oil Search Ltd to the IPIC of
  Abu Dhabi.

  On even date, the GGPNG signed the Agreements outlining the terms
  and conditions of the
  engagement of UBS AG which was witnessed by Mr Okuk as Commissioner
  of Oath.

  On 26 February 2014, the Prime Minister advised Mr Botten regarding
  the State‘s
  willingness to buy shares in Oil Search Ltd.

  On 27 February 2014, the Prime Minister wrote to Mr Fowler regarding
  UBS AG proposal
  to provide funding facilities to State in connection with the
  subscription by the State for
  approximately 149.39 million shares in Oil Search Ltd at AU$8.20 per
  share.

  On 4 March 2014, Mr David Heathcote presented KPMG‘s analysis to
  IPBC and NPCP on
  the monetized Collars relating to financing the purchase of Oil
  Search Ltd shares.

  On even date, Ashurst Lawyers forwarded draft documents for its
  client UBS AG to the
  State that outlined the financial package that UBS AG was offering
  the State and it was
  indicated that the loan repayment would expire on 17 June 2016.
  Below are extracts:

  SCHEDULE 1 – OPTION TERMS APPLICABLE TO THE BORROWING

  Tranche and Component Collar details
  Each Tranche is made up of five Component Collars with the same
  Expiration Date. Each
  Component Collar is made up of the same Number of Put Options and
  Number of Call
  Options with the same Expiration Date. Each Component Collar has

• Page 351 of 475

• different Put Strikes
  and Call Options set out below.

  Whilst different Tranches have different Expiration Dates, all of
  the Tranches are made up
  of five Component Collars with the Strike Prices and Number of
  Put Options and Number of
  Call Options set out below.

  Findings of Facts Page 158

  Composition of Put Strike Put Strike Number of Call Strike
  Call Strike Number of
  each Tranche (as % of (A$) notional Put (as % of
  (A$) notional Call
  A$8.20) Options per A$8.20)
  Options per
  Component
  Component
  Collar
  Collar
  Component 80% $6.56 913,415 90%
  $7.3800 913,415
  Collar A
  Component 85% $6.97 913,415 110.12%
  $9.0298 913,415
  Collar B
  Component 90% $7.38 913,415 130.95%
  $10.7379 913,415
  Collar C
  Component 95% $7.79 913,415 136.90
  $11.2258 913,415
  Collar D
  Component 100% $8.20 913,415 124%
  $11.6440 913,415
  Collar E
  Average = Average = Total for each Average =
  Average = Total for each
  90% A$7.38 Tranche = 122% A
  $10.00 Tranche =
  4,567,075
  4,567,075

  The number of Shares subject to each Tranche is 4,567,075.
  Each Collar Group is made of five Tranches expiring on five
  consecutive Scheduled Trading
  Days (assuming there are no Disrupted Days). The number of
  Shares subject to each Collar
  Group is 22,835,375.

• Page 352 of 475

• Findings of Facts
  Page 159

  Collar Group and Tranche Details

  Collar Group 1, comprising: Tranche 1 with Expiration Date
  of 7-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 2 with Expiration Date of
  8-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50

• Page 353 of 475

• Tranche 3 with Expiration Date of 9-
  Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 4 with Expiration Date of
  10-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 5 with Expiration Date of
  11-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 1 Final Exchange Date: 4-Mar-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 1 Final Exchange Amount: $168,525,067,.50
  (payable on Collar Group 1 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 1)

  Collar Group 2, comprising: Tranche 6 with Expiration Date
  of 29-Mar-16Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 7 with Expiration Date of
  30-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 8 with Expiration Date of
  31-Mar-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 9 with Expiration Date of
  1-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 10 with Expiration Date of
  4-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 2 Final Exchange Date: 24-Mar-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 2 Final Exchange Amount: $168,525,067,.50
  (payable on Collar Group 2 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 2)

  Collar Group 3, comprising: Tranche 11 with Expiration Date
  of 18-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 12 with Expiration Date of
  19-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 13 with Expiration Date of
  20-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 14 with Expiration Date of

• Page 354 of 475

• 21-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 15 with Expiration Date of
  22-Apr-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 3 Final Exchange Date: 15-Apr-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 3 Final Exchange Amount: $168,525,067,.50
  (payable on Collar Group 3 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 3)

  Findings of Facts
  Page 160

  Collar Group 4, comprising: Tranche 16 with Expiration Date
  of 9-May-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 17 with Expiration Date of
  10-May-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 18 with Expiration Date of
  11-May-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 19 with Expiration Date of
  12-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 20 with Expiration Date of
  13-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 4 Final Exchange Date: 6-May-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 4 Final Exchange Amount: $168,525,067,.50
  (payable on Collar Group 4 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 4)

  Collar Group 5, comprising: Tranche 21 with Expiration Date
  of 30-May-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 22 with Expiration Date of

• Page 355 of 475

• 31-May-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 23 with Expiration Date of
  1-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 24 with Expiration Date of
  2-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 25 with Expiration Date
  of 3-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 5 Final Exchange Date: 27-May-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 5 Final Exchange Amount: $168,525,067
  (payable on Collar Group 5 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 5)

  Collar Group 6, comprising: Tranche 26 with Expiration Date
  of 20-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 27 with Expiration Date of
  21-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 28 with Expiration Date of
  22-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 29 with Expiration Date of
  23-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Tranche 30 with Expiration Date of
  24-Jun-16 Tranche Quantity: 4,567,075 Tranche Notional:
  $33,705,013.50
  Collar Group Quantity: 22,835,375
  Collar Group Notional Amount: $168,525,067.50
  Collar Group 5 Final Exchange Date: 17-Jun-16
  (applicable if Cash Settlement is elected in respect of this Collar
  Group)
  Collar Group 5 Final Exchange Amount: $168,525,067,.50
  (payable on Collar Group 5 Final Exchange Date if Cash Settlement is
  elected in respect of Collar Group 5)

• Page 356 of 475

• Findings of Facts
  Page 161

  On 5 March 2014, Mr Fowler requested the Prime Minister to intervene
  in resolving the
  IPIC Exchangeable Bond, PNG LNG direction-to-pay and Sovereign Bond
  take-out of the
  Bridge Loan.

  On 6 March 2014, the Prime Minister personally sponsored the NEC
  Policy Submission No:
  67/2014 in its Special Meeting No: 08/2014 and NEC made the
  following Decision No:
  79/2014 that effectively engaged UBS AG as Advisor and the lender of
  the loan to purchase
  shares in Oil Search Ltd. Below is an extract:

  2. noted the proposed Transaction Documents referred to in
  Schedule A (attached) and
  the transactions contemplated by them including:

  a) for the State to acquire 149,390,244 shares in Oil Search
  Limited (―Oil Search‖);

  b) for the State to borrow A$1.239 Billion from UBS AG
  (Australia Branch)
  (―UBS‖), initially comprising two facilities (an A$335
  million bridge loan
  facility and a A$904 million collar facility) (the
  ―Borrowing‖); and

  c) for the State to engage UBS as its Advisors on the
  financing and the acquisition
  of Oil Search shares, including that UBS implement (on
  behalf and upon the
  request of the State) a sovereign bond issue to replace the
  bridge loan, (the
  ―Transaction‖).

  3. approved to appoint Petromin PNG Holdings Limited as the
  State‘s eventual
  subscriber and nominee for this transaction;

  4. noted the receipt of certificate correctness from the State
  Solicitor in relation to the
  Transaction Documents to which the State is a party, as set out
  in Schedule E
  (attached);

  5. confirmed the authority for the Minister for Treasury to agree
  and finalise on behalf of

• Page 357 of 475

• the State any of the terms of the Transaction Documents
  referred to in this submission
  which for reasons of commercial sensitivity or otherwise, are
  not set out in this
  submission or its attachments, prior to the submission of the
  Transaction Documents
  to the Head of State for execution on behalf of the State;

  6. approved to advise the Head of State (without limiting the
  authority of any other
  person as may be authorized to do so on behalf of the State)
  to:

  a) approve the Borrowing for the purpose of the purchase of
  shares in Oil Search
  and for the purpose of meeting the expenses of the Borrowing
  and for the
  services of the State, to agree with UBS the manner and the
  terms and
  conditions of that Borrowing, pursuant to section 2(1) of
  the Loans (Overseas
  Borrowing) No.2 Act; and

  b) execute under his signature on behalf of the State those of
  the agreements,
  deeds and other documents to which the State Party is listed
  in Part 2 of the
  Schedule A pursuant to section 47 of the Public Finance
  (Management) Act
  1995 and are attached to the State Solicitor‘s certificate
  set out in Schedule E.

  7. approved to advise the Minister for Treasury to:

  a) issue a direction pursuant to section 2 (11) of the Loans
  (Overseas Borrowings)
  No. 2 Act, that sections 13 and 14 of the Public Finance
  (Management) Act 1995
  do not apply to the State in relation to the Borrowing;

  b) execute under his signature on behalf of the State those of
  the agreements,
  deeds and other documents to which the State is a party
  listed in Part 1 of
  Schedule A pursuant to section 2(7) of the Loans (Overseas
  Borrowings) No.2
  Act and attached to the State Solicitor‘s certificate as set
  out in Schedule E; and
  Findings of Facts Page 162

  c) authorise in writing and appoint as the State‘s Authorized
  Representative, the
  Secretary of the Department of Treasury and any other

• Page 358 of 475

• officers of the
  Department of Treasury as the Minister may determine and
  authorize each of
  them to execute any of the documents referred to in
  paragraph (b) and any
  documents as may be necessary to give effect to, or which
  are ancillary to, the
  documents referred to in paragraph (b), including any
  drawdown notice and
  any certificates.
  and

  8. noted that the Transaction Documents are subject to the issue
  by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department
  of Treasury certifying
  that after the full amount of the borrowing pursuant to the
  Transaction
  Documents, the total value of overseas commercial debt
  which will be owed by
  the State will not exceed 125% of the estimated internal
  revenue of the State for
  the calendar year 2014 within the meaning of section 2(3)
  of the Loans
  (Overseas Borrowings) No. 2 Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B
  of the Independent
  Public Business Corporation of Papua New Guinea Act 2002,
  including the
  documentation listed in Part 3 of Schedule A; and

• Page 359 of 475

• d) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1997.

  On even date, UBS AG issued a Bridge Takeout Letter to Mr Vele and
  outlined the terms of
  fees payable to UBS AG as Facility Agent under the Bridge Facility
  Agreement that was
  signed by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Facility Agent for the loan wrote to Mr
  Vele and requested for
  the State to pay the Facility Agent fees as per the Bridge Facility
  Agreement that was signed
  by the GGPNG and witnessed by Mr Okuk.

  On even date, UBS AG as the Security Trustee for the loan wrote to
  Mr Vele and requested
  for the State to pay the Security Trustee fees as per the Bridge
  Facility Agreement that was
  signed by GGPNG and witnessed by Mr Okuk.

  On 12 March 2014, Ms Hoser wrote to Mr Vele and the State and
  confirmed that terms and
  conditions of the financing transaction entered into between the
  State and UBS AG in
  respect of Oil Search Ltd shares.

  On even date, the Loan Agreement was executed by the GGPNG and UBS
  AG witnessed by
  Mr Okuk.

  Findings of Facts Page 163

  On 22 April 2014, Ashurst Lawyers representing UBS AG wrote to
  Norton Rose Fulbright
  of Australia, the Law Firm representing the DoT and advised that
  non-compliance with
  payment obligations would constitute an Event of Default and UBS AG
  can commence
  enforcement processes without further reference to the State.

  On 30 April 2014, Ms Hoser wrote to Mr Vele and advised that if
  interest due on a
  particular interest payment date is not paid within two Business
  Days of that date, UBS AG
  would be entitled to declare an ―Event of Default‖. As a result, the
  entire loan (and other
  unpaid amounts) under the Bridge Facility would become immediately

• Page 360 of 475

• repayable and the
  security over the Oil Search Ltd shares would become immediately
  enforceable meaning
  that UBS AG could sell the Oil Search Ltd shares to repay all
  amounts owing by the State.
  UBS AG would be entitled to charge default interest on any unpaid
  interest (at the rate of
  2% per annum).

  On 14 May 2014, Mr Vele wrote to the Ombudsman Commission and
  advised that under the
  UBS AG loan, the State is required to make periodic interest
  payments and for the
  Ombudsman Commission to prevent the interest payments, the State
  would be in default
  and UBS AG will commence enforcement processes without further
  notification to the
  State that could result in the loss by the State of its Oil Search
  Ltd shareholding. Therefore,
  the State had to make the interest payments in accordance with the
  loan agreement, given
  the factual findings of the National Court and the advice from
  Norton Rose Fulbright of
  Australia, in light of the very serious consequences for Papua New
  Guinea of default.

  On even date, Mr Vele, raised Finance Forms number 3 & 4 (FF3& FF4)
  that indicated
  AU$2,261,938.36 which was about K5,543,966.57 to be paid to UBS AG
  account number
  242888 as interest payment to the loan. However, on the Finance Form
  4C indicated that
  K5 million was paid to UBS AG.

  On even date, Mr Vele, wrote to the Ombudsman Commission and
  requested for clearance
  on the interest payment to UBS AG.

  On 15 May 2014, representatives of UBS AG, Mr Goldsworthy and Ms
  Raguine wrote to Mr
  Vele and pointed out to him the breach to clause 5.1(b) of the
  Agreement by the State, when
  the State failed to pay the interest for the loan on 14 May 2014.

  On 16 May 2014, Mr Vele wrote to Mr Bakani and instructed him to
  immediately process
  and remit funds to the UBS AG designated account in Sydney,
  Australia as interest payment
  due as per the UBS loan Agreement.

  On even date, Mr Vele sent an electronic mail to Mr Bakani and
  stated that the legal advice
  he got was that the interest payment must be paid to UBS AG in order
  to avoid far reaching

• Page 361 of 475

• consequences of defaulting on the UBS loan. Mr Vele then requested
  that the interest
  payment be made as a matter of the utmost urgency (reaching UBS by
  no later than 5pm
  today) so as to avoid being in default.

  On even date, Ms Betty Palaso, Commissioner-General for Internal
  Revenue Commission
  (IRC) issued a Tax Clearance Certificate indicating that the DoT had
  satisfied the
  requirements of the Income Tax Act 1959 (as amended) and there was
  no objection to the
  issue of an authority to transfer moneys to payment of interest on
  UBS AG Loan.

  Findings of Facts Page 164

  On even date, a copy of the Notification (transmission) of Original
  indicated that the BPNG
  transferred AU$2,261,938.36 to the Reserved Bank of Australia,
  Sydney, Australia and the
  same was transferred to UBS AG.

  Comments

  Under the UBS AG Loan Agreement, the Loan itself has been divided
  into two parts, Collar
  Loan facility of AU$904 million and a Bridge Loan facility of AU$335
  million with interest
  payments to be made after each Oil Search Ltd share held by UBS AG
  is sold to interested
  buyers and these proceeds are then used to offset the Bridge Loan.

  It was noted that the actual Collar Loan facility of AU$904 million
  plus the Collar Loan
  interest repayment of AU$106,594,645 totalled AU$1,011,150,405 were
  paid upfront to UBS
  AG together with other related costs.

  It is noted that the Bridge Loan facility of AU$335 million is held
  by UBS AG in the form of
  12.5 million Oil Search shares as collateral for the loan. In the
  event that the State fails to pay
  off the UBS AG Bridge Loan, then UBS AG will sell these shares to
  interested buyers and
  the proceeds from these sales will offset the Bridge Loan.

  It should be noted that prior to the signing of the Loan Agreement
  between the State and
  UBS AG, the State through the DoT had made payments to UBS AG in the

• Page 362 of 475

• form of Facility
  Agent fee and Security Trustee fees. In addition, the State paid UBS
  AG Consultancy costs
  as Advisors and Arranger of the Loan transaction and also paid costs
  of their Lawyers
  (Ashurst Lawyers).

  In addition, NPCP also executed a Payment Direction Deed (ie, a
  precondition for UBS AG‘s
  approval of funding) concerning payments from PNG LNG Project to be
  diverted to UBS
  AG (Singapore) to service the UBS AG Loan.

  Despite the Direction issued by the Commission pursuant to Section
  27(4) of the
  Constitution, preventing any of the mentioned authorities and
  agencies from further dealing
  with the UBS AG until the investigation is complete, Mr Vele acted
  on Ms Hoser advice
  that if interest due on a particular interest payment date is not
  paid within two Business
  Days of that date, UBS AG would be entitled to declare an ―Event of
  Default‖.

  Mr Vele then instructed Mr Bakani to transfer AU$2,261,938.36 as
  first interest payment on
  the UBS AG Loan to the Australian Reserve Bank for the money to be
  then transferred to
  UBS AG. Mr Vele then instructed Ms Palaso to give tax clearance for
  the amount of money
  to be transferred to Reserve Bank of Australia, Sydney, Australia
  which amount was later
  transferred to UBS AG.

  It is noted that the Finance Forms (FF3 and FF4) indicated AU
  $2,261,938.36 (the
  equivalent of K5,543,966.57) was to be paid to UBS AG however, the
  Finance Form FF4C
  indicated that only K5 million was paid to UBS AG and not the full
  amount, raising doubts
  as to what became of the remaining balance of K543,966.57.

  Findings of Facts Page 165

  [5.1] RESPONSE FROM MR DAIRI VELE

  On 23 January 2015, Mr Vele responded to Part 3 [6] of the Ombudsman

• Page 363 of 475

• Commission‘s
  Provisional Report. Below is his response.

  With regards to the payment of interest on the loan, I say

  1. An interest payment was due on the UBS AG loan on 16 May
  2016. To be certain that I would
  not be in breach of the Directives of the Ombudsman
  Commission, notwithstanding the
  decision of the National Court, I wrote to the Ombudsman
  Commission on 14 May 2014 to
  advise that I would be making the interest payment due under
  the binding loan documents.

  2. I explained to the Ombudsman Commission that to not make such
  interest payments, would
  place the government and the people of Papua New Guinea in a
  very bad situation.

  3. I explained that the OSH Shareholding is an extremely
  valuable asset of the State. Based on the
  closing Australian Stock Exchange trading price for Oil
  Search Limited on 30 April 2014 of
  $8.89 per share, the OSH Shareholding has a value of $1.33
  billion (Australian dollars), which is
  the Kina equivalent of K3.24 Billion. It equates to a gain to
  Papua New Guinea of K240 million
  since purchase of each share for $8.20 on 12 March 2014.

  4. Norton Rose Fulbright, had received a letter from the legal
  advisors to UBS, being Ashursts
  Lawyers, highlighting the implications of non-payment of
  interest payments. I enclosed such
  letter with the letter to the Ombudsman Commission.

  5. The State had then obtained advice about possible
  implications of default by the State in
  repayment of the UBS Loan, under a Letter from the Australian
  Legal advisers to the State,
  Norton Rose Fulbright to the letter to the Ombudsman
  Commission.

  6. I further explained to the Ombudsman Commission that under
  the UBS Loan, the State is
  required to make periodic interest payments. If the State is
  prevented from making those
  payments, the State will be in default, and UBS will have the
  right to commence enforcement
  processes without further notification to the State. The
  enforcement process could result in the
  loss by the State of its OSH Shareholding. This could lead to
  substantial financial and strategic
  disadvantages to the State because it would lose the
  opportunity to benefit from holding those

• Page 364 of 475

• shares.

  7. A default under the UBS Loan would 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 ADB, typically include cross default
  provisions. A default under the UBS
  Loan is likely to trigger cross defaults under such other
  arrangements which could have
  significant adverse implications for the economic development
  of the State and its people, and
  could adversely affect the sovereign credit ratings of the
  State. An associated perception by
  international capital markets of an increase in sovereign
  risk would likely have significant
  adverse implications for the value of the Kina, and the
  ability and cost of the State and its
  subsidiaries to borrow from banks and international
  investors.

  8. I therefore advised the Ombudsman Commission that the State
  would therefore be making
  interest payments in accordance with the loan agreement,
  given the factual findings of the
  National Court and the advice from Norton Rose Fulbright, in
  light of the very serious
  consequences for Papua New Guinea of default.

  9. I received a letter back from the Ombudsman Commission dated
  May 2014 stated that they
  were an independent body and that they were not subject to
  direction by anyone including the
  Court, and that they would analyse the situation and then
  write back to me.

  10. Time was of the essence as there was a deadline before which
  the interest payment had to be
  made so I wrote again to the Ombudsman Commission to further
  seek clearance for the
  payment and emphasizing the seriousness of default.

  11. I did not receive a response from the Ombudsman Commission so
  the State made the interest
  payment prior to the deadline and no default under the loan
  agreement occurred.

  12. On 26 May 2014 however I received a letter from the Ombudsman
  Commission dated 23 May
  2014 which essentially stated that they were investigating
  into various alleged legal and
  financial breaches occasioned by the loan, then set out in
  detail what those alleged breaches
  were and then concluded that stated the State could not make

• Page 365 of 475

• interest payments as they stated
  the directives issued 14 March 2014 effectively froze
  everything to do with the loan agreements.

  Findings of Facts Page 166

  13. I considered the letter and obtained legal advice on such
  letter and responded by way of letter
  dated 5 June 2014, setting out in detail why each alleged
  legal breach was false and that why the
  Ombudsman Commission did not have powers to prevent the State
  from conducting its
  business and from complying with binding loan agreements.

  14. I was concerned that the Ombudsman Commission may create a
  situation where the State may
  find itself in breach of a binding international agreement,
  when there is no legal impediment to
  the interest being paid, because the Ombudsman Commission is
  purporting to exercise powers
  it just does not possess and threatening those that are
  subject to the leadership code with being
  charged with breaches if they comply with the State‘s legal
  obligation under the loan
  agreement. I therefore thought we should seek a judicial
  review of the decision of the
  Ombudsman Commission to not allow interest payments to be
  made pursuant to the loan
  agreement with UBS.

  15. I had expressed my concerns to the Prime Minister and we
  concluded that we needed to seek
  protection for the State from the directions given by the
  Ombudsman Commission that we
  believed also that were beyond the powers of the Ombudsman
  Commission and tantamount to
  giving an injunction.

  16. On 6 June 2014 the Prime Minister and I filed a Judicial
  review of the decision of the
  Ombudsman Commission to issue directions restraining any
  dealings between the parties to the
  UBS/Oil Search transaction, in particular restraining any
  interest payments, being OS 383 of
  2014.

  17. On 10 June 2014, the Prime Minister and I were granted leave
  for Judicial Review.

  18. On 11 June 2014, the Directions of the Ombudsman Commission,
  particularly those that
  restrained any payment of interest by the State to UBS AG
  were stayed by the National Court

• Page 366 of 475

• and the State was free to make interest payments.

  19. Supreme Court Application Pursuant to Section 18(1)
  Constitution to challenge the UBS loan

  20. On 19 May 2014, Don Polye filed a Supreme Court Application
  pursuant to Section 18(1) of the
  Constitution to challenge the UBS loan being SCCOS No. 4 of
  2014 [See SCCOS No. 4/2014
  marked ―K‖].

  21. He is seeking that the Supreme Court declare that:

  22. The executive actions of the Prime Minister and the NEC in
  borrowing $1.239 million from UBS
  to purchase 10.1% interest without parliamentary approval
  were unconstitutional and invalid.

  23. That the loan agreement is illegal and unenforceable against
  the State.

  24. This application before the Supreme Court is still on foot
  and the matter is sub judice.

  25. The Ombudsman Commission should not make any findings at all
  until the Supreme Court has
  dealt with this matter.

  Comments

  The Ombudsman Commission noted Mr Vele‘s response to this section of
  the Provisional
  Report.

  However, the Ombudsman Commission maintains its original comment
  contained in the
  Provisional Report.

  In addition to this, the Supreme Court made its own findings in
  particular to the
  Provisional Report and further ruled that Ombudsman Commission has
  jurisdiction over
  the Office of the Prime Minister. A summary of the Court proceedings
  appear on page 16 tp
  18 of this Report.

  Findings of Facts Page 167

• Page 367 of 475

• 3. INTERVIEWS WITH WITNESSES

  This Chapter discusses the evidence given by witnesses with the
  Ombudsman Commission.
  The purpose of the interview was to:

  • Establish the proper decision making process, i.e. checking
  whether the Laws and
  the consultation processes were followed and complied with,

  • Establish whether the tendering process that led to the
  engagement of the UBS AG
  (Australia Branch) as the lender of AU$1.239 Billion loan was
  followed, and

  • Establish existence of legal and administrative discrepancies in
  the decision making
  relating to the borrowing of UBS AG loan processes.

  [3.1] EVIDENCE GIVEN BY HON DON POLYE, THEN MINISTER FOR TREASURY
  On 10 March 2014, Hon Don Polye, then Minister for Treasury was
  interviewed at the
  Ombudsman Commission Office at Deloitte Tower, Port Moresby during
  which he stated
  that it was during his term as Treasurer that the 2014 budget was
  compiled and tabled in
  Parliament.

  Hon Polye stated that the UBS AG loan did not go through the normal
  budget
  appropriation process and the Parliament did not approve it in
  November 2013.

  Hon Polye stated that he was present and expressed his disagreement
  with the State‘s
  borrowing of the loan due to the fact that the loan exceeded the
  State‘s Gross Domestic
  Product to Debt ratio threshold of 35%.

  Hon Polye also stated that the PNG Fiscal Responsibility Act 2006
  being the Act to promote
  economic and financial transparency and accountability in the
  interests of a stable
  macroeconomic environment was not complied with as the borrowing
  exceeded the 125% of
  total value of overseas commercial debt to the estimated internal
  revenue for the Fiscal Year
  2014thereby breaching Section 2(3) of the Loans (Overseas Borrowing)
  (No.2) Act (Chapter
  133A).

  His refusal to sign the Direction Payment Deed and other related
  documents to facilitate the

• Page 368 of 475

• borrowing and interest payments consequently resulted in his
  decommissioning as Minister
  for Treasury.

  [3.2] EVIDENCE GIVEN BY MR DANIEL ROLPAGAREA, STATE SOLICITOR
  On 26 March 2014, Mr Rolpagarea was interviewed at the Ombudsman
  Commission Office
  at Deloitte Tower, Port Moresby during which he stated that he
  advised against the
  issuance of the COI for the engagement of Consultants and its
  application retrospectively.

  Mr Rolpagarea also stated that he noted in the middle of the NEC
  Submission that the State
  would give all its revenue to UBS AG and advised Mr Vele that the
  submission need to be
  debated on the floors of Parliament pursuant to Section 209 of the
  Constitution.

  Interview with Witnesses Page 168

  [3.3] EVIDENCE GIVEN BY HON KERENGA KUA, THEN MINISTER FOR JUSTICE
  AND ATTORNEY-GENERAL
  On 31 March 2014, Hon Kua, then Attorney-General was interviewed at
  the Commission
  Office at Deloitte Tower, Port Moresby during which he stated that
  he was never present at
  the NEC meeting that made the decision to approve the borrowing, nor
  was he consulted
  on the matter.

  Hon Kua stated that he never gave clearance for the engagement of
  legal firms to be engaged
  by DoT to act on behalf of the State.

  [3.4] EVIDENCE GIVEN BY MR LOI BAKANI, GOVERNOR FOR BANK OF PAPUA
  NEW GUINEA
  On 3 April 2014, Mr Bakani was interviewed at the Commission Office
  at Deloitte Tower,
  Port Moresby during which he stated that the BPNG was not involved
  in the second part of
  the UBS AG loan in which the loan was obtained to purchase shares in
  Oil Search Ltd.

  Mr Bakani confirmed that the BPNG was involved in the IPIC
  Exchangeable Bond buyback
  negotiations and the purchasing of shares in Oil Search Ltd.

  Mr Bakani also stated that he was not aware of the loan arrangement
  that led to the State
  purchasing shares in Oil Search Ltd.

  [3.5] EVIDENCE GIVEN BY MR DAIRI VELE, ACTING SECRETARY FOR THE

• Page 369 of 475

• DEPARTMENT OF TREASURY
  On 6 August 2013, the National Executive Council appointed Mr Dairi
  Vele, as the Acting
  Secretary for the Department of Treasury (DoT) and he was involved
  in the IPIC
  Exchangeable Bond buyback negotiations.

  On 2 May 2014, Mr Vele, was interviewed at the Commission Office at
  Deloitte Tower in
  Port Moresby, National Capital District during which he stated that
  UBS AG was engaged
  as the financial advisor and then later engaged as the Lender of the
  AU$1.239 Billion Loan
  to the State and he further stated that this was normal practice in
  the commercial
  arrangements.

  Mr Vele stated that there was no Meeting Minute taken during the
  meeting that was
  attended by the Prime Minister, Mr Botten, Mr Aopi the Chairman for
  Oil Search Ltd Board
  and himself at Grand Papua Hotel, Port Moresby.

  Mr Vele stated that it was during this meeting over a cup of coffee
  that the decision to buy
  shares in Oil Search Ltd was made.

  Mr Vele stated that the financial and legal firms, namely UBS AG,
  Ashurst Lawyers, Norton
  Rose Fulbright of Australia, Pacific Legal Group Lawyers, Pacific
  Finance Group and
  KPMG were engaged prior to him been appointed as Acting Secretary,
  hence it was only
  appropriate that the DoT continue to engage them to facilitate this
  borrowing.

  Mr Vele further stated that the State Solicitor advised him to go
  ahead with the submission
  of the NEC Policy Paper that was prepared with the assistance from
  UBS AG, Ashurst

  Interview with Witnesses Page 169

  Lawyers, Norton Rose Fulbright of Australia, Pacific Legal Group
  Lawyers, Pacific Finance
  Group and KPMG.

  Mr Vele stated that Mr Rolpagarea did not stop him from continuing
  with the progressing
  of the NEC submission. However, he did admit that procedures may not
  have been
  followed in getting the loan.

• Page 370 of 475

• [3.6] EVIDENCE GIVEN BY MR ANTHONY YAUIEB, DEPUTY SECRETARY
  (POLICY), DEPARTMENT OF TREASURY
  On 9 May 2014, Mr Anthony Yauieb was interviewed at the Commission
  Office at Deloitte
  Tower, Port Moresby during which he stated that the DoT was not
  involved in the
  transaction. That is, his officers, including him were left out and
  they did not know what
  was happening and that Mr Vele was the only one handling the
  borrowing at the Secretary‘s
  level.

  Mr Yauieb stated that proper procedures outlined in the Constitution
  that would have been
  adhered to jointly with the relevant Acts of Parliament, in
  particular Sections 209, 212 and
  255 of the Constitution were not complied with. In other words, Mr
  Yauieb said that the
  Prime Minister, the then Minister for Treasury and the Minister for
  Public Enterprises and
  State Investments breached the applicable laws and legal procedures.

  [3.7] EVIDENCE GIVEN BY MR WASANTHA KUMARASIRI, THE MANAGING
  DIRECTOR FOR IPBC
  Mr Kumarasiri furnished and provided information to the Commission
  and it was revealed
  the SOE‘s in particular NPCP and Petromin did not have sound Balance
  Sheets and hence
  they were not financially sound and capable to handle such a loan
  Transaction.

• Page 371 of 475

• Interview with Witnesses Page 170

  4. FINDINGS

  [4.1] FINDING No. 1

  In the opinion of the Ombudsman Commission, the conduct of the Prime
  Minister
  was wrong and improper when he committed the State to purchase
  149,390,244
  shares in Oil Search Ltd without prior approval from the National
  Executive Council.

  Reason(s):

  • On 19 December 2013, the NEC during a Special Meeting No: 37/2013
  in its Decision
  No: 479/2013 approved that the BPNG provide final evaluations on
  the proposals
  from Citi Bank and UBS AG to re-finance the IPIC Exchangeable
  Bond.

  • On 23 February 2014, the Prime held a meeting with Mr Botten, Mr
  Aopi and Mr
  Vele at Grand Papua Hotel in Port Moresby and over a cup of coffee
  and committed
  the State to purchasing shares in Oil Search Ltd.

  • On 25 February 2014, as soon as the Prime Minister made his
  intentions known to
  Mr Botten, Oil Search Ltd suspended trading its stock in the
  Australian Stock
  Exchange and made it‘s announcement of issuing shares to existing
  shareholders and
  interested buyers.

  • After the above events, on 27 February 2014, the Prime Minister
  wrote to Mr Fowler
  and informed him that the State had engaged UBS AG as the lender
  and financier of
  the loan to purchase shares in Oil Search Ltd.

  • A Subscription Agreement was then signed between UBS AG (the
  Equity Derivative
  Financier) and Oil Shares Ltd.

  • Oil Search Ltd then announced that it had agreed to acquire a
  22.835% gross interest
  in PRL 15 (Elk/Antelope) from the PacLNG Group Companies for US

• Page 372 of 475

• $900 million to
  be funded through a placement of new shares to the State.

  • This was highly suspicious and may amount to insider trading as
  the GoPNG had
  prior knowledge and information that was in its favour and denied
  other interested
  buyers the opportunity to buy at the same share price of A$8.55 of
  Oil Search Ltd
  shares.

  Comments:

  The Prime Minister is a leader and is subject to investigation under
  the Leadership Code.
  The Ombudsman Commission‘s comments on this finding have not
  changed.

  Findings Page 171

  [4.2] FINDING No. 2

  In the opinion of the Ombudsman Commission, the conduct of
  the Prime Minister
  was wrong and improper in that he failed to present the
  Government‘s proposal on
  the borrowing of a loan from UBS AG (Australia Branch) on the
  floor of Parliament
  for debate and approval as required by Sections 209(1), 211
  and 212 of the
  Constitution.

  Reason(s):

  . Section 209 (Parliamentary Responsibility) of the
  Constitution states:

  (1) Notwithstanding anything in this Constitution, the
  raising and expenditure of
  finance by the GoPNG, including the imposition of
  taxation and the raising of
  loans, is subject to authorization and control by the
  Parliament, and shall be
  regulated by an Act of the Parliament.

  . Sections 211 (Accounting, etc., for public moneys) of the
  Constitution states:

  (1) All moneys of or under the control of the National
  Government for public
  expenditure and the Parliament and the Judiciary for

• Page 373 of 475

• their respective services, shall be dealt with and
  properly accounted for in accordance with law.
  shall be dealt with and properly accounted for in
  accordance with law.

  (2) No moneys of or under the control of the National
  Government for public
  expenditure or the Parliament and the Judiciary for
  their respective services,
  shall be expended except as provided by this
  Constitution or by or under an Act of the Parliament.
  of the Parliament.

  . Section 212 (Revenue and expenditure without prior
  approval) of the Constitution
  states:

  (1) If at the beginning of a fiscal year the Parliament has
  not made provision for public expenditure by the
  National Executive or expenditure by the
  public expenditure by the National Executive or
  expenditure by the
  Parliament or the Judiciary for their respective
  services for that year, the
  National Executive, the Parliament or the Judiciary, as
  the case maybe, may,
  without authorization other than this section but in
  accordance with an Act of
  the Parliament, expend amounts appropriated out of the
  Consolidated
  Revenue Fund for the purpose not exceeding in total one-
  third of its respective budgeted expenditure during the
  immediately preceding fiscal year.
  budgeted expenditure during the immediately preceding
  fiscal year.

  (2) The authority conferred by Subsection (1) lapses when
  the Parliament has
  made provision for the public expenditure for the fiscal
  year in question, and
  any amounts expended by virtue of that subsection are a
  charge against the
  expenditure so provided for and shall be properly
  brought to account
  accordingly.

  . From the provisions of the Constitution stated above, it is
  apparent that the UBS AG loan did not go through the normal
  budget appropriation process and Parliament
  G loan did not go through the normal budget appropriation
  process and Parliament

  Findings Page 172

• Page 374 of 475

• did not approve it in November 2013 sitting as required by the
  Appropriation Act 2014.
  The loan exceeded the State‘s Gross Domestic Product to Debt
  ratio threshold of
  35% and thereby breaching the PNG Fiscal Responsibility Act 2006
  being an Act to
  promote economic and financial transparency and accountability in
  the interests of a
  stable macroeconomic environment. The borrowing exceeded the 125%
  of total value
  of overseas commercial debt to the estimated internal revenue for
  the Fiscal Year 2014
  thereby breaching Section 2(3) of the Loans (Overseas Borrowing)
  (No.2) Act (Chapter
  133A).

  . The Prime Minister and Mr Vele are obliged under the Law to
  comply with the
  relevant provisions of the Constitution and State Solicitor‘s
  advice for the borrowing
  to be debated on the floor of Parliament.

  Comments:

  The Prime Minister is a leader and is subject to investigation under
  the Leadership Code.
  The Ombudsman Commission‘s comments on this finding have not
  changed.

  [4.3] FINDING No. 3

  In the opinion of the Ombudsman Commission, the conduct of the Prime
  Minister
  was wrong and improper when he personally sponsored and submitted
  NEC Policy
  Submission No: 67/2014 and misled the National Executive Council to
  approve the
  borrowing of AU$1.239 Billion from UBS AG to buy shares in Oil
  Search Ltd.

  Reason(s):

  . The Prime Minister personally sponsored the NEC Policy Submission
  No: 67/2014
  and not the then Minister for Treasury, Hon Polye who was never
  involved in the
  Loan negotiations.

  ~ The NEC during its Special Meeting No: 08/2014, Decision No:
  79/2014 approved
  Petromin Holdings Ltd as the State‘s subscriber and nominee to
  sign the Transaction

• Page 375 of 475

• Documents. However, Petromin Holdings Ltd did not have a sound
  Balance Sheet
  and was not capable to take-on the responsibility of handling of
  the borrowing.

  ~ Evidence gathered revealed that the engagement of UBS AG and the
  other Financial
  and Legal Consultants were not in line with the Public Finance
  (Management) Act 1995
  and Attorney-General Act 1989. That is, their engagement was done
  prior to the NEC‘s
  decision.

  . Section 209 of the Constitution is very clear, in that the Prime
  Minister is required to
  seek the Parliament‘s approval of the Loan of this magnitude.

  . Prime Minister and Mr Vele should have complied with Section 255
  of the
  Constitution and conducted wide consultation with the relevant
  authorities and
  agencies on the Loan transaction.

  Findings Page 173

  . This borrowing exceeded the fixed 35% set in the 2014 budget and
  the current
  overseas borrowing ceiling has been exceeded by 125% of total
  value of overseas
  commercial debt to the estimated internal revenue for the Fiscal
  Year 2014 contrary
  to Section 2(3) of the Loans (Overseas Borrowing) (No.2) Act
  (Chapter 133A).

  Comments:

  The Prime Minister is a leader and is subject to investigation under
  the Leadership Code.
  The Ombudsman Commission‘s comments on this finding have not
  changed.

  [4.4] FINDING No.4

  In the opinion of the Ombudsman Commission, the conduct of the Prime
  Minister
  was wrong and improper when he failed to consult Petromin Holdings
  Ltd to be the
  State‘s subscriber and nominee to acquire shares in Oil Search Ltd.

  Reason(s):

• Page 376 of 475

• . The NEC in its Special Meeting No: 8/2014 Decision No: 79/2014
  appointed
  Petromin Holdings Ltd as the State‘s eventual subscriber and
  nominee for this
  transaction to facilitate the repayment of the loan to UBS AG.

  . Mr Basu, the CEO for Petromin Holdings Ltd formally wrote and
  confirmed that
  Petromin Holdings Ltd was never consulted and involved in the
  transaction of the
  Oil Search Ltd shares, nor was it involved in the negotiation of
  the transaction or
  preparation of the related agreements contrary to the NEC
  Decision No: 79/2014 and
  Section 4 of the Petroleum PNG Holdings Limited Authorization Act
  2007 that states the
  purpose of Petromin Holdings Ltd.

  Section 4(a), (b) & (c) of the Petroleum PNG Holdings Limited
  Authorization Act 2007
  states:

  (a) to acquire from the State and from others, whether directly
  or as a nominee of the
  State, interests in mining and petroleum projects in Papua New
  Guinea;

  (b) to engage in mineral and petroleum exploration, evaluation
  and development and
  the production and recovery of any naturally occurring minerals
  and petroleum,
  whether in solid, liquid, or gaseous form or mixed together or
  with other material
  and substances, and to process, sell, or otherwise dispose of
  the same;

  (c) to engage in and carry on, in all means, transportation, in
  Papua New Guinea and
  any part of the world, of mineral and petroleum or their
  derivatives whether in
  solid, liquid, gaseous or mixed together, of with other
  substances, and to sell or
  dispose of the same.

  . Petromin Holdings Ltd‘s Balance Sheet was not sound to take on a
  transaction of
  such magnitude.

  Findings Page 174

• Page 377 of 475

• Comments:

  Prime Minister is a leader and is subject to investigation under the
  Leadership Code. The
  Ombudsman Commission‘s comments on this finding have not changed.

  [4.5] FINDING No. 5

  In the opinion of the Ombudsman Commission, the existence of the
  National
  Petroleum Company of Papua New Guinea is questionable as it is not
  legally
  established as the proposed Papua New Guinea Petroleum Company
  (Kroton) Act
  has not been certified by the Governor-General in order to be fully
  in force.

  Reason(s):

  . The NEC during its Special Meeting No: 08/2014, Decision No:
  79/2014 approved
  Petromin as the State‘s subscriber and nominee to sign the
  Transaction Documents.

  . On 3 February 2014, Minister Micah informed Mr Kramer on the
  progress on the
  negotiations regarding the Exchangeable Bond and the appointment
  of UBS AG.

  . However, it was apparent that the NEC Decision No: 79/2014 did
  not appoint NPCP
  as the nominee and subscriber to the transaction.

  . The NEC Decision No: 79/2014 Clause 8 approved the NPCP to be
  involved in
  executing of the Payment Direction Deed and nothing else,
  concerning payments
  from the PNG LNG Project. Below is an extract of the NEC Decision
  No: 79/2014:

  8. noted that the Transaction Documents are subject to the issue
  by other State
  Agencies of necessary or convenient statutory authorizations
  that are being sought
  in parallel with this submission, and or endorse the issue of
  any such authorizations
  for the Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit

• Page 378 of 475

• expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department
  of Treasury certifying
  that after the full amount of the borrowing pursuant to the
  Transaction
  Documents, the total value of overseas commercial debt
  which will be owed
  by the State will not exceed 125% of the estimated internal
  revenue of the
  State for the calendar year 2014 within the meaning of
  section 2(3) of the
  Loans (Overseas Borrowings) No. 2 Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B
  of the
  Independent Public Business Corporation of Papua New Guinea
  Act 2002,
  including the documentation listed in Part 3 of Schedule A;
  and

  Findings Page 175

  d) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1997.

  . The NPCP was set up under the PNG Petroleum Company (Kroton) Act
  which is yet to
  be certified and gazetted in the National Gazette.

  [4.6] FINDING No. 6

  In the opinion of the Ombudsman Commission, there was a conflict of
  interest
  situation in regard to Mr Frank Kramer, the Chairman for the
  National Petroleum
  Company of Papua New Guinea Board, when he is a Director and
  Shareholder of
  Pacific Capital Ltd, a company that was engaged by Mr Dairi Vele to
  provide financial

• Page 379 of 475

• consultancy services to the State for the borrowing of A$1.239
  Billion UBS AG Loan to
  purchase shares in Oil Search Ltd.

  Reason(s):

  ~ On 3 February 2014, Minister Micah informed Mr Kramer regarding
  the negotiations
  progress on the Exchangeable Bond and the appointment of UBS AG.

  . On 6 March 2014, NPCP was then engaged as the State‘s agency to
  execute the
  Payment Direction Deed.

  . On even date, Mr Vele requested Mr Eludeme to approve the Request
  for COI form
  at the earliest to cover the advisory cost provided by the
  Consultants that included
  Pacific Capital Ltd.

  . On 7 March 2014, Mr Vele explained to Mr Eludeme that the COI was
  needed to
  access funds to pay for fees pertaining to the State‘s acquisition
  of the shares in Oil
  Search Ltd.

  . On even date, Mr Vele requested Mr Rolpagarea to issue legal
  clearance on the
  submission regarding the State‘s borrowing of loan arrangements.

  . The Ombudsman Commission‘s investigations revealed that one of the
  Directors and
  Shareholders of Pacific Capital Ltd is Mr Frank Kramer who is the
  same Mr Frank
  Kramer who is the Chairman of NPCP.

  . It was also revealed that Pacific Capital Ltd was paid
  K1,250,000.00 by the DoT for
  providing consultancy and advisory services to DoT and the State
  regarding the
  borrowing of UBS AG loan to purchase shares in Oil Search Ltd.

  Comments:

  Mr Frank Kramer is not a leader covered by the Leadership Code and
  hence this matter
  will be referred to the Police for further investigation.

  Findings Page 176

• Page 380 of 475

• RESPONSE FROM MR FRANK KRAMER

  On 16 February 2015, Mr Frank Kramer responded to the Ombudsman
  Commission‘s
  Provisional Report. Below is an extract of his letter:

  Dear Sir

  Investigation in relation to the UBS Transaction & the Oil Search
  Shares

  I write to you to raise my concerns regarding the Commission‘s
  recent investigations and
  findings in relation to the above matter.

  I was been reliably informed that the findings of those
  investigations purport to implicate
  me in my former capacity as a Director of Pacific Capital Limited
  (the Company). Please
  allow me the opportunity to put the record straight.

  I was a former Chairman and non-executive Director of the Company
  and sold my interests
  (3.86%) in the company to Geefin Limited on 24th January 2012. The
  former Directors
  resigned with the exception of myself who was asked to stay on to
  facilitate certain formal
  transfers to the new owners. (Please refer to attached copies of
  notice of change of
  shareholders and directors).

  It was intended that I would resign immediately thereafter.
  However, due to an oversight by
  the Chief Accountant my cessation as Director of the Company and
  removal as a signatory to
  the Company‘s bank accounts were never effected. From the date of
  sale of my interest in the
  Company on 24th January 2012, I have had no direct or indirect
  interest in Pacific Capital
  Ltd. My position as Chairman of the Company ceased effective from
  the date of appointment
  of new Director and representative of Geefin Ltd, Malcolm Gheno.

  To support my position, I attach herewith sworn statements by
  myself and the Company‘s
  secretary Bipin Agarwal. These sworn statements are self-
  explanatory.

  Should you have any queries please do not hesitate to contact me.

  Yours sincerely,

  (signed)
  Frank M. Kramer

• Page 381 of 475

• Comments:

  Mr Frank Kramer stated in his letter above that he was not a
  Director or a Shareholder of
  Pacific Capital Ltd, a company that was involved in facilitating the
  interest payment to
  UBS AG.

  However, company extract from IPA, revealed that Mr Kramer was still
  a registered
  Director with Pacific Capital Ltd at that material time that he was
  the Chairman of NPCP.

  On 6 March 2014, when Mr Vele engaged Pacific Capital Ltd to provide
  Financial and
  Technical consultancy and advisory services to the DoT and the State
  regarding the
  borrowing of the UBS AG Loan to purchase shares in Oil Search Ltd,
  Mr Kramer was still
  a registered Director of Pacific Capital Ltd and on 05 February
  2015, he ceased to be a
  registered Director of Pacific Capital Ltd. Therefore, Mr Kramer‘s
  position as Chairman of

  Findings Page 177

  NPCP and his continued Directorship in Pacific Capital Ltd at that
  material time, created
  a conflict of interest situation.

  The Ombudsman Commission maintains its original comments contained
  in the
  Provisional Report.

  [4.7] FINDING No. 7

  In the opinion of the Ombudsman Commission, the conduct of Minister
  Micah was
  wrong and improper when he issued directives and instructions to the
  Independent
  Public Business Corporation Board and Management to approve the
  Payment
  Direction Deed to facilitate the interest payment to UBS AG.

  Reason(s):

  . The NEC during its Special Meeting No: 08/2014, Decision No:
  79/2014, Clause 3
  approved Petromin as the State‘s subscriber and nominee to sign

• Page 382 of 475

• the Transaction
  Documents.

  . NEC‘s Decision under Clause 8(c) approved NPCP to execute the
  Payment
  Direction Deed concerning payments from PNG LNG Project through
  GloCo.

  . Minister Micah directed and instructed the IPBC Chairman and
  Board to take all
  actions necessary to approve NPCP entering into the Payment
  Direction and any
  Transaction Documents as shall be necessary or ancillary to give
  effect to the
  direction and that the NPCP should sign the Payment Direction on
  or before 9th
  March 2014.

  . These directions and instructions were in breach of Section 59 of
  the Independent
  Public Business Corporation of Papua New Guinea Act 2002 as
  Minister Micah had no
  authority to issue directives or instructions to the IPBC Board
  or its management.
  Section 59 of the Independent Public Business Corporation of
  Papua New Guinea Act 2002
  states:

  59. POLITICAL INFLUENCE
  (1) No Minister, member of the National Parliament or any member
  of a Provincial or
  Local-level Government may seek to direct or influence the
  exercise by a Director
  of his or her duties, powers or judgments or any Board
  decision other than through
  a written communication that is tabled concurrently in the
  National Parliament if
  it is in session or otherwise with the Speaker of the
  National Parliament (who shall
  table any such communications in the National Parliament at
  the next
  opportunity).

  (2) A Director who receives any representations made by or on
  behalf of such persons
  shall record the fact of, and the content of, such
  representations at the next Board
  meeting and table copies of any written communications
  containing such
  representations at the Board meeting and with the Speaker of
  the National
  Parliament within seven days of receipt.

• Page 383 of 475

• Findings Page 178

  . It was apparent that Minister Micah did not table a report
  on the floor of Parliament and sought Parliament‘s approval
  of his communication with the IPBC Management
  t and sought Parliament‘s approval of his communication with
  the IPBC Management
  and the IPBC Board.

  . The Commission‘s investigation revealed that undue
  political influence was asserted
  by Minister Micah on the IPBC Board and management to
  enforce the NEC Decision
  No. 79/2014.

  . Minister Micah usurped the powers of the Minister for
  Treasury. Therefore, the
  actions of Minister Micah brought into question the
  independence of the IPBC and
  all the other State Owned Enterprises.

  Comments:

  Minister Micah is a leader and is subject to investigation
  under the Leadership Code.

  Minister Micah did not respond to the Provisional Report and
  hence the Ombudsman
  Commission‘s comments on this matter have not changed.

  However, Mr Micah is no longer a Member of Parliament and
  therefore the
  recommendation for an investigation under the Leadership
  Division of the Ombudsman
  Commission no longer applies.

  [4.8] FINDING No. 8

  In the opinion of the Ombudsman Commission, the conduct of
  Ambassador Isaac
  Lupari was wrong and improper when he advised the Independent
  Public Business
  Corporation Managing Director of the NEC Decision No: 79/2014
  for the State to
  acquire shares in Oil Search Ltd.

  Reason(s):

  ~ Amb Isaac Lupari is the Chief of Staff to the Prime
  Minister and his functions are to assist the Prime Minister
  and manage staff employed in the Prime Minister‘s Office

• Page 384 of 475

• o assist the Prime Minister and manage staff employed in the
  Prime Minister‘s Office
  and does not include issuing advise and instructions to
  Heads of Departments which
  responsibility would come under the Chief Secretary‘s
  Office.

  ~ The NEC during its Special Meeting No: 08/2014, Decision
  No: 79/2014 approved
  among other matters for State to acquire 149,390,244
  shares in Oil Search Ltd and
  for the State to borrow AU$1.239 Billion from UBS AG for
  such purpose and
  Petromin as the State‘s subscriber and nominee to sign the
  Transaction Documents.
  ~ However, Amb Isaac Lupari then conveyed the NEC Decision to
  the IPBC Chairman
  and Board that NEC approved for State to borrow from UBS
  AG to fund its
  acquisition of shares in Oil Search Ltd and that the NPCP
  was to facilitate the
  Payment Direction on or before 9 March 2014.

  . Amb Isaac Lupari has no authority to issue advice or
  instructions to the IPBC or to
  any Government Agency regarding decisions made by the NEC,
  as this is the role
  Findings Page 179

  and the function of the Secretary to the NEC Secretariat or the
  Chief Secretary to the
  GoPNG.

  Comments:

  Amb Isaac Lupari is a leader under Section 26(1)(L) of the
  Constitution and is subject to
  investigation under the Leadership Code.

  Amb Isaac Lupari did not respond to the Provisional Report and hence
  the Ombudsman
  Commission‘s comments on this matter have not changed.

  [4.9] FINDING No. 9

  In the opinion of the Ombudsman Commission, the conduct of Mr Dairi
  Vele was
  wrong and improper when he engaged UBS AG as the Sole Financial
  Advisor and
  Lead Arranger in relation to the management of the investment of the
  State in Oil
  Search Ltd without the National Executive Council approval.

• Page 385 of 475

• Reason(s):

  • On 6 August 2013, the NEC appointed Mr Vele, as the Acting
  Secretary for DoT.

  • On 12 August 2013, Mr Vele met with UBS AG officials at Sydney,
  Australia in order
  to get their proposal to refinance the IPIC Exchangeable Bond.

  • On 15 August 2013, Mr Vele held a second meeting with UBS AG
  officials at Sydney,
  Australia to get their proposal to refinance the IPIC
  Exchangeable Bond.

  • On 19 December 2013, the NEC during a Special Meeting No: 37/2013
  in its Decision
  No: 479/2013 approved that the BPNG provide final evaluations on
  the proposals
  from Citi Bank and UBS AG to re-finance the IPIC Exchangeable
  Bond.

  • On 30 January 2014, Mr Vele engaged UBS AG to act as the sole
  Financial Advisor
  and Lead Arranger, in relation to the management of the
  investment of the State in
  Oil Search Ltd and associated matters flowing from the issuance
  in 2009 of the
  Exchangeable Bond in respect of the State‘s 196.6 million shares
  in Oil Search Ltd to
  IPIC of Abu Dhabi.

  • There was no NEC Decision to indicate that the NEC had directed
  or instructed the
  Secretary for DoT to formally write to UBS AG and advice of UBS
  AG‘s appointment
  as the Financial Advisor and Lead Arranger and then Lender of the
  Loan to the State
  for the purpose of purchasing new shares in Oil Search Ltd.

  Comments:
  Mr Vele is a leader subject to the Leadership Code.

  Findings Page 180

  RESPONSE FROM MR DAIRI VELE

  I deny completely the finding that ―in the opinion of the
  Ombudsman Commission the
  conduct of Mr Dairi Vele was wrong and improper when he engaged
  UBS AG as the Sole
  Financial Advisor and Lead Arranger in relation to the

• Page 386 of 475

• management of the investment of the
  State in Oil Search Ltd without the National Executive Council
  approval‖.

  I say firstly, that the findings of fact that led to this
  ―findings of improper conduct‖ are
  incorrect, and consequently the ―finding of improper conduct‖
  are incorrect, and
  consequently the ―finding of improper conduct‖ is wrong.

  Secondly, I say I never engaged UBS AG as the sole financial
  advisor and lead arranger at all.

  I say that the correct facts are as follows, which show no
  improper conduct on my part:-

  1. On 5 December 2012 Norton Rose Fulbright was retained by IPBC
  to provide legal
  advice on the IPIC Bond Project (see Retainer letter 5
  December 2012 NRF). The work
  expressly included

  • reviewing the terms and conditions of the IPIC Bond,

  • reviewing and advising options available to IPBC for
  refinancing of the loan and
  or a restructure of the terms of the existing loan.

  Specifically it was recognized in the scope of work that ―a
  significant aspect of this scope of
  work would involve meeting the objectives regarding the
  ownership of the Oil Search
  Shares‖.

  2. On 5th April 2013, the NEC:

  • Noted the strategic investment positive and negative
  implications of not
  retaining the Oil Search Shares currently pledged in the
  IPIC Bond
  transactions;

  • Approved for the Minister for Public Enterprise and the
  State Investments to
  direct the Board and Management of IPBC and its
  successive organisations to
  explore the following;

  •• To raise funds in the capital market (estimated to be
  AUD 1.8 billion) to
  repurchase Oil Search shares through the Redemption of
  IPIC Bonds and
  negotiate the best interest rates with favourable
  conditions to PNG to the

• Page 387 of 475

• term of the loan/bond not to exceed 10 years but
  preferably at 7 years.

  •. IPBC should minimize cost associated with raising
  funds through direct
  negotiations with potential financiers and use of IPBC
  Management;

  + Provide appropriate security options to meet
  financier‘s security
  requirements;

  •. To raise funds needed for Train 3 of the PNG LNG
  Project expansion
  estimated to be AUD 1.2 billion; and

  •• Consider USD (United Sate Dollar) as a form of
  currency during the fund
  raising preferred by the financiers.

  + Directed the Minister for Public Enterprises and State
  Investments and the
  Acting Managing Director for IPBC to report back to the
  NEC of potential
  financiers and their team sheets immediately for NEC
  final approval.
  Findings Page 181

  3. On 5th April 2013, NEC:

  ~ Appointed Mr. Wasantha Kumarasiri, OBE as
  the Managing Director of IPBC
  and its successive organisation for
  period of four (4) years effective from the
  date of this Decision in accordance with
  Section 23 of the IPBC Act (as
  amended).

  • Note that until the establishment of
  ―Kumul Petroleum Holding Limited‖ in
  line with the NEC decision and the
  appointment of its Managing Director,
  during the interim period, the Managing
  Director of IPBC shall manage all
  affairs necessary on Abu Dhabi based IPIC
  Transaction and any refinance
  requirements and negotiations and also
  oversee NPCP as part of the General
  Business Trust.

  4. On 9th July 2013, Council:

  • Noted the content of Policy Submission

• Page 388 of 475

• No. 176/2013;

  • Noted the refinancing options presented
  in the submission to redeem the
  International Petroleum Investment
  Company (IPIC) Exchangeable Bonds;

  ~ Appointed the following as members of the
  IPIC Exchangeable Bond Review
  Committee:

  •. Director, Gas Project Coordination
  Office – Chairman; (Mr Vele)
  •. Secretary, Public Enterprise
  – Deputy Chairman;
  •. Secretary, Treasury or his nominee –
  Member;
  •. State Solicitor or his nominee
  – Member; and
  •. Managing Director, IPBC
  – Member

  ~ Included the following in Terms of the
  Reference for the Review Committee to
  look at:

  ~ ―Bidding internationally for the
  engagement of international experts to provide
  up market and up to date advice to the
  Government on petroleum and gas
  issues‖.

  ~ Approved the Terms of Reference for
  Committee;

  ~ Approved to repeal clause 3 of the NEC
  Decision No. 119/2013 in its entirety;

  • Directed the Minister for Public
  Enterprise and State Investments to take
  carriage of all matters pertaining to the
  redemption of IPIC Exchangeable Bond
  and the retention of Oil Search Shares
  and that this NEC Decision supersedes
  all previous NEC Decision, namely NEC
  Decision No. 117/2013 or such other
  decisions pertaining to the IPIC Bond
  issue; and

  • Directed that the IPIC Exchangeable Bond
  Review Committee reports its
  finding back to the Minister for Public
  Enterprise and State Investments before
  31st August 2013 with a clear path

• Page 389 of 475

• towards completing IPIC Exchangeable Bond
  transaction.

  5. The Terms of Reference for the IPIC Exchangeable
  Bond Review Committee were as
  follows:

  ―Under the Director of the Minister of Public Enterprise
  and State Investments, Hon Ben
  Micah, MP, and the Chairman of Dr. Thomas Webster, Chairman
  IPBC, the Committee is
  directed to:

  Findings
  Page 182

  1. Meet as required by the Chairman to consider and review
  proposals for the State to
  refinance the IPIC Exchangeable Bond.

  2. The Chairman is to report the final recommendation of the
  Committee to the Minister
  by 31 August 2013.

  3. All information you require with regard to the original IPIC
  funding, other related
  matters and the currect position and negotiations with IPIC
  are to provide to the
  Chairman of the Committee immediately on request of any
  relevant party.

  4. Proposals must meet the following requirements:

  4.1 The amount to be raised is estimated to be AU$1.681M plus
  interest of
  approximately another AU$84M.

  4.2 If the Oil Search shares are to be used as collateral for
  new funding, those
  shares are to be secured as a stand-alone asset and are
  not to be conditional on
  any other asset.

  4.3 As stand-alone security, Oil Search equity must be the
  only security available
  for any funding proposal which includes the Oil Search
  equity on a basis which
  has no recourse to any other asset.

  4.4 For any cash flow security component in any proposal,
  security recourse is to
  be the cash flow above. No security other than the

• Page 390 of 475

• potential cash receipt is
  available. Where cash flow is monetized or securitized by
  a lender, the control
  or de facto ownership of the underlying asset is not
  available to the lender.

  4.5 The underlying control interest of Oil Search shares must
  be vested with IPBC
  and all dividends during the term of the refinance
  transaction must be paid to
  IPBC.

  4.6 Neither the whole of nor any part of NPCP‘s equity is
  available to support the
  refinancing. NPCP‘s equity is not available as security or
  sale nor will any
  dilution of its current equity to any party to be accepted
  except the 4.20%
  mandatory acquisition by landowner company as provided
  under the benefit-
  sharing arrangements.

  4.7 First interest payment should not be earlier than December
  2015 to align and
  prepare with cash inflows from PNG LNG Project.

  4.8 No State guarantee should be a condition requirement.

  4.9 Transaction fees on success must be kept at minimal or
  zero if possible.

  4.10 Meet Regulatory Transaction Certification requirements
  through Certificate
  Agent in the appropriate Financial Markets complying post
  Global Financial
  Crisis (GFC) Financial Transaction Regulatory
  Requirements.

  5. Timing to finalise this refinancing is critical. A successful
  proposal must demonstrate
  funding to be complete after the 31 August 2013, with absolute
  certainty.

  6. As Chairman of the IPIC Exchangeable Bond Review Committee,
  under the direction
  of IPBC, Mr Vele utilized the services of Norton Rose
  Fulbright in accordance with
  their retainer by IPBC for the purposes of the achievement of
  the Committee‘s Terms
  of Reference.

  7. On 6 August 2013, the National Executive Council appointed Mr.
  Dairi Vele, as the
  Acting Secretary for Department of Treasury (DoT).

• Page 391 of 475

• Findings Page 183

  8. On 8th August 2013, a Recommendation by Gas Office and
  Chairman of the IPIC
  Exchangeable Bond Review Committee that Financial Advisers be
  appointed and
  position/discussion paper drafted by Mr. Vele

  9. On 12 August 2013, Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review
  Committee Member and Acting Secretary for Treasury met with
  the Union Bank of
  Switzerland, Aktiengeselschaft, Australia Branch (UBS AG)
  officials at Sydney,
  Australia.

  10. On 13 August 2013, Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review
  Committee Member and Acting Secretary for Treasury met with
  Morgan Stanley
  officials in Sydney, Australia.

  11. On 14 August 2013, Mr Vele, in his capacity as IPIC
  Exchangeable Bond Review
  Committee Member and Acting Secretary for Treasury met with
  JP Morgan officials
  in Sydney, Australia.

  12. On 15 August 2013, Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review
  Committee Member and Acting Secretary for Treasury held a
  second meeting with
  UBS AG officials at Sydney, Australia.

  13. On 16 August 2013, Mr. Vele, in his capacity as IPIC
  Exchangeable Bond Review
  Committee Member and Acting Secretary for Treasury met with
  Credit Suisse
  Officials at Sydney, Australia.

  14. On 19 December 2013, the National Executive Council (NEC)
  during a Special
  Meeting No.: 37/2013 in its Decision No.: 479/2013 noted the
  submission that UBS AG
  was the preferred financial adviser and arranger by IPBC and
  the IPIC Committee but
  approved and directed that the BPNG provide final evaluations
  on the proposals to be
  obtained from Citi Bank and UBS AG to re-finance the
  International Petroleum
  Investment Company (IPIC) Exchangeable Bond and to retain the

• Page 392 of 475

• interest of the State
  in Oil Search.

  15. On 20 December 2013, Hon Ben Micah, MP, Minister for State
  Enterprises and State
  Investment (SE&SI) wrote to Mr Loi Bakani, the Governor of
  Bank of Papua New
  Guinea (BPNG) and requested the BPNG to evaluate the
  potential financiers‘
  proposals to re-finance the IPIC Exchangeable Bonds
  refinancing facility.

  16. On 22 December 2013, Mr Bakani advised Minister Micah that
  the four financiers
  should have been provided all the information and requested
  to bid for the
  Exchangeable Bonds refinancing facility.

  17. On 27 December 2013, Minister Micah requested Mr Bakani for
  clarification on the
  BPNG‘s advice.

  18. On 7 January 2014, Mr Bakani advised Minister Micah that the
  State re-negotiated the
  funding structure of the proposals with the two Financiers
  the UBS AG and Citi Bank.

  19. On 9 January 2014, Mr Bakani forwarded the BPNG‘s
  recommendations to Minister
  Micah as requested.

  20. Mr. Bakani requested the Prime Minister to allow the BPNG the
  mandate to assist the
  State in meeting the basic re-financing requirements in the
  negotiation process.

  21. On 14 January 2014, Mr. Wasantha Kumarasiri for Independent
  Public Business
  Corporation (IPBC), requested Mr Bakani to correct his advice
  to Minister Micah as it
  was incorrect and misleading.

  22. On 15 January 2014, Minister wrote to Mr Bakani and requested
  that the BPNG
  provide its final recommendations on the two Banks, UBS AG
  and Citi Bank.

  Findings Page 184

  23. On 16 January 2014, Mr. Bakani requested all parties
  including the BPNG, Minister
  Micah, IPBC, and DoT to draft the Terms of Reference to be
  used during negotiations

• Page 393 of 475

• with potential Financiers.

  24. On 17 January 2014, Mr Bakani wrote to and advised Mr
  Kumarasiri that the BPNG‘s
  evaluations and recommendations were based on information
  provided in accordance
  with the NEC Decision No: 479/2013 in its Special Meeting No:
  37/2013.,

  25. Mr Bakani requested Ms Natalie Yacoubian of PNP Paribas to
  resubmit PNP Paribas
  proposal incorporating the refined terms.

  26. Mr Bakani requested Mr Mitchell Tuner of UBS AG to resubmit
  UBS AG proposal
  incorporating the refined terms.

  27. Mr Bakani requested Mr Philip Graham to resubmit Citi Bank‘s
  proposal
  incorporating the refined terms.

  28. Minister Micah advised Mr Bakani that he expected a
  recommendation by
  Wednesday 22 January 2014.

  29. On 23 January 2014, Mr. Bakani recommended to the NEC to
  request the Abu Dhabi
  Government for an extension of six months, to allow tie to
  improve on the proposal
  by BNP Paribas, the superior proposal, as well as the UBS AG,
  Citi Bank and
  ANZ/Barclays.

  30. On 30 Janury 2014, Mr Bakani recommended the UBS AG to
  Minister Micah.

  31. On 30 January 2014, Mr. Bakani wrote to the Director of
  Investment banking UBS AG
  regarding the re-financing of the IPIC Loan and advised that
  the State accepted its
  proposal to re-finance to IPIC Exchangeable Bond by a
  combined structure of a
  Rollover Collar and term Loan. Mr Bakani also requested the
  UBS AG to confirm in
  writing its commitment to fund the AUD$1.7 Billion IPIC
  Exchangeable Bond.

  32. The Ombudsman Commission has the facts completely incorrect.
  Mr. Vele did not
  engage UBS AG on 30 January 2014 or at other time prior to 6
  March 2014.

  33. UBS AG was only actually engaged by the State following
  Cabinet Decision no

• Page 394 of 475

• 79/2014. Following the advice from BPNG that the State had
  accepted UBS AG
  proposal, as essentially project manager of the IPIC Bond
  matter, Mr Vele commenced
  negotiations and dealings with UBS AG, but their retainer was
  contingent on the NEC
  Decision of 6 March 2014.

  34. Mr. Bakani informed the Directors for Investment Banking, UBS
  AG that the State
  had accepted its proposal to re-finance IPIC Exchangeable
  Bond worth AU$1.7 Billion.

  35. Minister Micah noted Mr Bakani‘s recommendations but he
  advised that the six
  months extension recommended would incur cost and was not
  possible.

  36. On 3 February 2014, Minister Micah informed Mr Frank Kramer,
  Chairman for
  National Petroleum Company of PNG Ltd (NPCP) Board regarding
  the Exchangeable
  Bond and the proposed appointment of UBS AG.

  37. On 7 February 2014, Mr Bakani re-assured Minister Micah on is
  recommendations to
  use UBS AG to re-finance IPIC Exchangeable Bond.

  38. On 13 February 2014, a Mandatory Exchange Notice to Deutsche
  Bank AG, London
  Branch (Exchange Agent) indicated that the IPIC did not want
  to sell its shares to the
  Government of Papua New Guinea (GoPNG).

  39. Consideration was given by the State team that other methods
  of acquiring shares in
  Oil Search needed to be explored, to replace the shares to be
  retained by IPIC.
  Findings Page 185

  40. On 20 February 2014, Mr Vele and Mr Latimer meet with UBS AG
  in Sydney to
  discuss whether UBS AG could give an indication whether they
  would agree to
  provide funding to purchase part of a share placement by Oil
  Search, as any
  submission to Cabinet would need to have some certainty that
  funding would be
  available to purchase the Oil Search shares.

  41. On 25 February 2014, UBS AG writes to Mr Vele and outlined
  the proposed terms of
  engagement including fees chard in relation to the role as

• Page 395 of 475

• financial advisor and lead
  arranger as well as financial modeling.

  42. On 26 February 2014, as Ashurst were the local Counsel of
  UBS AG they drafted
  documents relevant to the proposed deal, but on the basis
  that Cabinet was still to
  approve the transaction. They were retained by UBS AG and
  not the State.

  43. On 26 February 2014, UBS AG and Oil Search enter into
  separate underwriting
  agreement whereby if the State through Cabinet did not
  approve and go through with
  the deal to buy Oil Search Shares, then UBS AG could buy the
  Oil Search Shares for
  their own investment purposes.

  44. On 27 February 2014, the Prime Minister wrote to Mr. Guy
  Fowler, the MD for UBS
  AG regarding UBS AG proposal to provide funding facilities
  to the State in connection
  with the subscription by the State for approximately 149.39
  million shares in Oil
  Search Ltd at AU$8.20 per share.

  45. On 27 February 2014, Mr Vele receives a commitment letter
  from UBS AG.

  46. A Subscription Agreement was signed between UBS AG (the
  Equity Derivatives
  Financier) and Oil Search Ltd.

  47. UBS AG forwarded a Commitment Letter that was signed by the
  GGPNG which was
  witnessed by Mr. Okuk.

  48. On 28 February 2014, consolation between Mr Vele as
  Secretary for Treasury and in
  his capacity as member of IPIC Exchangeable Bond Review
  Committee and BPNG
  being the Governor and Dr Jakob Weiss on the terms and
  conditions of the UBS AG
  proposal. Paddy Jilek of UBS AG was available at the meeting
  to assist. The proposal
  that UBS was making was not substantially different to what
  had previously been
  proposed in tier previous advice. The terms and conditions
  therefore cannot in any
  way be said to be prejudicial to the State.

  49. On 4 March 2014, Ashurst Lawyers forwarded draft documents
  for its client UBS AG
  to the State that outlined the financial package that UBS AG

• Page 396 of 475

• was offering the State.

  50. On 5 March 2014, which was as soon as the documents were
  provided to Mr Vele
  from the Counsel to UBS AG being Ashursts, Mr Vele requested
  Mr Daniel
  Rolpagarea, the State Solicitor to give legal clearance on
  the documents relating to the
  transactions for the State to acquire 149,390,244 shares in
  Oil Search Ltd. The State
  Solicitor was informed the matter was to go to Cabinet on 6
  March 2014.

  51. On 5 March 2014, Mr. Rolpagarea advised Mr Vele that

  • The documents are a reflection of the State‘s negotiated
  position and as such
  are acceptable to the State.

  • That the documents which were Minutes and Certificates
  that were not as yet
  signed by respective individuals or Company Boards were
  in order for Mr Vele
  to facilitate such signatures and/or Board meetings.
  (This includes IPBC Board
  meeting minutes, the IPBC shares resolution and the NPCP
  minutes and POA –
  Mr Vele forwarded these documents to IPBC on the express
  advice and
  clearance of the State Solicitor contrary to QC
  assertions of wrong doing).

  Findings Page 186

  And Commented

  • That his advice was that many recommendations for the NEC
  approvals require
  approvals/authorisations especially from the State agencies
  acting
  independently but taking into account the NEC decision and
  advised further
  that the relevant approvals should be sought by Mr Vele
  from the State‘s
  relevant agencies after NEC consideration and approval of
  the financing
  transaction.

  • That Section 209 of the Constitution required parliament‘s
  approval for the
  Bridge and Collar loans and advised that Mr Vele take the
  appropriate steps to
  facilitate the process.

• Page 397 of 475

• • That Mr Vele may proceed to NEC taking into account his
  advice.

  • That after NEC approval, he would then prepare an advice to
  the Head of State
  to execute the transaction documents.

  52. NPCP Board Chairman submitted a proposal to the IPBC Board
  advising of the State‘s
  acquisition of 149,390,244 shares in Oil Search Ltd and that
  UBS AG required PCP to
  enter into a payment direction between NPCP, PNGLNG Global
  Company LDC
  (GloCo).

  53. The Prime Minister submitted and NEC Policy paper No: 67/2014
  to NEC.

  The NEC in its Decision No: 79/2014

  a) Noted the transaction documents, approved Petromin as the
  eventual subscriber but
  that the State would be the initial subscriber, noted the
  certificate of correctness
  from the State Solicitor and confirmed the authority of the
  Minister for Treasury to
  finalise any documents that were not included in the cabinet
  submission prior to
  submission of the transaction documents to the Head of State
  for Execution.

  b) Approved to advise the Head of State to approve the
  borrowing for the purchase of
  shares and to execute the transaction documents for the
  State.

  c) Approved the advice the Minister for Treasury to sign such
  documents, instruments
  and certificates as the transactions required. He was not
  given the discretion to
  refuse to sign by Cabinet. It was a Cabinet decision to go
  ahead with the transaction
  and he was to implement parts of that decision.

  d) Noted other approvals were required from other State
  Agencies and endorsed all of
  them including but not limited to a Certificate of
  Inexpediency be issued by CSTB,
  an authority to pre-commit by the Secretary for Finance and a
  Certificate by the
  Secretary for Treasury certifying the extent of overseas
  commercial debt, execution
  of a payment deed by NPCP, and the payment direction by IPBC.

• Page 398 of 475

• e) Noted that the approval by Cabinet was specifically to cover
  any processes that had
  to occur either before or after the decision by Cabinet so
  that the transaction could
  proceed in a commercial time frame.

  f) The distribution list of the Cabinet Decision included the
  Minister for Justice &
  Attorney-General, the Minister for Treasury, the Minister for
  Public Enterprises, the
  Minister for Finance, the Departments of Finance, Treasury,
  Justice & Attorney-
  General, IPBC, the State Solicitor, BPNG, NPCP and Petromin.

  54. On 6 March, the UBS AG issued a Bridge Takeout letter to Mr.
  Vele that outlined the
  terms of the fees payable to UBS AG as Facility Agent under
  the Bridge Facility
  Agreement that was signed by the GGPNG and witnessed by Mr.
  Okuk.

  Findings Page 187

  55. UBS AG as the Security Trustee for the loan wrote to Mr Vele
  and requested for the
  State to pay the Facility Agent fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr. Okuk.

  56. UBS AG as the Security Truestee fees as per the Bridge
  Facility Agreement that was
  signed by the GGPNG and witnessed by Mr. Okuk.

  57. On 6 March 2014, Mr. Vele requested Mr. Philip Eludeme, the
  Chairman for CSTB to
  approve the request for COI at the earliest to cover the
  advisory costs, in accordance
  with and for the purposes of implementing Cabinet Decision No
  79/2014.

  58. The Prime Minister advised the GGPNG, that the NEC approved
  the borrowing of a
  loan for the purpose of purchasing shares in Oil Search Ltd
  and for the purpose of
  meeting the expenses for the borrowing itself.

  59. Mr. Okuk representing Mr. Vele delivered 28 documents
  pertaining to the UBS AG
  loan to Mr. Rolpagarea for his legal clearance.

  60. On 7 March 2014, Mr. Vele explained to Mr. Eludeme that the

• Page 399 of 475

• COI was needed to
  access funds to pay for fees pertaining to the State‘s
  acquisition of the shares in Oil
  Search Ltd, in accordance with and for the purposes of
  implementing Cabinet
  Decision No 79/2014.

  61. Mr. Vele requested Mr. Rolpagarea to issue legal clearance on
  the submission
  regarding the State‘s borrowing of loan arrangements in
  accordance with Mr.
  Rolpagarea‘s advice of 5 March 2014 and in accordance with
  and for the purposes of
  implementing Cabinet Decision No. 79/2014.

  62. The Prime Minister informed IPBC of the government‘s decision
  to enter into the
  agreement, in accordance with and for the purposes of
  implementing Cabinet
  Decision No 79/2014.

  63. Mr. Isaac Lupari, the Chief of Staff to the Prime Minister,
  advised Mr. Kumarasiri that
  the NEC approved the State‘s intent to borrow from UBS AG to
  fund its acquisition of
  shares in Oil Search ltd, in accordance with and for the
  purposes of implementing
  Cabinet Decision No. 79/2014.

  64. Minister Micah directed the Board of IPBC to approve the
  Payment Direction Deed
  and to sign the Payment Direction Deed on or before 9 March
  2014, in accordance
  with and for the purposes of implementing Cabinet Decision
  No. 79/2014.

  65. On 8 March 2014, Mr. Vele requested Dr. Thomas Webster, the
  then Chairman of
  IPBC Board, to progress the documents to the IPBC Board for
  its consideration and
  approval, in accordance with Mr. Rolpagarea‘s advice of 5
  March 2014 and in
  accordance with and for the purposes of implementing Cabinet
  Decision No. 79/2014.

  66. On 9 March 2014, the GGPNG signed the document enabling the
  State to borrow
  AU$335 million from UBS AG for the purpose of the purchase of
  shares in Oil Search
  Ltd and for the purpose of meeting the expenses of the
  Borrowing and for the services
  of the State, in accordance with Mr. Rolpagarea‘s advice of 5
  March 2014, his advice
  following the Cabinet meeting and in accordance with and for

• Page 400 of 475

• the purposes of
  implementing Cabinet Decision No. 79/2014.

  67. Mr. Eludeme advised Mr. Vele that the CSTB resolved and
  approved the issuance of
  the COI for the awarding of contracts to both local and
  international Consulting
  Firms, in accordance with the PFMA 1995 and in accordance
  with Cabinet Decision
  No. 79/2014.

  68. Mr. Rolpagarea advises Mr. Vele that the GGPNG and Minister
  for Treasury were to
  execute the transaction documents to purchase Oil Search Ltd
  shares on behalf of the
  State, which of course included the retainer and all
  agreements with UBS AG.
  Findings Page 188

  69. Mr. Vele requested Dr. Ken Ngangan, Acting Secretary for DoF
  to approve the
  payment to UBS AG in relation to the acquisition of the
  shares, in accordance with
  Mr. Rolpagarea‘s advice of 5 March 2014, his advice following
  the Cabinet meeting
  and in accordance with and for the purposes of implementing
  Cabinet Decision No.
  79/2014.

  70. Mr. Rolpagarea advised the GGPNG that all documentations
  relating to the
  borrowing were in order and that Mr. Vele was satisfied with
  the Terms of the
  Transaction Documents.

  71. On 7 March 2014, Mr. Vele advised Mr. Eludeme that the local
  and international
  financial and legal Advisors should be paid for services
  rendered in accordance with
  and for the purposes of implementing Cabinet Decision No.
  79/2014.

  72. On 12 March 2014, Mr. Babaga R. Naime, Acting Board of
  Secretary for CSTB, advised
  Mr. Rolpagarea that the CSTB awarded the Contract to both
  local and international
  Consulting Firms, in accordance with the PFMA 1995 and the
  powers of the CSTB
  under such Act and in accordance with and for the purposes of
  implementing Cabinet
  Decision No. 79/2014.

  73. Mr. Eludeme certified that the inviting of tenders for the

• Page 401 of 475

• provision of financial, legal
  and technical advisory services was impractical or
  inexpedient, in accordance with
  the PFMA 1995 and the powers of the CSTB under Section 40 of
  such Act in
  accordance with and for the purposes of implementing Cabinet
  Decision No. 79/2014.

  74. Dr. Ngangan approved the application for the Department to
  complete and issue the
  APC for the above Procurement, in accordance with the
  provision by CSTB of the COI
  and in accordance with Mr. Rolpagarea‘s advice of 5 March
  2014, his advice following
  the Cabinet meeting and in accordance with and for the
  purposes of implementing
  Cabinet Decision No. 79/2014.

  75. The State, NPCP and UBS AG agreement to the terms and
  conditions upon signing
  the Payment Direction Deed that directed PNG liquefied Gas
  Global Company
  (GloCo) to pay immediately available funds due to NPCP to UBS
  AG.

  76. UBS AG confirmed with Mr. Vele the terms and conditions of
  the financing
  transaction that were entered into between the State and UBS
  AG in respect of Oil
  Search Ltd shares.

  77. The Prime Minister, as Treasurer and Mr. Vele in accordance
  with Mr. Rolpagarea‘s
  advice of 5 and 10 March 2014, his advice following the
  Cabinet meeting and in
  accordance with and for the purposes of implementing Cabinet
  Decision No. 79/2014,
  UBS AG (the Arrangers) UBS AG (the Facility Agent) and UBS
  Nominees Pty Ltd
  signed the Bridge Facility Agreement.

  78. The GGPNG witnessed by Mr. Okuk signed the Specific Security
  Deed (CHESS
  Security – Collar) with UBS AG that provided security to the
  loan acquisition.

  79. The GGPNG witnessed by Mr. Okuk signed the Security Trust
  Deed with UBS
  Nominees Pty that provided security to the loan acquisition.

  80. The GGPNG witnessed by Mr. Okuk signed the Participant
  Sponsorship Agreement
  with UBS Nominees Pty Ltd signed the Confirmation Side
  Letter.

• Page 402 of 475

• 81. The GGPNG witnessed by Mr. Okuk signed the Nominee Deed with
  UBS AG, UBS
  Nominees Pty Ltd and UBS Securities Australia for the Nominee
  (UBS Nominee Pty
  Ltd).

  82. The Substantial shareholders notice prepared and lodged with
  Port Moresby Stock
  Exchange (POMSox) and ASX lodged on 17 March 2014.

  Findings Page 189

  83. The State (Subscriber) represented by the GGPNG witnessed by
  Mr Okuk signed the
  Subscription Agreement with Oil Search Ltd (Issuer).

  84. IT IS CLEAR THAT THERE WAS NO BINDING RETAINER OF UBS AG DONE
  BY
  THE STATE, AND NOT MR VELE UNTIL AFTER THE NEC DECISION NO
  79/2014
  ON 6 MARCH AND AFTER THE CSTB HAD ISSUED A COI.

  85. AT NO STAGE DID MR VELE RETAIN UBS AG. The only steps he took
  were to
  facilitate the decisions of the NEC and CSTB.

  Comments:

  Mr Vele responded in detail to the Provisional Report and maintained
  that he did not per
  se engage the UBS AG to provide loan to the State to purchase shares
  from Oil Search Ltd.

  However, in the chronology that he provided justifying his actions,
  it shows that Mr Vele
  was the one who engaged the UBS AG on 30 January 2014 when he signed
  as the then
  Acting Secretary for DoT along with the GGPNG who signed a
  Subscription Agreement
  and a Commitment Letter, on behalf of the State.

  The actions of Mr Vele alone cemented the UBS AG as the Sole
  Financier and Lead
  Arranger. The NEC decision approving for UBS AG to be engaged
  followed on 6 March
  2014.

  The engagement of UBS AG as the Financier and Lead Arranger did not
  go through the
  public tender process. In fact, the only time that the CSTB was

• Page 403 of 475

• involved was after the
  NEC had made the decision approving UBS AG as the Financier of the
  borrowing and
  approving the issuance of the COI. Therefore, the Ombudsman
  Commission‘s comments
  on this matter have not changed.

  [4.10] FINDING No. 10

  In the opinion of the Ombudsman Commission, the conduct of Mr Dairi
  Vele was
  wrong and improper when he misinformed and misled the National
  Executive
  Council regarding the NEC Policy Submission No: 67/2014 that it was
  in order.

  Reason(s):

  • Mr Vele prepared the NEC Submission Policy Paper No: 67/2014
  without consulting
  his own Department officers who are competent and experienced
  technical officers
  to assist in this matter.

  • Mr Vele was called to attend the Special NEC Meeting 08/2014 to
  clarify the content
  of the Policy Paper No: 67/2014.

  • Then Minister for Treasury, Hon Polye was not involved in the
  drafting and
  presenting of the NEC Submission Policy Paper No: 67/2014.

  Findings Page 190

  • Mr Vele failed to inform the NEC of the four (4) financiers that
  were shortlisted and
  included in the Statutory Business Paper No: 179/2013 and
  submitted on 19
  December 2013 to the NEC for deliberation and approval was done
  without proper
  tender process and without proper consultation with the relevant
  agencies, such as
  his Department and the BPNG and it was for refinancing of the IPIC
  Exchangeable
  Bond. Whereas the new NEC Submission Policy Paper No: 67/2014 was
  for the
  buying of new shares in Oil Search Ltd to be refinanced by UBS AG.

  • Mr Vele failed to advise the NEC that he had already engaged the
  UBS AG to

• Page 404 of 475

• refinance the IPIC Exchangeable Bond when he signed the Letter of
  Engagement on
  30 Janaury 2014 (see page xi paragraph 29).

  • Mr Vele failed to advise the NEC that the engagement of the
  financial, legal and
  technical consultants was improper and in breach of tender
  requirements of the
  Public Finance (Management) Act 1995 and the Attorney-General Act
  1986.

  • Mr Vele failed to advise the NEC that the approval of the issuance
  of the COI to
  waive the tender process for engagement of UBS AG and other legal
  and technical
  consultants was not proper and in direct breach of Section 40(3)
  (b) of the Public
  Finance (Management) Act 1995 and Part 13, Division 4, Clauses 13
  and 14 of the Finance
  Management Manual.

  • Mr Vele failed to advise the NEC that he had not fully consulted
  the relevant
  authorities, including the State Solicitor, the BPNG and his own
  officers within the
  DoT.

  • Mr Vele failed to involve the Minister for Treasury in the
  drafting of the NEC Policy
  Submission.

  • Mr Vele failed to inform the NEC that the General Business Trust
  of NPCP should
  not be used as security or collateral. Hence, non-compliance with
  the requirement
  of Independent Public Business Corporation of Papua New Guinea Act
  2002, which provides
  for among others, the establishment and management of the NPCP to
  hold certain
  assets, including interests in business enterprises, as Trustee
  for the benefit of the
  State and to act as Trustee of other prescribed trusts.

  • Mr Vele failed to inform the NEC that Petromin was not financially
  sound at the
  time of the transaction to be the State‘s subscriber and nominee
  for the transaction.

  • Mr Vele failed to inform the NEC that the NPCP was not properly
  established under
  the law to execute the Payment Direction Deed to enforce the NEC
  Decision.

  Comments:

• Page 405 of 475

• Mr Vele is a leader subject to the Leadership Code.

  Findings Page 191

  RESPONSE FROM MR DAIRI VELE

  1. This finding is totally without basis from even the findings of
  fact from the Ombudsman
  Commission.

  2. I as Secretary for Treasury compiled the NEC submission along
  with the very experienced
  consultants that had been working on the Draft Proposal for the
  loan and purchase of Oil
  Search shares.

  3. I was aware that Treasury had only undertaken 3 other
  transactions and on each occasion
  engaged external lawyers as members of Treasury, and the IPIC
  Committee, had limited
  financial experience.

  4. Norton Rose Fulbright was first engaged by IPBC on these issues
  on 5 December 2012 and
  continued to be engaged by IPBC. I therefore referred to them
  for advice on these matters
  given the committee was under the Direction of IPBC.

  5. The NEC Submission and enclosed recommendations were examined
  by the State Solicitor
  and found to be in order.

  6. I did not fail to advise the NEC that I had already engaged the
  UBS AG in January 2014 to
  refinance the IPIC Exchangeable Bond as I had NOT so engage UBS
  AG. Their engagement
  was contingent on the NEC Decision. They had commenced work on
  the latter due to Mr.
  Bakani‘s advice on 30 January 2014.

  7. I did not fail to advise the NEC that the engagement of the
  financial, legal and technical
  consultants was improper and in breach of tender requirements of
  the Public Finance
  (Management) Act 1995 and the Attorney-General Act 1989, as it
  was not in breach of the
  Public Finance (Management) Act 1995 and the Attorney-General
  Act 1989.

• Page 406 of 475

• 8. There is an assumption that I retained Norton Rose Fulbright to
  provide legal services to the
  Department of Treasury at some stage in 2013 and prior to the
  NEC decision of 6 March 2014.
  This is incorrect.

  9. Norton Rose Fulbright was retained by IPBC on 5 December 2012,
  some 14 months earlier, to
  provide legal services with regards to the IPIC Bond Project.
  The work expressly included
  reviewing the terms and conditions of the IPIC Bond, review and
  advice option available to
  IPBC for refinancing of loan and or a restructure of the terms
  of the existing loan. Specifically
  it was recognized in the scope of work that ―a significant
  aspect of this scope of work would
  involve meeting the objectives regarding the ownership of the
  Oil Search Shares‖.

  10. I was appointed Director of the Gas Project Co-ordination
  Office in December 2011.

  11. On 5 April 2013, the Cabinet explicitly authorised the
  Minister for Public Enterprises and
  IPBC to explore methods of raising money to redeem the
  Convertible Bonds.

  12. In July 2013 Cabinet determined to look at ways to refinance
  the IPIC loan and to retain an
  interest in Oil Search. It appointed a committee under the
  direction of IPBC and the Minister
  for Public Enterprises, comprising of the Director of the Gas
  Projects Coordination Office, the
  Secretary of Public Enterprises, the Secretary of Treasury (or
  his nominee), the State Solicitor
  (or his nominee) and the MD of IPBC to advice on options
  available to the State to refinance
  and maintain an interest in Oil Search (the Committee).

  13. On 6 August 2014, I was appointed Acting Secretary for
  Treasury.

  14. We, the IPIC committee, had already setup meetings with
  various banks in Sydney to assess
  proposals from banks as to being the financial advisor and
  arranger to the State through IPBC

  Findings Page 192

  for the refinancing of the IPIC Bond. Norton Rose Fulbright
  assisted with advice at these

• Page 407 of 475

• meetings.

  15. Whether I was Director of the Gas Office or the Acting
  Secretary for Treasury, I wil still be a
  Member of the IPIC Committee due to Cabinet decision No 241/2013.

  16. I say that at all material times the then Attorney-General
  Kerenga Kua was aware of the NEC
  Decision of 6 March 2014 and the steps necessary to implement it.

  17. Mr. Kua however did not raise an issue with regards to
  compliance with the Attorney-General
  Act 1989 and indeed by his lack of compliant allowed the
  Consultants to be retained as a
  result of the NEC Decision and the CSTB Certificate of
  Inexpediency.

  18. Mr. Kua by his inaction at the time effectively waived any
  compliance issues and indeed he
  was bound by the NEC decision, as we all were.

  19. Mr. Kua did not raise any issue with the retainer of Legal
  Consultants until the time he was
  removed by the Prime Minister as Attorney-General in June 2014.

  20. It is incorrect to say that I usurped the powers of the
  Attorney-General, firstly as Norton Rose
  Fulbright has been retained by IPBC, and secondly as NEC has
  approved and endorsed the
  way forward with regards to service contracts which was to apply
  for a Certificate of
  Inexpediency due to the short commercial time limits that needed
  to be adhered to.

  21. With regards to Ashursts, they were paid for by the State as
  it was a term of the loan
  agreement with UBS AG that the legal services of the lender would
  be funded by the
  borrower. This is a normal commercial condition. They were not
  retained by me but by UBS
  AG.

  22. With regards to Pacific Legal Group, they were actually
  retained by Norton Rose Fulbright to
  act as their local Counsel for advice and assistance on
  procedures after Norton Rose Fulbright
  we asked to advise on the possibility of an UBS AG loan/Oil
  Search transaction in accordance
  with the terms of their retainer for IPBC. I did not retain them.

  23. It was clear to me that the State Solicitor did not think the
  submission was in breach of the
  Public Finance (Management) Act 1995 and the Attorney-General Act
  1989.

• Page 408 of 475

• 24.

  25. I did not fail to advise the NEC that the approval of the
  issuance of the COI to waive the
  tender process for engagement of UBS AG and other legal and
  technical was not proper and in
  direct breach of Section 40(3)(b) of the Public Finance
  (Management) Act 1995 and Part 13,
  Division 4, Clause 13 and 14 of the Finance Management Manual as
  it was not in breach of
  such legislation–indeed the provision of the Financial manual is
  ultra vires the power of the
  Secretary under Section 117.

  26. With regards to the advice to NEC on COI, I followed the
  advice of external lawyers and the
  State Solicitor.

  27. As part of the documents delivered to the State Solicitor on 5
  March 2014, were submissions
  and recommendations for the NEC and for various statutory
  approvals. In his letter of advice
  dated 5 March 2014, Mr Rolpagarea specifically noted the
  recommendations and advised that
  after the NEC determines to proceed with the deal, all statutory
  authorisations should be
  sought. The COI was one of those authorisations in the
  recommendations. The matters
  included in the recommendations were advised to me to be part of
  the required process by
  Norton Rose Fulbright.

  28. Mr Rolpagarea advised me to proceed to NEC on the documents I
  had, as they were in order
  to go to NEC. I gave the submission to NEC on the basis it was
  cleared by the State Solicitor
  and in order.

  Findings Page 193

  29. It was clear to me that the State Solicitor did not think the
  submission was in breach of the
  Public Finance (Management) Act 1995.

  30. The NEC specifically endorsed the issuance of a COI by the
  CSTB in its decision of 6 March
  2014, which was based on the NEC Submission where this was
  recommended.

  31. After the decision I acted in accordance with the State
  Solicitor‘s and Norton Rose‘s advice
  AND the NEC decision and applied to CSTB for a COI.

• Page 409 of 475

• 32. The CSTB, an Independent Tribunal met and awarded a COI for
  the service contracts and
  engagements of consultants.

  33. This is of course in accordance with their power under PFMA,
  which gives the Board an
  unfettered discretion to issue a COI if it determines that it is
  inexpedient or impracticable to
  require a tender process.

  34. The contents of the Financial Manual are instructions issued
  by the Secretary pursuant to
  Section 117 of the PFMA. These instructions are only to be
  issued if they are ―not inconsistent‖
  with the PFMA.

  35. The financial instructions that limit the CSTB‘s discretion to
  four circumstances are
  inconsistent with the Act, and I would respond those
  instructions are not valid, and that was
  what I was advised by the external lawyers.

  36. I did not fail to advise NEC that I had not fully consulted
  the relevant authorities, including
  the State Solicitor and the BPNG and my own officers within the
  DoT, as I had consulted
  BONG fully and the State Solicitor and the external legal
  advisers.

  37. DoT advisors have very limited capacity on these types of
  transactions. As stated previously, I
  am aware there have only been three before – and on every
  occasion external advisors had
  been utilized.

  38. I received the required and necessary approvals and clearances
  from both BPNG and the State
  Solicitor.

  39. It is totally false to say there was insufficient consultation
  and that I failed to advise NEC of it.

  40. It is also untrue to say that I failed to advice of both the
  external lawyers and the State
  Solicitor that all was in order. I say it is prudent and
  responsible for me to have sought advice
  and clearance on these issues from both external advisors and
  the State Solicitor and only
  following that I went to Cabinet.

  41. I totally deny the allegations in this finding.

• Page 410 of 475

• Comments:

  Mr Vele responded to the Provisional Report and stated that he did
  not mislead the NEC
  regarding the NEC Policy Submission No. 67/2014. In that he complied
  with the set
  procedures and processes that led to the Prime Minister sponsoring
  the NEC Submission
  Policy Paper No. 67/2014 to the NEC.

  The Ombudsman Commission assessed Mr Vele‘s response and found that
  the policy
  submission was only made after Mr Vele had engaged the Financial,
  Legal and Technical
  Consultants.

  Findings Page 194

  Mr Vele did not comply with the process when he facilitated for the
  State to borrow
  AU$1.239 Billion from UBS AG to purchase shares from Oil Search Ltd.

  The State was forced to accept the loan from UBS AG as Mr Vele and
  the Prime Minister
  had already committed the State to the borrowing.

  As such, the Ombudsman Commission‘s comments on this matter have not
  changed.

  [4.11] FINDING No. 11

  In the opinion of the Ombudsman Commission, the conduct of Mr Dairi
  Vele was
  wrong and improper when he issued directions and instructions to the
  Independent
  Public Business Corporation Chairman and Management.

  Reason(s):

  • The NEC Decision No: 79/2014 Clause 8 gave specific directions
  for IPBC to approve
  the NPCP to be involved in executing of the Payment Direction
  Deed and nothing
  else concerning payments from the PNG LNG Project. Below is an
  extract of the
  NEC Decision No: 79/2014:

  8. noted that the Transaction Documents are subject to the issue

• Page 411 of 475

• by other State Agencies
  of necessary or convenient statutory authorizations that are
  being sought in parallel
  with this submission, and or endorse the issue of any such
  authorizations for the
  Transaction, including, without limitation:

  a) issue of a certificate of inexpediency to tender by the
  Central Supply and
  Tenders Board under section 40(3)(b), and an authority to
  pre-commit
  expenditure by the Secretary of the Department of Finance
  under section 47B,
  of the Public Finance (Management) Act 1995;

  b) issue of a certificate by the Secretary of the Department
  of Treasury certifying
  that after the full amount of the borrowing pursuant to the
  Transaction
  Documents, the total value of overseas commercial debt
  which will be owed by
  the State will not exceed 125% of the estimated internal
  revenue of the State for
  the calendar year 2014 within the meaning of section 2(3)
  of the Loans
  (Overseas Borrowings) No. 2 Act;

  c) execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas Global
  Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B
  of the Independent
  Public Business Corporation of Papua New Guinea Act 2002,
  including the
  documentation listed in Part 3 of Schedule A; and

  d) approval of the payment direction in paragraph (c) by the
  IPBC pursuant to
  section 110 of the Companies Act 1997.

  • Mr Vele sent an electronic mail to Dr Webster and urged him to
  progress
  considerations of the matters with the IPBC Board on the State‘s
  acquisition of
  shares in Oil Search Ltd. The attachments in the electronic mail
  are as follows:

  Findings Page 195

• Page 412 of 475

• IPBC Board briefing pack – Memo with explanation of
  transaction and the Payment
  Direction
  Draft Payment Direction Deed
  IPBC Shareholder Approval of Payment Direction
  IPBC Board Approval
  NPCP Board Resolution for Payment Directions
  Power of Attorney

  • Mr Vele was trying to perform the roles and functions of the
  Secretary for the NEC
  Secretariat when he conveyed the NEC Decision No: 79/2014 to the
  IPBC Board and
  Management and NPCP Board and Management.

  • Mr Vele‘s actions by issuing directives and instructions to the
  IPBC Chairman and
  Board Members were improper as he had no authority to issue such
  directives and
  instructions and that he had already contemplated the Board‘s
  decision and
  produced the final documents for execution by the IPBC and NPCP
  Boards to
  consider and approve.

  • These directions and instructions were in breach of Section 59 of
  the Independent
  Public Business Corporation of Papua New Guinea Act 2002 as Mr
  Vele has no authority to
  issue directives or instructions to the IPBC Board or its
  management.

  Section 59 of the Independent Public Business Corporation of
  Papua New Guinea Act 2002
  states:

  59. POLITICAL INFLUENCE.

  (1) No Minister, member of the National Parliament or any member
  of a Provincial or
  Local-level Government may seek to direct or influence the
  exercise by a Director
  of his or her duties, powers or judgments or any Board
  decision other than through
  a written communication that is tabled concurrently in the
  National Parliament if
  it is in session or otherwise with the Speaker of the
  National Parliament (who
  shall table any such communications in the National
  Parliament at the next
  opportunity).

• Page 413 of 475

• (2) A Director who receives any representations made by or on
  behalf of such persons
  shall record the fact of, and the content of, such
  representations at the next Board
  meeting and table copies of any written communications
  containing such
  representations at the Board meeting and with the Speaker of
  the National
  Parliament within seven days of receipt.

  Comments:

  Mr Vele is a leader subject to the Leadership Code.

  RESPONSE FROM MR DAIRI VELE

  1. I deny this allegation in all its parts.

  Findings Page 196

  2. The external legal advisors had produced documents and advice
  that certain
  approvals and authorisations had to be received from various
  statutory institutions
  and government bodies.

  3. Decisions and approvals were necessary from IPBC.

  4. Draft Minutes of Board resolutions and other documents were
  drawn up by the
  external legal advisors so that when the matter went before
  IPBC they could be
  directed as to what legal processes had to be completed if and
  only if they were
  decided in accordance with the overall proposal. This is
  normal commercial practice.
  It provides a checklist for the Board of any organization so
  their resolutions can be in
  line with what is legally required.

  5. These Draft minutes and other documents were initially put
  before the State Solicitor
  for his advice and clearance.

  6. Not only did the State Solicitor clear these documents and
  processes on 5 March 2014,
  he specifically advised me to facilitate the obtaining of the

• Page 414 of 475

• IPBC decisions and
  minutes.

  7. After the NEC decision on 6 March 2014, I was on the
  distribution list of the NEC
  decision and it is incumbent upon all those on the
  distribution list to ensure that the
  NEC decision is implemented.

  8. All my actions following the NEC Decision No 79 of 2014 were
  in accordance with the
  State Solicitor‘s advice and the decision of the NEC.

  9. It is illogical and ridiculous to suggest that I acted
  improperly in this area.

  Comments:

  Mr Vele responded to the Provisional Report stating that he denied
  this finding. However,
  it was evident that Mr Vele did direct the IPBC Board to approve the
  transaction
  documents along with the draft minutes and resolutions. Therefore,
  the Ombudsman
  Commission‘s comments on this matter have not changed.

  [4.12] FINDING No. 12

  In the opinion of the Ombudsman Commission, the conduct of Mr Dairi
  Vele wrong
  and improper when he requested the Central Supply & Tenders Board
  for a
  Certificate of Inexpediency to be issued for the engagement of
  Consultants and that
  it should be applied retrospectively which was contrary to the
  Public Finance
  (Management) Act 1995 and the Finance Management Manual.

  Reason(s):

  • The Public Finance (Management) Act 1995 clearly outlines the
  procedures that must be
  followed when the Government decides to outsource contracts to
  private
  contractors for providing goods and services. This is stated in
  Section 40 of the Public
  Finance (Management) Act 1995. The CSTB outlined five key
  principles that are
  fundamental in tendering and contracting. The key principles are:

• Page 415 of 475

• Findings Page 197

  1. Value for Money – involves obtaining works, goods and
  services for the
  GoPNG that best meet the government‘s need at the Lowest
  Total Cost.

  2. Transparency – involves the clear and public documentation
  of procurement
  processes, tender requirements, evaluation criteria, and
  decisions. All
  processes used and decisions made should be able to
  withstand independent
  review and scrutiny.

  3. Effective competition – Competition that is effective
  encouraging a number of
  independent companies tendering to provide services to the
  GoPNG through
  the public tendering process providing timely and adequate
  information to
  contractors and ensuring that new entrants and small
  contractors are able to
  participate.

  4. Fair and ethical dealing – The central principles
  underpinning fair and ethical
  dealing include:

  • treating potential and existing contractors with
  equality and fairness

  • not seeking personal or family gain

  • treating renderers‘ and tender information with respect
  and
  confidentiality;

  It is important that all CSTB staff involved in major
  procurements, follow
  these principles and if they do not follow the principles,
  it undermines the
  credibility of the whole government procurement process.

  5.Efficiency and effectiveness
  The principal of effective and efficient procurement
  requires procurement staff
  to use procurement processes that are appropriate to the
  amount of monies
  been spent.

  • Mr Daniel Rolpagarea, State Solicitor advised to Mr Eludeme that
  the circumstances

• Page 416 of 475

• did not warrant a COI that it cannot be issued and applied
  retrospectively. This
  advice is consistent with Part 13, Division 4, Clauses 13 and 14
  of the Finance
  Management Manual.

  Clause 13 of the Finance Management Manual states:

  13. A Certificate of Inexpediency cannot be issued
  retrospectively to cover a contract
  already executed.

  Part 13, Division 4, Clause 14 of the Finance Management Manual
  is very specific in
  regard to situations where a Certificate of Inexpediency can be
  issued.

  Findings Page 198

  Clause 14 of the Finance Management Manual states:

  15. Certificates of Inexpediency will only be issued in situations
  where a declared:

  a. Natural Disaster, or
  b. Defence Emergency, or
  c. Health Emergency, or
  d. Situation of Civil Unrest

  • The Ombudsman Commission‘s investigation revealed that the
  engagement of UBS
  AG and the other Financial and Legal Consultants was done prior
  to the NEC‘s
  Decision of 6 March 2014.

  • It was also revealed that Mr Vele is a Shareholder of Pertusio
  Capital Partners Ltd
  that was paid a total of K660,000.00 by Pacific Capital Ltd.

  • Pacific Capital Ltd was engaged by Mr Vele to provide financial
  consultancy and
  advisory services to the State through DoT regarding the
  borrowing of AU$1.239
  Billion from UBS AG.

• Page 417 of 475

• • Therefore, Mr Vele‘s conduct was wrong and improper when he went
  ahead and
  requested Mr Eludeme to issue a COI and further requested for a
  retrospective
  application of the same.

  Comments:

  Mr Vele is a leader subject to the Leadership Code.

  RESPONSE FROM MR DAIRI VELE

  I deny entirely this finding and allegation

  1. With regards to the issuing of the COI, I followed the advice
  of external lawyers, the
  State Solicitor and the NEC Decision No 79/2014 with redards
  to my actions.

  2. Following the NEC Decision on 6 march 2014, I requested Mr.
  Philip Eludeme, the
  Chairman for CSTB to approve the request for COI at the
  earliest to cover the advisory
  costs, in accordance with the External Lawyers advice, the
  State Solicitor‘s advice on 5
  March 2014, and in accordance with and for the purposes of
  implementing Cabinet
  Decision No 79/2014.

  3. On 7 March 2014, Mr. Vele explained to Mr. Eludeme that the
  COI was needed to access
  funds to pay for fees pertaining to the State‘s acquisition of
  the shares in Oil Search Ltd,
  in accordance with and for the purposes of implementing
  Cabinet Decision No 79/2014.

  4. As part of the documents delivered to then State Solicitor on
  5 March 2014, were
  recommendations for the NEC and for various statutory
  approvals. In his letter of advice
  dated 5 March 2014, Mr. Rolpagarea specifically noted the
  recommendations and advised

  Findings Page 199

  that after the NEC determines to proceed with the deal, all
  statutory authorisations
  should be sought and facilitated by me. The COT was one of
  those authorisatons in the
  recommendations. The matters included in the recommendations

• Page 418 of 475

• were advised to me to
  be part of the required process by Norton Rose Fulbright.

  5. The NEC specifically endorsed the issuance of a COT by the
  CSTB in its decision of 6
  March 2014, which was based on the NEC Submission where this
  was recommended
  (such Submission was cleared by the State Solicitor).

  6. After the decision I acted in accordance with the State
  Solicitor‘s and Norton Rose‘s
  advice AND the NEC decision and applied to CSTB for a COT.

  7. The CSTB, an in accordance with their power under PFMA, which
  gives the Board an
  unfettered discretion to issue a COT if it determines that it
  is inexpedient or
  impracticable to reuire a tender process.

  8. This is of course in accordance with their power under PFMA,
  which gives the Board an
  unfettered discretion to issue a COT if it determines that it
  is inexpedient or impractbale
  to require a tender process.

  9. The contents of the Financial Manual are instructions issued
  by the Secretary pursuant to
  Section 117 of the PFMA. These instructions are ONLY to be
  issued if the are ―not
  inconsistent‖ with the PFMA.

  10. The financial instructions that limited the CSTB‘s discretion
  to four circumstances are
  inconsistent with the Act, and T would respond those
  instructions are not valid. So to is
  the instruction that the COT cannot be applied
  retrospectively.

  11. Tn any event, that is not the issue. The CSTB determined that
  a COT issue and then
  approved the payment contracts for services.

  12. All T did was apply for the COT in accordance with the NEC
  decision and my legal advice.

  13. T acted upon and in accordance with the NEC Decision and
  implemented that decision.

  14. When T was later advise by CSTB that the COT was being
  revoked, T was also informed
  that the State Solicitor had advised that although the
  consultants that had been engaged
  by the State could not bne paid under the COT- they could be
  paid on a quantum meruit

• Page 419 of 475

• basis as to what actual work they had done and that T, the
  Secretary for Treasury, would
  be the person palaced to assess what that quantum would be as
  T had been working with
  them on the preparation of the draft deal and then the
  transaction itself.

  15. That is then what happened. The payments made were on the
  basis of the work
  completed as proper bills had been collated before the CSTB
  decision as to work that had
  been performed before and after that time.

  16. T repeat, T did not engage any Consultatns prior to the NEC
  Decision, or after the NEC
  Decision of 6 march 2014. Norton Rose had already been
  engaged by TPBC.

  17. T made the application to CSTB for a COT, not on my own
  decision, but following the
  advice of the external lawyers and the State Solicitor–and as
  directed by the NEC. T was
  merely implementing an NEC decision which as Secretary for
  Treasury is my obligation
  to do.

  18. T believe T cannot be held responsible for decisions T did
  not make, and in any event, no
  decisions that were taken by CSTB or NEC were contrary to
  law.

  Findings Page 200

  Comments:

  Mr Vele responded to the Provisional Report denying the finding
  against his conduct.
  However, the investigation on this matter showed that Mr Vele had
  requested for a COI to
  be issued and that the COI be applied retrospectively.

  This was contrary to the Public Finance (Management) Act 1995 and
  the defeated the purpose
  of the public tender process that promotes transparency and
  accountability.

  Therefore, the Ombudsman Commission‘s comments on this matter have
  not changed.

• Page 420 of 475

• [4.13] FINDING No. 13

  In the opinion of the Ombudsman Commission, the conduct of Mr Dairi
  Vele was
  wrong and improper when he failed to formally request the Attorney-
  General for a
  Brief-Out of legal services to engage private law firms as required
  under Section 8(4)
  of the Attorney-General Act 1989.

  Reason(s):

  • On 25 June 2013, the Prime Minister wrote to Hon Kua, then
  Attorney-General and
  advised that while the Attorney-General has discretion as to
  whether or not to Brief-
  Out legal services, this discretion does not extend to the
  appointment of a specific
  legal firm and therefore the engagement of private legal services
  should be publicly
  tendered.

  • It was obvious the Prime Minister was referring to the tendering
  processes outlined
  in the Public Finance (Management) Act 1995 that are non-
  negotiable.

  • It was also obvious that the Prime Minister was also referring to
  the fact that other
  contracting processes, such as direct price negotiation, pre-
  qualification, selective
  tendering etc, are illegal and not acceptable.

  • Hence, it was proper that prior to engaging the private law
  firms, Mr Vele should
  have written a formal request for Brief-Out of legal services to
  the Attorney-General.

  • Only when the Attorney-General has been satisfied that
  individuals and legal firms
  have complied with the requirements outlined in Sections 8(4) of
  the Attorney-
  General Act 1989 he can then approve the request.

  Section 8(4) of the Attorney-General Act 1989 states:

  8. LEGAL ADVICE AND OPINION.
  (4) On matters affecting the conduct of the business of the State
  where legal issues arise
  or might arise, legal advice shall be provided by the Attorney-
  General, either in his
  capacity as principal legal adviser to the National Executive
  or under Subsection (2)

• Page 421 of 475

• or (3) to the exclusion of all other lawyers unless the
  Attorney-General, in his absolute
  discretion, authorizes the giving of legal advice by any other
  person.

  Findings Page 201

  • Mr Vele did not seek approval from Dr Kalinoe or Hon Kua then
  Attorney-General
  to engage the private law firms that provided legal consultation
  in relation to the
  borrowing of loan from UBS AG to purchase new shares in Oil
  Search Ltd.

  • In addition, Mr Vele should have conducted a public tender with
  the assistance from
  the CSTB pursuant to Sections 39(2), (a) & (b) and 40(1) of the
  Public Finance
  (Management) Act 1995 to attract the best contractors to provide
  legal services to the
  DoT.

  Sections 39(2), (a) & (b) and 40(1), (a) & (b) of the Public
  Finance (Management) Act
  1995 state:

  39. CENTRAL SUPPLY AND TENDERS BOARDS.

  (2) In the exercise of its powers under Subsection (1), the
  Central Supply and Tenders
  Board may–

  (a) invite a tender for any amount; and

  (b) enter into a contract for any amount up to
  K10,000,000.00,

  for and on behalf of the State.

  40. TENDERS FOR PROPERTY, STORES, WORKS AND SERVICES.

  (1) Subject to–
  (a) this section; and

  (b) Section 41,

  tenders shall be publicly invited and contracts let for the
  purchase or disposal of property or
  stores or the supply of works and services the estimated cost of
  which exceeds the
  prescribed amount.

• Page 422 of 475

• • Both Dr Kalinoe and Hon Kua informed the Commission that:

  a. They were not aware of any formal request from Mr Vele.

  b. They were not involved in the whole process of the State
  obtaining a loan from
  UBS AG. Apart from the fact that Mr Rolpagarea was
  approached very late at
  night on the eve of the NEC Meeting scheduled on 6 March
  2014 and served
  the documentations and sought his legal clearance of the
  documentations.

  • Therefore, Mr Vele‘s conduct was wrong and improper when he
  failed to comply
  with the above relevant laws when he engaged private legal firms
  to facilitate the
  borrowing of the UBS AG loan to purchase shares in Oil Search
  Ltd which included
  the drafting of the NEC Policy Submission to be presented by
  Prime Minister before
  the NEC for deliberation.

  Findings Page 202

  Comments:

  Mr Vele is a leader subject to the Leadership Code.

  RESPONSE FROM MR DAIRI VELE

  I DENY COMPLETELY THIS FINDING AND ALLEGATION

  My comments below are in addition to my full statement in response
  to Findings of Fact Part 1

  1. There is an assumption that I retain Norton Rose Fulbright to
  provide legal services to the
  Department of Treasury at some stage in 2013 and prior to the
  NEC decision of 6 March
  2014. This is incorrect.

  2. Norton Rose Fulbright was retained by IPBC on 5 December 2012,
  some 14 months earlier, to
  provide legal services with regards to the IPIC Bond Project.
  The work expressly included

• Page 423 of 475

• reviewing the terms and conditions of the IPIC Bond, review and
  advise option available to
  IPBC for refinancing of the loan and or structure of the terms
  of the existing loan.
  Specifically it was recognized in the scope of work that ―a
  significant aspect of this scope of
  work would involve meeting the objectives regarding the
  ownership of the Oil Search
  Shares‖. [See Letter 5 December 2012]

  3. I was appointed Director of the Gas Project Co-ordination Office
  in December 2011.

  4. On 5 April 2013, the Cabinet explicitly authorised the Minister
  for Public Enterprises and
  IPBC to explore methods of raising money to redeem the
  Convertible Bonds. [See NEC
  meeting 03/2013, decision no 117/2013]

  5. In July 2013, Cabinet determined to look at ways to refinance
  the IPIC loan and to retain an
  interest in Oil Search. It appointed a committee under the
  direction of IPBC and the
  Minister for Public Enterprises, comprising of the Director of
  the Gas Projects Co-ordination
  Office, the Secretary of Public Enterprises, the Secretary of
  Treasury (or his nominee), the
  State Solicitor (or his nominee) and the MD of IPBC to advise on
  options available to the
  State to refinance and maintain an interest in Oil Search (the
  Committee). [See NEC
  Decision 241/2013 at meeting 20/2013 attached].

  6. On 6 August 2013, I was appointed Acting Secretary for Treasury.

  7. We, the IPIC committee, had already set up meetings with various
  banks in Sydney to assess
  proposals from the banks as to being the financial advisor and
  arranger to the State through
  IPBC for the refinancing of the IPIC Bond. Norton Rose Fulbright
  assisted with advice at
  these meetings.

  8. Whether I was Director of the Gas Office or the Acting Secretary
  for Treasury, I will still be
  a member of the IPIC Committee due to Cabinet decision No
  241/2013.

  9. I sought the advice of Norton Rose Fulbright from the time that
  I was appointed Chairman
  of the IPIC Bond and that was due to the fact the Committee was
  under the direction of
  IPBC, and IPBC had retained Norton Rose Fulbright to advise on
  the IPIC refinancing issues.

• Page 424 of 475

• I did not retain them anew.

  10. I was aware that Treasury had only undertaken 3 other
  transactions and on each occasion
  engaged external lawyers as member of Treasury, and the
  Committee, had limited financial
  experience.

  11. This continued until special circumstances arose from them to be
  appointed to represent the
  State on the transaction pursuant to and after the NEC decision.

  Findings Page 203

  12. After the NEC Decision on 6 March 2014 which endorsed for a
  Certificate of Inexpediency
  for service and othe contracs, for the purposes of giving effect
  to the NEC decision, and I was
  the person with the responsibility to implement it according to
  the State Solicitor‘s advice of
  5 March 2014, I sought a Certificate of Inexpediency and to
  contract those consultants who
  were necessary for the transaction to proceed.

  13. I say that at all material times the then Attorney-General
  Kerenga Kua was aware of the NEC
  Decision of 6 March 2014 and the steps necessary to implement
  it.

  14. Mr Kua however did not raise an issue with regards to compliance
  with the Attorney-
  General Act and indeed by his lack of complaint allowed the
  Consultants to be retained as a
  result of the NEC Decision and the CSTB Certificate of
  Inexpediency.

  15. Mr. Kua by his inaction at the time effectively waived any
  compliance issues, and indeed he
  was bound by the NEC decision, as we all were.

  16. Mr Kua did not raise any issue with the retainer of Legal
  Consultants until the time he was
  removed by the Prime Minister as Attorney-General in June 2014.
  His statements are tainted
  by personal and political interest.

  17. It is incorrect to say that my conduct was improper as I failed
  to formally request the
  Attorney-General for a brief out, firstly as Norton Rose
  Fulbright has been retained by IPBC,
  and secondly as NEC has approved and endorsed the way forward
  with regards to service
  contracts which was to apply for a certificate of inexpediency

• Page 425 of 475

• due to the short commercial
  time limits that needed to be adhered to.

  18. The State itself did not retain any other lawyers.

  19. With regards to Ashurst, they were paid for by the State as it
  was a term of the loan
  agreement with UBS AG that the legal services of the lender
  would be funded by the
  borrower. This is a normal commercial condition. They were not
  retained by the State or I,
  but by UBS AG.

  20. With regars to Pacific Legal Group, they were actually retained
  by Norton Rose Fulbright to
  act as their local Counsel for advice and assistance on
  procedures after Norton Rose
  Fulbright were asked to adviceon the possibility of an UBS AG
  loan/Oil Search transaction in
  accordance with the terms of their retainer for IPBC. I did not
  retain them and neither did
  the State.

  21. At the time of the request for a Certificate of Inexpediency, it
  was considered by all that it
  would be much more convenient for all parties that Pacific Legal
  Group and Ashursts be paid
  for directly by the State in Papua New Guinea, rather than the
  State remitting funds to
  Norton Rose and UBS in Australia and then Norton Rose and UBS
  remitting funds back to
  Papua New Guinea to pay Pacific Legal Group and Ashursts
  respectively.

  22. Essentially, the request for the COI was to facilitate payment,
  as the only actual retainer was
  for Norton Rose Fulbriht, and not for Pacific Legal Group or
  Ashursts.

  23. Had the Ombudsman Commission interviewed Pacific Legal Group or
  Norton Rose
  Fulbright or Ashursts, myself and asked the specific questions,
  this would have been made
  clear.

  24. I deny that I breached any proper processes or procedure with
  regards to the engagement of
  legal consultants.

  25. I deny that my conduct was in any way improper in this regard.

• Page 426 of 475

• Findings Page 204

  Comments:

  The retaining of Legal Firms or Lawyers to perform specific tasks or
  jobs as per their
  contracts is entirely the role of the Government Body and or Agency
  with approval from
  the Attorney-General.

  In this particular matter, the State was intent on engaging a Lender
  for a loan to the State
  to purchase shares from Oil Search Ltd. The IPBC had initially
  engaged Norton Rose
  Fulbright as its Legal Advisor on the IPIC Exchangeable Bond.
  However, since the IPIC
  Exchangeable Bond deal fell through, the IPIC Project ceased to
  exist.

  The State through the Departmental Bodies and Agencies was then
  forced to look for
  funds from other potential Lenders for the loan to purchase shares
  from Oil Search Ltd.
  This was a new project and hence needed to comply with all the
  relevant processes and
  procedures to facilitate the borrowing. This included the request
  from the Attorney-
  General to Brief-Out Lawyers or Legal Firms to act on behalf of the
  State.

  Mr Vele failed to seek approval from the Attorney-General in regard
  to the engagement of
  Norton Rose Fulbright.

  Therefore, the Ombudsman Commission‘s comments on this matter have
  not changed.

  [4.14] FINDING No. 14

  In the opinion of the Ombudsman Commission, the conduct of Mr Philip
  Eludeme,
  Chairman of Central Supply & Tenders Board was wrong and improper
  when he
  approved the issuance of the COI for the engagement of the
  Consultants.

  Reason(s):

  • On 10 March 2014, Mr Eludeme wrote to Mr Vele and advised that
  the CSTB

• Page 427 of 475

• approved the issuance of a COI in order to waiver from public
  tender the contract to
  provide Consultancy services relating to the borrowing of the
  UBS AG Loan to
  purchase 149, 390,244 shares in Oil Search Ltd.

  • Mr Eludeme breached Sections 40 of the Public Finance
  (Management) Act 1995 and Part
  13, Division 4, Clauses 13 and 14 of the Finance Management
  Manual.

  Section 40 of the Public Finance (Management) Act 1995, states
  that

  40. TENDERS FOR PROPERTY, STORES, WORKS AND SERVICES.

  (1) Subject to–
  (a) this section; and
  (b) Section 41,

  tenders shall be publicly invited and contracts let for the
  purchase or disposal of property or
  stores or the supply of works and services the estimated cost of
  which exceeds the
  prescribed amount.

  Findings Page 205

  Clause 13 of the Finance Management Manual states:
  13. A Certificate of Inexpediency cannot be issued to
  retrospectively cover a contract
  already executed.

  • Firstly, Part 13, Division 4, Clause 14 of the Finance
  Management Manual state that the
  issuance of COI can only be issued where there is a Natural
  Disaster or Defence
  Emergency or Health Emergency, or Situation of Civil Unrest. In
  this instance, there
  was no such event and hence the issuance of a COI was improper.

  • Secondly, Mr Rolpagarea stated in his letter to Mr Eludeme that
  the circumstances
  did not warrant a COI and that the issuance of COI cannot be
  applied
  retrospectively. Hence, Mr Vele‘s engagement of Consultants
  prior to the issuance a
  COI was wrong.

  • Therefore, Mr Eludeme deliberately ignored and breached the
  Public Finance
  (Management) Act 1995, the Attorney-General Act 1989 and the
  Finance Management Manual

• Page 428 of 475

• when he issued the COI that waived the public tender of contract
  and thereby
  engaging the private legal, financial and technical Consultants.

  Comments:

  Mr Eludeme did not respond to the Ombudsman Commission‘s Provisional
  Report.

  Mr Eludeme is currently on suspension as the Chairman of the CSTB.
  However, apart from
  referring Mr Eludeme to the Ombudsman Commission to be investigated
  under the
  Leadership Code, the Ombudsman Commission should also consider
  referring Mr
  Eludeme to the Police.

  [4.15] FINDING No. 15

  In the opinion of the Ombudsman Commission, the conduct of Mr Loi
  Bakani was
  wrong and improper when he failed to independently provide due
  diligence check in
  the process of selecting financiers for the IPIC Exchangeable Bond
  buy back and
  advice against the UBS AG appointment as the Lender of the loan.

  Reason(s):

  • The NEC during a Special Meeting No: 37/2013 on 19 December 2013
  made its
  Decision No: 479/2013 in relation to the re-financing of IPIC‘s
  Exchangeable Bond
  and directed the BPNG to evaluate potential financiers. Below is
  an extract from
  NEC Decision No: 479/2013:

  1. noted the content of Statutory Business Paper No. 179/2013
  and the attachment provided;

  2. noted the submissions from Citi, UBS, ANZ/Barclays and
  Hermsley
  3. approved the following recommendations;

  Findings
  Page 206

  v) approved the Bank of Papua New Guinea to provide final
  evaluations on the
  proposals from Citi and UBS AG to refinance the IPIC

• Page 429 of 475

• Exchangeable Bond on the
  specific terms of reference provided (appended herewith) and
  report back to the
  Minister for Public Enterprises and State Investments by end
  of January 2014;

  ~ Minister Micah requested Mr Bakani to have the BPNG evaluate the
  potential
  financiers‘ proposals based on the NEC‘s Terms of Reference and
  recommend a
  financier for the refinancing of the IPIC Exchangeable Bond.

  ~ Mr Bakani advised Minister Micah that the time to conclude the
  refinancing of the
  IPIC Exchangeable Bond was short and the GoPNG had to make a
  decision
  immediately. The BPNG was of the view that the four financiers
  should have been
  provided all the information and requested to bid for the
  Exchangeable Bond
  refinancing facility.

  . Minister Micah sought clarification from Mr Bakani on the BPNG‘s
  advice regarding
  the IPIC Exchangeable Bond.

  ~ Mr Bakani then recommended to Minister Micah that the State
  renegotiate the
  funding structure of the proposals with the two financiers (UBS
  AG and Citi Bank),
  in the event that the negotiations do not meet the States
  objectives, the State should
  consider other financiers.

  . Mr Bakani also recommended to Minister Micah to invite other
  financiers apart
  from Citi Bank and UBS AG to bid for the re-financing of the IPIC
  Exchangeable
  Bond.

  ~ Mr Bakani advised the Prime Minister that the two financiers for
  the loan to re-
  finance the IPIC Exchangeable Bond fell short of the re-financing
  requirements and
  requested that the BPNG be mandated to assist the State in
  meeting the basic
  refinancing requirements in the negotiation process.

  . Minister Micah wrote to Mr Bakani and requested that the Bank
  provide its final
  recommendation on the two banks, UBS AG and Citi Bank.

  ~ Mr Bakani requested Minister Micah for all parties including
  BPNG, Ministry for

• Page 430 of 475

• SE&SI, IPBC and DoT to meet and draft the Terms of Reference to
  form the basis for
  the negotiations with the potential financiers for the IPIC
  Exchangeable Bond.

  . Minister Micah directed Mr Bakani to furnish his recommendation
  by Wednesday,
  22 January 2014 and for the NEC to sanction on Thursday, 23
  January 2014.

  . Mr Bakani wrote to Ms Yacoubian and requested her to resubmit PNP
  Paribas
  proposal incorporating the refined terms.

  . Mr Bakani wrote to Mr Turner and requested him to resubmit UBS AG
  proposal
  incorporating the refined terms.

  . Mr Bakani wrote to Mr Philip Graham of Citi Bank and requested
  him to resubmit
  Citi Bank proposal incorporating the refined terms.

  Findings Page 207

  ~ Mr Bakani wrote to Minister Micah and strongly recommended that
  the NEC decide
  to approach the Abu Dhabi Government and request for an extension
  of six months
  in IPIC‘s right to exercise the Exchangeable Bond option. This
  would allow time for
  BNP Paribas, the superior proposal, as well as the UBS AG, Citi
  Bank and
  ANZ/Barclays to improve on their proposals.

  ~ Mr Bakani wrote to Minister Micah and recommended UBS AG should
  be given the
  mandate to fund the IPIC Exchangeable Bond refinancing and
  further advised that
  the State should seek an extension of six months for the
  refinancing of the IPIC
  Exchangeable Bond on the present terms.

  ~ On 27 January 2014, Hon Polye wrote to Mr Bakani and requested
  for a full brief on
  the implementation of the NEC‘s Decision No. 479/2013 regarding
  the re-financing of
  IPIC Exchangeable Bond.

  ~ In spite of Mr Polye‘s request for an update and briefing of the
  progress on the
  matter, Mr Bakani did not respond.

  ~ On 30 January 2014, three days after Hon Polye had requested for

• Page 431 of 475

• a brief on the
  status of negotiations, Mr Bakani wrote to Mr Fowler regarding
  the refinancing of
  the IPIC loan and advised that the State accepted its proposal to
  refinance the IPIC
  Exchangeable Bond by a combined structure of a Rollover Collar
  and Term Loan.
  Mr Bakani also requested the UBS AG to confirm in writing its
  commitment to fund
  the AU$1.7 Billion IPIC Exchangeable Bond.

  ~ Minister Micah wrote to Mr Bakani and advised that he noted the
  BPNG‘s
  recommendation for UBS AG to be given the mandate for the IPIC
  Exchangeable
  Bond and that the State would not seek the six months extension
  as it will incur
  additional interest.

  . Minister Micah wrote to Mr Bakani and advised that he accepted
  the BPNG‘s
  recommendations and that he had asked NPCP to lead the refinance
  IPIC,
  Exchangeable Bond process on behalf of the State.

  . Mr Bakani wrote to Minister Micah and reassured him that the Bank
  was pleased
  that he had accepted its recommendation to use UBS AG to re-
  finance IPIC
  Exchangeable Bond.

  ~ BPNG was given the task to evaluate the proposals from potential
  financiers for the
  IPIC Exchangeable Bond, but it was not given time to evaluate all
  the proposals.
  Despite the limitations, Mr Bakani wrote to Minister Micah and
  UBS AG and
  advised that UBS AG was appointed as the lender of the loan to
  refinance the IPIC
  Exchangeable Bond.

  ~ The Commission‘s investigations revealed that the NEC never made
  a decision to
  appoint UBS AG or any other financier to provide a loan facility
  to refinance the
  IPIC Exchangeable Bond. Hence, Mr Bakani had no authority to
  appoint UBS AG as
  the preferred financier to refinance the IPIC Exchangeable Bond.

  Findings Page 208

  . The Commission‘s investigations also revealed that the NEC only

• Page 432 of 475

• appointed UBS
  AG as Advisor to provide financial advice in regard to the
  borrowing to finance the
  purchase of shares in Oil Search Ltd in March 2014.

  Comments:

  Mr Bakani is a leader subject to the Leadership Code.

  RESPONSE FROM MR LOI BAKANI

  In a letter dated 24 February 2014, Mr Bakani stated:

  ―Firstly, your Finding No. 15 alleges amongst others that my conduct
  was wrong and improper when I
  failed to provide due diligence check in the process of selecting
  financiers for the buy-back of IPIC
  Exchangeable Bond and advised against the appointment of UBS AG as
  the financier.

  The NEC Decision No. 479/2013 directing the Bank to do evaluations
  was quite specific and explicit.
  We were advised to assess and evaluate only 2 financiers, namely UBS
  and Citi Bank. As to how the
  NEC came up with these 2 financiers was beyond my knowledge.

  Even though not specifically directed, but for good governance
  purposes and to ensure the State was
  given the best advice, we (the Bank of PNG) went beyond the list of
  financiers and requested other
  reputable financiers such as BNP Paribas and ANZ/Barclays to also
  submit their bids.

  A thorough interview and evaluation was done on these potential
  financiers within a timing
  constraint, and the UBS AG proposal was recommended to the State
  because it was least costly. In the
  circumstance, it is my strong view that the Bank of PNG had done the
  best it could do to meet the
  State‘s request‖.

  Comment

  Mr Bakani responded to the Ombudsman Commission‘s Provisional
  Report, stating that
  neither he nor BPNG were involved in the UBS AG matter as neither Mr
  Vele, the DoT or
  the Prime Minister approached him formerly and requested for
  assistance.

• Page 433 of 475

• The Ombudsman Commission accepts Mr Bakani‘s response and comments
  on this
  particular finding as adequate to release him from the findings. The
  recommendation for
  his investigations under the Leadership Code is removed.

  Findings Page 209

  [4.16] FINDING No. 16

  In the opinion of the Ombudsman Commission, the conduct of Mr Loi
  Bakani was
  wrong and improper when he informed UBS AG that the State had
  engaged UBS AG
  as the Lender of the Loan to refinance the IPIC Exchangeable Bond,
  without NEC‘s
  approval.

  Reason(s):

  ~ In a Special Meeting No: 37/2013 on 19 December 2013, NEC made a
  Decision No:
  479/2013 in relation to the re-financing of the IPIC Exchangeable
  Bond and directed
  the BPNG to evaluate potential financiers. Below is an extract of
  NEC Decision No:
  479/2013:

  1. noted the content of Statutory Business Paper No. 179/2013 and
  the attachment
  provided;
  2. noted the submissions from Citi, UBS, ANZ/Barclays and
  Hermsley

  3. approved the following recommendations;
  v) approved the Bank of Papua New Guinea to provide final

• Page 434 of 475

• evaluations on the
  proposals from Citi and UBS AG to refinance the IPIC
  Exchangeable Bond
  on the specific terms of reference provided (appended
  herewith) and report
  back to the Minister for Public Enterprises and State
  Investments by end of
  January 2014;

  ~ On 30 January 2014, Mr Bakani informed the Directors for
  Investment Banking, UBS
  AG that the State had accepted its proposal to re-finance IPIC
  Exchangeable Bond
  worth AU$1.7 Billion.

  . Mr Bakani‘s advice was wrong and improper as there was no NEC
  Decision that
  specifically stated that the State had approved to engage UBS AG
  as the Lender of a
  Loan to re-finance the IPIC Exchangeable Bond.

  . There was no NEC Decision that specifically directed or
  instructed the Governor for
  BPNG to advise the UBS AG as the Lender of the Loan to re-finance
  the IPIC
  Exchangeable Bond.

  ~ Hence, Mr Bakani did not have the authority to engage UBS AG as
  the preferred
  financier to provide a Loan facility to re-finance the IPIC
  Exchangeable Bond.

  . Mr Bakani failed to advice the then Minster for Treasury, Hon
  Polye on the status of
  BPNG‘s negotiations with the potential financiers to re-finance
  the IPIC
  Exchangeable Bond when then Minister Polye specifically requested
  for such
  briefing by Mr Bakani.

  Comments:

  Mr Bakani is a leader subject to the Leadership Code.

  Findings Page 210

  RESPONSE FROM MR LOI BAKANI

  In Mr Bakani‘s letter dated 24 February 2014, he stated that:

  On your Finding No. 16 wherein it is alleged that I had informed UBS
  AG that the State had
  engaged them to finance the IPIC Exchangeable Bond buy back without

• Page 435 of 475

• the approval of NEC.
  Although I now realize that was no NEC Decision in place to that
  effect at that time, I had been
  advised by Mr. Micah before 30 January 2014, that the State had made
  that decision. Note that
  such advice from the Minister was sufficient for me to form an
  opinion that the State had made
  a decision.

  Note also that my letter of 30 January 2014 to UBS AG was necessary
  as a matter of good
  business practice, and as a matter of courtesy and prudent practice
  I was obliged to inform UBS
  AG of the outcome of my assessment. I reiterate that this letter was
  sent only after I had been
  assured by a Minister of State that UBS AG had been selected to
  finance the IPIC Exchangeable
  Bond buy back.

  Comments:

  Mr Bakani acted on the advise of the then Minister Micah that the
  State had made the
  decision to engage the UBS AG to finance the IPIC Exchangeable Bond
  buy back.

  The conduct of Mr Bakani was wrong as the NEC was yet to make any
  decision on
  engaging a financier to lend a loan to the State to buy back the PIC
  Exchangeable Bond.

  Therefore, the Ombudsman Commission‘s original comments on this
  finding have not
  changed.

  [4.17] FINDING No. 17

  In the opinion of the Ombudsman Commission, the conduct of Dr Ken
  Ngangan was
  wrong and improper when he signed and approved the APC Forms
  committing funds
  that were not appropriated in the 2014 Budget for the payment of
  Financial, Legal
  and Technical Consultants.

  Reason(s):

  ~ Section 47B, 47C and 47D of the Public Finance (Management) Act

• Page 436 of 475

• 1995 and Part 13
  Division 10 of the Finance Management Manual, state that an APC
  is a mandatory
  requirement of the tender process in order to qualify for funds
  to be released from
  the DoF to implement services provided by the Consultants.

  ~ Dr Ngangan approved the APC for AU$14, 555,759.00 to be released
  for the payment
  of legal and finance services by the Consultants.

  Findings Page 211

  ~ Dr Ngangan approved the APC without the endorsement of the
  Chairman of CSTB,
  hence the APC was null and void in the circumstances according to
  the fine print at
  the bottom of the APC Form (FF5A) that stated the following:

  1. This Authority to Pre Commit form does not become active until
  it has been
  registered and the APC No. has been allocated by the Department
  of
  Finance/Provincial Treasury.
  2. This Authority to Pre Commit is not valid until a Supply &
  Tenders Board file number
  is allocated.

  . Dr Ngangan did not indicate on the APC form where the funds to pay
  the
  Consultants was going to come from.

  . It was revealed that there were no funds available to pay the
  Consultants as this was
  an unbudgeted activity.

  ~ The engagement of private Consultants, the issuance of the COI and
  the approval of
  the APC funds were all done prior to the NEC‘s formal approval.
  The private
  Consultants‘ engagement was illegal and premeditated actions that
  were taken by
  Dr Ngangan and Mr Vele.

  Comments:

  At the time of the transaction, Dr Ngangan was the Acting Secretary
  for the Department of
  Finance. He is a leader and is subject to the Leadership Code.

  Comments:

• Page 437 of 475

• Dr. Ken Ngangan responded to the Ombudsman Commission‘s Provisional
  Report,
  however, he did not deny nor confirm the comments made against him.
  Therefore, the
  Ombudsman Commission‘s comments on this matter have not changed.

  [4.18] FINDING No. 18

  In the opinion of the Ombudsman Commission, the conduct of Mr Carl
  Okuk was
  wrong and improper when he commissioned the documents on the
  borrowing of the
  UBS AG Loan by the Governor-General of Papua New Guinea.

  Reason(s):

  . Mr Okuk was the Consultant engaged by Mr Vele to provide
  consultancy services to
  DoT.

  ~ On 25 February 2014, Mr Okuk commissioned the signing of all UBS
  AG documents
  relating to the UBS AG Loan facility, by the GGPNG prior to the
  NEC Decision to
  appoint UBS AG as the Lender of the Loan.

  Findings Page 212

  . On 12 March 2014, Mr Okuk witnessed the execution of the UBS AG
  Loan
  Agreement documents by the GGPNG and acted as Commissioner of
  Oath on behalf
  of the State.

  . Mr Okuk was not registered as a practicing lawyer with the
  PNGLS nor was he
  appointed as Commissioner of Oaths. He should not have acted as
  a Commissioner
  of Oaths under the Oaths, Affirmations and Statutory
  Declarations Act (Chapter 317),
  rendering the entire contract documents of UBS AG loan
  questionable.

  . Section 35 of the Lawyers Act 1986 states:

  PART IV.—PRACTISING CERTIFICATES

  35. Requirement to hold a practising certificate.

• Page 438 of 475

• (1) A person shall not practise as a lawyer unless—

  (a) he has signed the Roll; and

  (b) he is the holder of a current restricted or
  unrestricted practising
  certificate.

  (2) A person who practises as a lawyer contrary to the
  provisions of Subsection (1)
  is guilty of an offence.

  Penalty: A fine not exceeding K1,000.00.

  . Section 108 of the Lawyers Act 1986 states:

  108. Lawyer to be Commissioner for Oaths.

  For the purposes of the Oaths, Affirmations and Statutory
  Declarations Act (Chapter 317),
  every lawyer admitted to practise in the country is, by this
  Act, appointed a Commissioner
  for Oaths.

  . Section 12A of the Oaths, Affirmations and Statutory
  Declarations Act (Chapter 317)

  12A. Commissioner for oaths appointed under Lawyers Act 1986

  Notwithstanding Section 108 of the Lawyers Act 1986, a lawyer
  shall not perform the duties
  of a Commissioner for Oaths unless he is the holder of a
  current practising certificate issued
  under the Lawyers Act 1986.

  Comments:

  This is a matter for PNG Law Society to consider

  Mr Carl Okuk did not respond to the Ombudsman Commission‘s
  Provisional Report.

  Therefore, the Ombudsman Commission‘s comments on this matter have
  not changed.

  Findings
  Page 213

• Page 439 of 475

• [4.19] FINDING No. 19

  In the opinion of the Ombudsman Commission, the conduct of Hon James
  Marape,
  MP, Minister for Finance was wrong and improper when he approved the
  Payment
  Direction Deed for NPCP when it was not properly established by law.

  Reason(s):

  ~ The NEC during its Special Meeting No: 08/2014 deliberated on the
  content of
  Policy Submission No: 67/2014 with the subject title as financial
  arrangement for
  State acquisition of shareholding in Oil Search Ltd and State
  borrowing and made its
  Decision No: 79/2014 that directed Minister for Finance Hon
  Marape to facilitate the
  Payment Direction Deed by NPCP.

  ~ On 9 March 2014, Mr Erastus Kamburi, the Chief Legal Officer for
  IPBC, requested
  the IPBC Directors to meet and discuss the Circular Resolutions
  and Explanation
  and directives from Minister Micah and the NEC Decision No:
  79/2014.

  ~ On even date, the NPCP Special Board of Directors Meeting No:
  02/2014 resolved
  that the Company enter into any Transaction Document to give
  effect to the
  Payment Direction and authorised Mr Sonk and Mr Wato with the
  Power of
  Attorney.

  . On even date, Mr Sonk verified copies of the Shareholder
  resolutions of the NPCP
  dated 09 March 2014, Minutes of a Meeting of the Board of
  Directors and Power of
  Attorney of the NPCP.

  . On even date, Mr Kamburi prepared an Explanatory Note with the
  Board Circular
  Resolution outlining the purpose of the Special Board Meeting.

  . On even date, the NPCP Board empowered Mr Sonk and Mr Rogen Wato,
  the
  Company Secretary for NPCP with the Power of Attorney.

  . On even date, Mr Managing Director for NPCP forwarded to Mr
  Kumarasiri an
  Extract of the Board Meeting Minutes.

• Page 440 of 475

• . On even date, Mr Kumarasiri wrote to Hon James Marape MP,
  Minister for Finance
  and requested him to approve the Memorandum of Approval to enable
  NPCP to
  enter into the Transaction Documents.

  . On even date, Minister Polye advised Mr Vele that he will not
  sign the documents
  that enabled the State to borrow the said UBS AG loan.

  . On even date, Minister Marape approved the Memorandum of Approval
  that
  enabled NPCP to enter into the Transaction Documents.

  . On even date, the GGPNG signed the document enabling the State to
  borrow
  AU$335 million from UBS AG for the purpose of the purchase of
  shares in Oil Search
  Findings Page 214

  Ltd and for the purpose of meeting the expenses of the Borrowing
  and for the
  services of the State.

  . On even date, Minister Marape gave his approval for the NPCP to
  enter into
  Payment Direction Deed.

  . Mr Sonk wrote to Mr Graham and directed any distributions payable
  to NPCP from
  the PNG LNG proceeds to be paid to UBS AG (Singapore Branch).

  ~ NPCP‘s existence and involvement in the Loan transaction is
  questionable as it is
  not legally established as the proposed Papua New Guinea
  Petroleum Company
  (Kroton) Act has not been certified by the Speaker of Parliament
  in order to be fully
  in force. Thus the involvement of NPCP in this whole process
  maybe improper.

  . NPCP did not have a sound Balance Sheet to handle transaction of
  such magnitude.

  Comments:

  Minister Marape is a leader and is subject to investigation under
  the Leadership Code.

  The Ombudsman Commission cannot make a finding against Mr Sonk as
  the Papua New
  Guinea Petroleum Company (Kroton) Act has not been certified by the

• Page 441 of 475

• Speaker of Parliament in
  order to be fully in force. However, after the Provisional Report
  was released, the Papua
  New Guinea Petroleum Company (Kroton) Act was enforced and NPCP was
  formerly launched
  as one of the GoPNG‘s State Owned Enterprises that was responsible
  for managing the
  repayment of the UBS AG loan.

  Hence, in light of this development, Mr Sonk is now referred to the
  Ombudsman
  Commission to be investigated under the Leadership Code.

  Minister Marape did not respond to the Provisional Report.
  Therefore, the Ombudsman
  Commission‘s comments on this finding have not changed.

  [4.20] FINDING No. 20

  In the opinion of the Ombudsman Commission, the establishment of
  National
  Petroleum Company of Papua New Guinea (Kroton) Ltd and its
  engagement by the
  NEC was wrong and improper.

  Reason(s):

  ~ On 3 February 2014, Mr Frank Kramer was approached by Minister
  Micah and he
  was advised on the engagement of UBS AG for the refinancing of
  the IPIC
  Exchangeable Bond.

  . On 6 March 2014, the NEC in its Decision No: 79/2014 made during
  its Special
  Meeting No: 08/2014 deliberated on the content of NEC Policy
  Submission No:
  67/2014 with the subject title as financial arrangement for State
  acquisition of
  Findings Page 215

  shareholding in Oil Search Ltd and State borrowing. Below is an
  extract of the NEC
  decision:

  8. noted that the Transaction Documents are subject to the issue
  by other State
  Agencies of necessary or convenient statutory authorizations
  that are being sought
  in parallel with this submission, and or endorse the issue of
  any such authorizations
  for the Transaction, including, without limitation:

• Page 442 of 475

• a. execution of a Payment Direction Deed as one of the
  Transaction Documents
  by the National Petroleum Company of PNG (Kroton) Limited
  concerning
  payments from Papua New Guinea Liquefied natural Gas
  Global Company
  LDC, with the approval of the Minister for Finance on the
  recommendation of
  the Managing Director of the IPBC pursuant to section 46B
  of the
  Independent Public Business Corporation of Papua New
  Guinea Act 2002,
  including the documentation listed in Part 3 of Schedule
  A; and

  b. approval of the payment direction to in paragraph (c) by
  the IPBC pursuant
  to section 110 of the Companies Act 1997.

  ~ The NPCP is to be established by the National Petroleum Company
  of Papua New Guinea
  (Kroton) Act, however, at the time of the NEC‘s Decision of 6
  March 2014, the Act
  was yet to be certified by the Speaker of Parliament and
  gazetted in the National
  Gazette.

  ~ It was improper for the NEC to engage a company that has no
  legal foundation to
  handle all the PNG LNG proceeds from the LNG project.

  ~ It was also improper for the NEC to engage a company that did
  not have a sound
  Balance Sheet at that relevant time to handle transaction of
  such magnitude.

• Page 443 of 475

• Findings Page 216

  PRIVATE & CONFIDENTIAL

  5. RECOMMENDATIONS

  [5.1] CONSTITUTIONAL FRAMEWORK FOR MAKING RECOMMENDATIONS

  As indicated in Chapter 1, the general purpose of this investigation
  is to determine
  whether any of the conduct under investigation was wrong, or whether
  any laws or
  administrative practices were defective.

  The Commission is expressly authorized to form such opinions by
  Section 22(2) of the
  Organic Law on the Ombudsman Commission.

  If, after making its investigation, the Commission comes to the
  conclusion that some of the
  conduct was wrong or that any law or administrative practice was
  defective, it is
  authorized to make recommendations. Such recommendations are made
  under Section
  22(2) of the Organic Law on the Ombudsman Commission.

  Section 22(2) OLOC:

  If in any case to which this section applies the Commission is of
  the opinion that any service,
  body, person or other appropriate authority should –
  (a) consider the matter further; or
  (b) take certain specific action; or
  (c) modify or cancel any administrative act; or
  (d) alter any regulation or ruling; or
  (e) explain more fully any administrative act; or

• Page 444 of 475

• (f) do any other thing,

  the Commission shall report its opinion and the reasons for its
  opinion, to the Minister
  responsible for the relevant service, body or person and to the
  Permanent Head or statutory
  head responsible for the service, body or person, and may refer
  the matter to the Public
  Prosecutor if action by him is warranted and may make such
  recommendations as it thinks
  fit.

  In this chapter, recommendations are made based on the findings of
  wrong conduct and
  defective administration referred to earlier in the report.

  Each recommendation is set out as follows:

  o The recipients (i.e. the persons to whom the recommendations are
  directed) are
  identified.

  o The main reason for making the recommendation, are stated.

  Recommendations Page 217

  PRIVATE & CONFIDENTIAL

  [5.2] RECOMMENDATIONS CONCERNING PARTICULAR INDIVIDUALS
  We recommend that some individuals have their continuing public
  employment carefully
  reviewed. The Ombudsman Commission is of the opinion that holders of
  public offices
  must continue at all times to be accountable for their actions, even
  if they have left the
  position in which they were found to have committed the wrong
  conduct and are
  occupying new positions.

  [5.3] RECIPIENTS OF RECOMMENDATIONS
  When we make recommendations we are obliged by Section 22(2) of the
  Organic Law on the
  Ombudsman Commission to identify the service, body, person or other
  appropriate authority
  who has to carry them out.

  We are also obliged by Section 22(2) of the Organic Law on the
  Ombudsman Commission to

• Page 445 of 475

• report our recommendations to both the Minister and, if appropriate,
  the permanent or
  statutory head responsible for the service, body or person who has
  to carry out the
  recommendations.

  In relation to each recommendation made in this Chapter, recipients
  of the
  recommendations are listed as follows:

  • first, the service, body or person we are asking to do things is
  identified;
  • secondly, the Minister responsible for that service, body or
  person is identified;
  • thirdly, if appropriate, the permanent or statutory head
  responsible for that
  service, body or person is identified.

  [5.4] RESPONSIBLE MINISTERS
  Section 148 of the Constitution provides that each department,
  section, branch or function
  of government must be the political responsibility of a Minister.
  The Prime Minister has
  the power to determine the titles, portfolios and responsibilities
  of the Ministers.

  At the time of the preparation of this report, the service, body or
  persons to whom specific
  recommendations are being directed were the responsibility of the
  Ministers set out in the
  table below.

  [5.5] MINISTERS RESPONSIBLE FOR FOLLOWING UP ON THE
  IMPLEMENTATION OF RECOMMENDATIONS
  Prime Minister
  Speaker of Parliament
  Minister for Finance
  Minister for Treasury
  Minister for Public Enterprises & Investment
  Minister for Justice & Attorney-General.

  Recommendations Page 218

  PRIVATE & CONFIDENTIAL

  In the event that the title or responsibilities of the Minister
  changes after the date of this
  report, the responsibility for notifying the Ombudsman Commission of
  the steps being
  taken to give effect to its recommendations will pass to the
  Minister who, from time to

• Page 446 of 475

• time, has political responsibility for the services, bodies or
  persons who received our
  recommendations.

  [5.6] DUTIES OF RECIPIENTS TO ACT ON THE RECOMMENDATIONS

  The fact that our opinions on things to be done are expressed in the
  form of
  ―recommendations‖ does not mean that recipients are entitled to
  ignore them.

  Each recipient is required under Section 22(3) of the Organic Law on
  the Ombudsman
  Commission to notify the Ombudsman Commission in writing within 30
  days after the day
  of the service of the report, of the steps proposed to be taken to
  give effect to our
  recommendations.

  Section 22(3) states:

  If the Commission so requests, the responsible Minister, Permanent
  Head or statutory head
  as the case may be, shall, within such period as is specified by
  the Commission, notify the
  Commission as to the steps (if any) that he proposes to take to
  give effect to its
  recommendations.

  Accordingly, there is a duty placed on each recipient of a
  recommendation to notify the
  Commission; and if it is proposed not to implement any
  recommendation, there is a
  further duty to give cogent and convincing reasons why the
  recommendations cannot or
  should not be implemented. These duties arise due to the combined
  effect of the
  Constitution and the Organic Law on the Ombudsman Commission.

  A failure to comply with these duties may result in the Ombudsman
  Commission
  commencing enforcement proceedings in the National Court pursuant to
  Section 23 of the
  Constitution.

  The Ombudsman Commission made eleven (11) recommendations against
  those
  individuals and entitities that have been found to have committed
  wrong conduct. Below
  are the recommendations.

  [5.7] RECOMMENDATIONS

• Page 447 of 475

• In line with the above findings, the Ombudsman Commission formulated
  thirteen (13)
  recommendations. These recommendations are outlined in the following
  pages.

  Recommendations Page 219

  PRIVATE & CONFIDENTIAL

  [5.7.1] RECOMMENDATION No. 1

  The Ombudsman Commission recommends that the Prime Minister, Hon
  Peter
  O‘Neill, CMG be referred to the Ombudsman Commission to be
  investigated under
  the Leadership Code.

  Receipient

  1. Chief Ombudsman
  2. Prime Minister
  3. Chief Secretary to the Government of Papua New Guinea
  4. Secretary for the Department of the Prime Minister & National
  Executive Council.

  Reasons

  • The Prime Minister, Hon Peter O‘Neill, CMG, MP committed the
  State to purchase
  149, 390,244 shares in Oil Search Ltd without prior approval from
  the NEC.

  • The Prime Minister, Hon Peter O‘Neill, CMG, MP failed to present
  the
  Government‘s proposal on the borrowing of a loan from UBS AG
  (Australia Branch)
  on the floor of Parliament for debate and approval as required by
  Sections 209(1), 211
  and 212 of the Constitution.

• Page 448 of 475

• • The Prime Minister Hon Peter O‘Neill, CMG, MP personally
  sponsored and
  submitted NEC Policy Submission No. 67/2014 and misled the NEC to
  approve the
  borrowing of AU$1.239 Billion from UBS AG to buy shares in Oil
  Search Ltd when
  evidence revealed that proper procedures were not complied with
  in regard to the
  engagement of the Financial, Legal and Technical Advisors
  pertaining to the laon.

  • The Prime Minister Hon Peter O‘Neill, CMG, MP failed to consult
  Petromin
  Holdings Ltd to be the State‘s subscriber and nominee to acquire
  shares in Oil
  Search Ltd when it was clear under the Petroleum PNG Holdings
  Limited Authorization
  Act 2007 that Petromin Holdings Ltd shall be consulted on such
  matters.

  • The Prime Minister Hon Peter O‘Neill‘s, CMG, MP committed a
  misconduct in
  office when he committed the State to a borrowing of UBS AG Loan
  of AU$1.239
  Billion to buy shares in Oil Search Ltd. That is, the Prime
  Minister deliberately did
  not comply with the relevant laws and procedures leading up to
  the borrowing.

  Recommendations Page 220

  PRIVATE & CONFIDENTIAL

  [5.7.2] RECOMMENDATION No. 2

  The Ombudsman Commission recommends that Hon James Marape, MP,
  Minister
  for Finance be referred to the Ombudsman Commission to be
  investigated under the
  Leadership Code.

  Recipients

  1. Chief Ombudsman
  2. Minister for Finance
  3. Secretary for Department of Finance.

• Page 449 of 475

• Reasons

  • Hon James Marape, MP, Minister for Finance was aware at that
  material time NPCP
  was not a legally established entity as the PNG Petroleum Company
  (Kroton) Act
  had not been certified by the GGPNG in order to be fully in
  force.

  • With the knowledge that his actions were improper, Hon James
  Marape, MP,
  Minister for Finance still signed and approved the Memorandum of
  Approval,
  thereby enabling NPCP to enter into the Transaction Documents.

  • Hon James Marape, MP, Minister for Finance also approved for NPCP
  to entere into
  Payment Direction Deed.

  [5.7.3] RECOMMENDATION No. 3

  The Ombudsman Commission recommends that Ambassador Isaac Lupari,
  Prime
  Minister‘s Chief of Staff be referred to the Ombudsman Commission to
  be
  investigated under the Leadership Code.

  Recipient

  1. Prime Minister
  2. Chief Secretary to the Government of Papua New Guinea
  3. Secretary for the Department of Prime Minister & National
  Executive Council.

  Reasons

  • Amb Isaac Lupari has no authority to issue advice or instructions
  to the IPBC or to
  any Government Agency regarding decisions made by the NEC, as
  this is the role
  and the function of the Secretary to the NEC Secretariat or the
  Chief Secretary.

  Recommendations Page 221

  PRIVATE & CONFIDENTIAL

  [5.7.4] RECOMMENDATION No. 4

• Page 450 of 475

• The Ombudsman Commission recommends that Dr Ken Ngangan, Secretary
  for
  Department of Finance to strictly comply with the Public Finance
  (Management) Act
  1995 when approving funds that had not been appropriated in the
  Budget to be
  released.

  Recipient

  1. Minister for Finance
  2. Secretary for the Department of Finance.

  Reasons

  • The APC Form is a mandatory requirement that qualifies for funds
  to be released
  from the Department of Finance to implement services provided by
  the Legal,
  Finance and Technical Advisors.

  • The Head of the DoF approves that APC Form indicating that funds
  are available
  and that the Chairman of the CSTB endorsed the APC Form and a
  CSTB file number
  allocated indicating that a Contractor had been awarded the
  Contract.

  • Dr Ken Ngangan failed to indicate on the APC Form where the funds
  to pay the
  Legal, Finance and Technical Advisors would be derived from.

  • Dr Ken Ngangan approved the APC Form without Mr Philip Eludeme‘s
  endorsement indicating that a Contractor was awarded the Contract
  to provide
  Legal, Finance and Technical advisory services to the State.

  • Therefore, the APC Form that was approved by Dr Ken Ngangan was
  null and void
  in the circumstances according to the fine print at the bottom of
  the APC Form that
  stated the following:

  1. This Authority to Pre Commit form does not become active until
  it has been
  registered and the APC No. has been allocated by the
  Department of Finance /
  Provincial Treasury.
  2. This Authority to Pre Commit is not valid until a Supply &
  Tenders Board file number
  is allocated.

• Page 451 of 475

• Recommendations Page 222

  PRIVATE & CONFIDENTIAL

  [5.7.5] RECOMMENDATION No. 5

  The Ombudsman Commission recommends that Mr Dairi Vele, Secretary
  for
  Department of Treasury to strictly comply with the relevant laws
  governing the
  borrowing a Loan of such magnitude and advice the Government
  appropriately.

  Recipient

  1. Minister for Treasury
  2. Secretary for the Department of Treasury
  3. Governor of the Bank of Papua New Guinea.

  Reasons

  • The borrowing of the UBS AG loan was a new arrangement that
  required the
  Department responsible to comply with the Public Finance
  (Management) Act 1995 and
  the Attorney-General Act 1986.

  • Since this was a new loan, it was the responsibility of the DoT
  to request the
  assistance of the BPNG to invite interested Financial Advisors
  and Lead Arragngers
  to bid for the Contract to provide financial and technical advice
  in regard to this
  particular loan to purchase new Oil Search Ltd Shares.

  • Mr Vele assumed that since Norton Rose Fulbright the Legal
  Advisors were retained
  by IPBC and already working on the IPIC Exchangeable Bond, it was

• Page 452 of 475

• proper for Mr
  Vele to engage them to provide legal services relating to the UBS
  AG loan.

  • Amongst many roles and functions that the DJAG plays, one such
  function is to give
  clearance for State Departments and Agencies to engage Law Firms
  or private
  lawyers. In this case, Mr Vele failed to seek advice and
  clearance from the DJAG on
  the Brief-Out of legal services to private legal practitionners.

  • Mr Vele should have engaged the assistance of the CSTB to conduct
  the procerment
  process and awareded the contract of providing Financial, Legal
  and Technical
  advice in relation to the securing of the UBS AG loan to purchase
  new Oil Search Ltd
  Shares to the best Bidder.

  • Mr Vele approached the CSTB after he had already engaged the
  Legal, Financial and
  Technical Advisors and the Lender of the Loan. It was evident
  that the CSTB‘s role in
  this particular matter was to enable the issuance of the COI and
  to request the CSTB
  to apply the COI retrospectively.

  Recommendations Page 223

  PRIVATE & CONFIDENTIAL

  [5.7.6] RECOMMENDATION No. 6

  The Ombudsman Commission recommends that Mr Dairi Vele, Acting
  Secretary for
  Department of Treasury be referred to the Ombudsman Commission to be
  investigated under the Leadership Code.

  Recipient

  1. Minister for Treasury
  2. Secretary for the Department of Treasury.

  Reasons

  • The borrowing of the UBS AG Loan was a new arrangement that
  required the DoT

• Page 453 of 475

• to comply with relevant laws and regulations in the borrowing and
  facilitating the
  transaction to purchase the Oil Search Ltd shares.

  • These laws; the constitutional requirements of Section 209 of the
  Constitution, the
  Public Finance (Management) Act 1995, the Attorney-General Act
  1986, the Papua New Guinea
  Petroleum Company (Kroton) Act, PNG Fiscal Responsibilities Act
  2006, Sections 2(3) of the
  Loans (Overseas Borrowing) (No.2) Act (Chapter 133A), Oaths,
  Affirmations and Statutory
  Declarations Act (Chapter 317) and the Finance Management Manual,
  should have been
  complied with by consulting the appropriate authorities.

  • Mr Vele‘s ignorance of the laws and regulations was a deliberate
  act as he had already
  made up his mind to comply with the Prime Minister‘s directives.

  • The State through the DoT, IPBC, Petromin Holdings Ltd and the
  Office of the
  GGPNG moved to attain the UBS AG loan to purchase shares in Oil
  Search Ltd,
  thereby securing the 10.1% of ownership of Oil Search Ltd.

  [5.7.7] RECOMMENDATION No. 7

  The Ombudsman Commission recommends that that the Chairman for the
  Central
  Supply & Tenders Board to strictly comply with the relevant laws
  governing the
  issuance of a Certificate of Inexpediency and its application.

  Recipient

  1. Minister for Finance
  2. Secretary for the Department of Finance
  3. Chairman for the Central Supply & Tenders Board
  4. Secretary to the Board, Central Supply & Tenders Board.

  Recommendations Page 224

  PRIVATE & CONFIDENTIAL

  Reasons

  • The issuance of the COI is regulated by the Public Finance
  (Management) Act 1995 and
  Finance Management Manual.

  • There was no CSTB meeting to deliberate on whether the

• Page 454 of 475

• application for a COI was
  relevant in this particular matter.

  • There are four (4) specific situations that can only
  warrant the issuance of a COI and these are outlined below:
  these are outlined below:

  a. Natural Disaster, or
  b. Defence Emergency, or
  c. Health Emergency, or
  d. Situation of Civil Unrest.

  . A COI cannot be issued to retrospectively cover a contract
  already executed.

  ~ Mr Eludeme issued the COI and approve for its
  retrospective application in order for
  the DoT and DoF to raise cheque payments to those Legal,
  Finance and Technical
  Advisors that had rendered their services. After the
  payments were made, Mr
  Eludeme then ordered for the COI to been withdrawn.

  [5.7.8] RECOMMENDATION No. 8

  The Ombudsman Commission recommends that Mr Philip Eludeme,
  Chairman for
  the Central Supply & Tenders Board be referred to the
  Ombudsman Commission to
  be investigated under the Leadership Code.

  Recipient

  1. Minister for Finance
  2. Secretary for the Department of Finance
  3. Chairman for the Central Supply & Tenders Board
  4. Secretary to the Board, Central Supply & Tenders Board.

  Reasons

  • The issuance of the COI is governed and regulated by
  Sections 39 and 40 of the Public Finance (Management) Act
  1995 and Clauses 13 and 14 of the Financial Management Manual.
  Finance (Management) Act 1995 and Clauses 13 and 14 of the
  Financial Management Manual.
  .
  • Mr Eludeme‘s conduct on the issuance of the COI to enable
  the DoF to release the
  funds to the DoT to pay service providers and then later
  withdraw the COI after the
  payments were made was improper and wrong.
  Recommendations Page 225

• Page 455 of 475

• PRIVATE & CONFIDENTIAL

  [5.7.9] RECOMMENDATION No. 9

  The Ombudsman Commission recommends that Mr Wapu Sonk, the Managing
  Director for the then National Petroleum Company of Papua New Guinea
  (Kroton)
  Ltd and now Kumul Petroleum Holdings Limited be referred to the
  Ombudsman
  Commisson to be investigated under the Leadership Code.

  Recipients

  1. Minister for Public Investment & State Enterprises
  2. Secretary for the Department of Public Investment & State
  Enterprises
  3. Chairman of Kumul Consolidated Holdings Limited Board
  4. Managing Director for Kumul Consolidated Limited
  5. Chairman of the Kumul Petroleum Holdings Limited Board
  6. Manaing Director for Kumul Petroleum Holdings Limited.

  Reasons

  • The NEC approved for IPBC to direct NPCP to direct GloCo to make
  payments to
  NPCP in order for NPCP to pay off the UBS AG loan.

  • On 9 March 2014, Mr Erastus Kamburi, the Chief Legal Officer for
  IPBC, requested
  the IPBC Directors to meet and discuss the Circular Resolutions
  and Explanation
  and directives from Minister Micah and the NEC Decision No:
  79/2014.

  • On even date, the NPCP Special Board of Directors Meeting No:
  02/2014 resolved
  that the Company enter into any Transaction Document to give
  effect to the
  Payment Direction and authorised Mr Sonk and Mr Wato with the
  Power of
  Attorney.

  • Mr Sonk signed the Payment Deed and directed any distributions
  payable to NPCP
  from the PNG LNG proceeds to be paid to UBS AG (Singapore
  Branch), with full
  knowledge that the National Petroleum Company of Papua New Guinea
  (Kroton) Act was yet
  to be certified.

  • This is not proper as NPCP‘s existence and involvement in the
  Loan transaction is

• Page 456 of 475

• questionable as it is not legally established as the proposed
  Papua New Guinea
  Petroleum Company (Kroton) Act has not been certified by the
  Speaker of Parliament in
  order to be fully in force. Thus the involvement of NPCP in this
  whole process
  maybe improper.

  • NPCP did not have a sound Balance Sheet to handle transaction of
  such magnitude.

  Recommendations Page 226

  PRIVATE & CONFIDENTIAL

  [5.7.10] RECOMMENDATION No. 10

  The Ombudsman Commission recommends that Mr Carl Okuk be referred to
  the
  Papua New Guinea Law Society to be investigated.

  Recipients

  1. Minister for Finance
  2. Secretary for the Department of Finance
  3. Minister for Justice & Attorney-General
  4. Secretary for the Department of Justice & Attorney-General
  5. Mr Carl Okuk
  6. Papua New Guinea Law Society.

  Reasons

  . Mr Vele engaged Mr Carl Okuk as a Legal Consultant for the DoT.

  . Mr Carl Okuk acted as the Commissioner of Oath and withnessed the
  signing of all
  the legal documentations on the borrowing and the payments to be
  made to UBS AG
  and Contractors.

  . However, it was established later that at that material time, Mr
  Okuk Lawyer was
  not registered with the Papua New Guinea Law Society.

  . Therefore, the engagement of Mr Carl Okuk to witness the signing
  of all legal
  documents on the UBS AG Loan borrowing was improper.

  [5.7.11] RECOMMENDATION No. 11

• Page 457 of 475

• The Ombudsman Commission recommends that all future government
  borrowings
  and related documentations including memorandums of agreements and
  or
  memorandums of understanding are to be signed by all concerned
  parties in Papua
  New Guinea.

  Recipients

  1. All Government Bodies and Agencies.

  Reasons
  . The Departments and Agencies mentioned in this Report
  deliberately ignored the
  relevant sections of the Public Finance (Management) Act 1995 and
  Clauses within the

  Recommendations Page 227

  PRIVATE & CONFIDENTIAL

  Finance Management Manual dealing speciafically with the
  procurement and tender of
  government sanctioned projects.

  ~ The UBS AG loan documentations were signed separately and not in
  one place with
  all the parties present. That is, Representatives of the GoPNG
  and the State signed
  the loan documentations here in Port Moresby and then sent copies
  of the same
  documents to Sydney, Australia where Representative of UBS AG
  signed.

  ~ The GGPNG and Mr Vele signed the Letter of Engagement witnessed
  by Mr Carl
  Okuk engaging UBS AG as Lead Arranger and Facilitator to
  facilitate the borrowing.
  Mr Carl Okuk signed as witness not in the presence of both GGPNG
  and Mr Vele.
  His conduct was not in compliance with Section 12A of the Oath,
  Affirmation and
  Statutory Declarations Act (Chapter 317). See page 246.

  ~ The UBS AG documentations were not included as part of he GGPNG‘s
  list or items
  to be executed on that day. The GGPNG himself was not fully aware
  of the
  proceedures that were bypassed by Mr Vele to have the UBS AG loan
  documentations presented before him to approve and sign.

• Page 458 of 475

• . After the GGPNG had signed the UBS AG loan documentations, Mr
  Vele sent the
  same documentations to Sydney, Australia. This act alone exposed
  and put to risk
  Papua New Guinea‘s independence and sovereignty.

  . The Office of the State Solicitor was not a party to the sgning
  and eventual
  engagement of UBS AG as sole Arranger and Facilitator for the
  State to borrow K3
  Billion from UBS AG to purchase shares from Oil Search Ltd.

  ~ Neither the DoT or Mr Vele or Minister Micah wrote back to Mr
  Bakani and BPNG
  to advise that the State had decided to engage UBS AG. Hence, Mr
  Loi Bakani and
  BPNG were not aware that the State had engaged UBS AG to
  facilitate the
  borrowing and that UBS AG was to lend AU$1.239 Billion to the
  State to purchase
  shares in Oil Search Ltd.
  [5.7.12] RECOMMENDATION No. 12

  The Ombudsman Commission recommends that the Secretary for the
  Department of
  Finance ensures that all Government Bodies and Agencies shall
  strictly comply with
  the Public Finance (Management) Act 1995 and Finance Management
  Manual when
  requesting and applying the Certificate of Inexpediency for the
  engagement of
  Contractors to implement Government sanctioned projects.

  Recipients

  1. All Government Bodies and Agencies.

  Reasons
  . Those Departments and Agencies mentioned in this Report
  deliberately ignored the
  relevant Sections of the Public Finance (Management) Act 1995 and
  Clauses within the
  Recommendations Page 228

  PRIVATE & CONFIDENTIAL

  Finance Management Manual dealing speciafically with the
  procurement and tender of
  government sanctioned projects.

  . The Prime Minister committed the State to purchase 149,390,244
  shares in Oil

• Page 459 of 475

• Search Ltd prior to the NEC Policy Submission that was prepared
  by Mr Vele with
  assistance from the Technical, Finance and Legal Advisors.

  . The NEC Policy Submission that requested the NEC to approve the
  issuance of the
  COI was misleading on several grounds, namely:

  a) There was no situation present at that material time that
  warranted the
  issuance of the COI to award the contract to the
  Contractors and make
  facilitate payments.

  b) The NEC can only deliberate and award contracts where the
  amount is
  K10 million and above. Any contract less then K10 million
  is delegated to
  the CSTB and other Supply Tenders Boards.

  c) The COI cannot be applied retrospectively as it is a breach
  of the Public
  Finance (Management) Act 1995 and the Finance Management
  Manual

  . The CSTB Chairman issued the COI that facilitated payments made
  to the Legal,
  Finance and Technical Advisors and to those who assisted in
  preparing a NEC Policy
  Submission.
  [5.7.13] RECOMMENDATION No. 13

  The Ombudsman Commission recommends that all Government Bodies and
  Agencies
  strictly comply with the Attorney-General Act 1986 and Lawyers Act
  1986 when
  engaging private Lawyers and or Firms.

  Recipients

  1. Prime Minister
  2. Minister for Treasury
  3. Minister for Justice & Attorney-General
  4. Minister for Public Enterprises & State Investments
  5. Chief Secretary to the Government of Papua New Guinea
  6. Secretary for the Department of the Prime Minister & National
  Executive Council
  7. Secretary for the Department of Treasury
  8. Secretary for the Department of Justice & Attorney-General
  9. Secretary for the Department of Public Enterprises & State
  Investments
  10. Office of the State Solicitor.

• Page 460 of 475

• Recommendations Page 229

  PRIVATE & CONFIDENTIAL

  Reasons

  . The UBS AG was a new loan arrangement that required new
  contracts to be awarded
  to legal advisors engaging them to provide legal advice to
  the State on the borrowing.
  .
  . It was not proper for Mr Vele to have engaged Norton Rose
  Fulbright and other law
  firms who were already engaged by IPBC and working on the
  IPIC loan.

  . Mr Vele should have formally written to the DJAG to do a
  Brief-Out for the State to
  engage private Lawyers or Law Firms to act on behalf of the
  State.

• Page 461 of 475

• Recommendations Page 230

  6. CONCLUSION

  Good and desirable governance of the public institutions as well as
  the nation is dependent
  upon good and sound management and decisions being made by those
  placed in responsible
  positions. Virtuous public officials and managers understand their
  roles and responsibilities
  and perform their duties within the ambit of the laws that governs
  their conduct. Public
  officials who are empowered by law to make decisions that will
  affect the lives of
  individuals must ensure that they carry out their duties in good
  faith and in compliance
  with the laws.

  Public officials must exercise due diligence, honesty and dedication
  in the work they are
  entrusted with. Inconsistency in decision making or non-compliance
  with relevant laws
  creates doubt in the minds of the public that the decision maker has
  been influenced by
  outside sources and forces not conducive to good governance and
  accountability.
  Professional negligence must be dealt with seriously.

  Some characteristics of good governance necessary to eliminate bad
  administrative practices
  include honesty, diligence, consistency, competency, compliance with
  established laws and
  procedures, and standing up to political interference.

  This Report highlights irregularities in the borrowing of the UBS AG
  Loan and payments
  made to the Contractors; Pacific Legal Group Lawyers, Pacific
  Capital Ltd, UBS AG,
  Ashurst Lawyers, Norton Rose Fulbright of Australia and KPMG to
  provide finance, legal
  and technical services to facilitate documentations on the
  borrowing. It also highlighted
  that the Department of Treasury failed to request a Brief-Out from

• Page 462 of 475

• the Department of
  Justice & Attorney-General to engage private Lawyers or Legal Firms.
  It further highlighted
  the abuse of the Certificate of Inexpediency by the Central Supply &
  Tenders Board and the
  Department of Treasury.

  The National Executive Council, the Office of the Prime Minister,
  Department of Treasury,
  the Department of Finance, the Central Supply & Tenders Board failed
  to live up to the
  expectation of the people and State in complying with the
  administrative processes and
  procedures and the Acts governing the operation of the Department.

  The officers of the Department of Treasury are to take note of the
  findings and
  recommendations made in this Report and make special effort to
  correct the irregularities
  for the good of the Department and the people of Papua New Guinea.

  The leaders to whom the Ombudsman Commission directs its
  recommendation are to
  carefully consider the recommendations and implement them.

  MICHAEL DICK RICHARD PAGEN KEVIN KEPORE
  CHIEF OMBUDSMAN OMBUDSMAN OMBUDSMAN

  PORT MORESBY
  December 2018
  Conclusion Page 231

  7. APPENDIX

  7.1 RELEVANT LAWS AND SPECIFIC PROVISIONS
  [7.1.1] CONSTITUTION OF THE INDEPENDENT STATE OF PAPUA NEW
  GUINEA

  26. APPLICATION OF DIVISION 2 – LEADERSHIP CODE

  1. Personnel Staff of the Governor-General, the Ministers and the
  Leader and Deputy
  Leader of the Opposition.
  27. Responsibilities of Office

  (1) A person to whom this Division applies has a duty to conduct
  himself in such a way,
  both in his public or official life and his private life, and in
  his associations with other

• Page 463 of 475

• persons, as not–

  (a) to place himself in a position in which he has or could have
  a conflict of interests
  or might be compromised when discharging his public or
  official duties; or

  (b) to demean his office or position; or

  (c) to allow his public or official integrity, or his personal
  integrity, to be called into
  question; or

  (d) to endanger or diminish respect for and confidence in the
  integrity of
  government in Papua New Guinea.

  (2) In particular, a person to whom this Division applies shall not
  use his office for
  personal gain or enter into any transaction or engage in any
  enterprise or activity that
  might be expected to give rise to doubt in the public mind as to
  whether he is carrying
  out or has carried out the duty imposed by Subsection (1).

  (3) It is the further duty of a person to whom this Division
  applies–

  (a) to ensure, as far as is within his lawful power, that his
  spouse and children and
  any other persons for whom he is responsible (whether morally,
  legally or by
  usage), including nominees, trustees and agents, do not
  conduct themselves in a
  way that might be expected to give rise to doubt in the public
  mind as to his
  complying with his duties under this section; and

  (b) if necessary, to publicly disassociate himself from any
  activity or enterprise of
  any of his associates, or of a person referred to in paragraph
  (a), that might be
  expected to give rise to such a doubt.

  (4) The Ombudsman Commission or other authority prescribed for the
  purpose under
  Section 28 (further provisions) may, subject to this Division and
  to any Organic Law

  Appendix – Relevant Laws Page 232

  made for the purposes of this Division, give directions, either
  generally or in a

• Page 464 of 475

• particular case, to ensure the attainment of the objects of this
  section.

  (5) A person to whom this Division applies who–

  (a) is convicted of an offence in respect of his office or
  position or in relation to the
  performance of his functions or duties; or

  (b) fails to comply with a direction under Subsection (4) or
  otherwise fails to carry
  out the obligations imposed by Subsections (1), (2) and (3),

  is guilty of misconduct in office.

  Section 209 of the Constitution sets out the responsibility of the
  Parliament

  209. Parliamentary Responsibility

  (1) Notwithstanding anything in this Constitution, the raising and
  expenditure of finance
  by the National Government, including the imposition of taxation
  and the raising of
  loans, is subject to authorization and control by the Parliament,
  and shall be regulated
  by an Act of the Parliament.

  (2) For each fiscal year, there shall be a National Budget
  comprising–
  (a) estimates of finance proposed to be raised and estimates of
  proposed
  expenditure by the National Government in respect of the
  fiscal year; and

  (b) separate appropriations for the service of that year in
  respect of–

  (i) the services of the Parliament; and

  (ii) general public services; and

  (i) the services of the Judiciary; and

  such other supplementary Budgets and appropriations as are
  necessary.

  (2A) For the purposes of this Subdivision–
  (a) ―the services of the Parliament‖ include the salaries and
  allowances (financial
  and otherwise) of the Members of Parliament, the maintenance
  of the precincts
  of the Parliament, and the Parliamentary Service established
  under the

• Page 465 of 475

• Parliamentary Service Act 1995; and

  (b) ―the services of the Judiciary‖ include–

  (i) the salaries and allowances (financial and otherwise) of
  Judges of the
  Supreme and National Courts; and

  (ii) the maintenance of the Supreme and National courts; and

  Appendix – Relevant Laws Page 233

  (iii) the National Judicial Staff Service established under
  the National
  Judicial Staff Service Act 1987; and

  (iv) the salaries and allowances (financial and otherwise) of
  all persons
  appointed under the Supreme Court Act 1975, the National
  Court Act
  1975 and the Sheriff Act 1973.

  (2B) For the purposes of Subsection (2)(b)(i) and (iii), the Speaker
  of the Parliament and
  the Chief Justice respectively shall, before 30 September each
  year, submit to the
  Prime Minister estimates of expenditure for the services of the
  Parliament and the
  services of the Judiciary respectively in the following fiscal
  year.

  (3) Before any Budget or appropriation is prepared for submission to
  the Parliament, the
  NEC shall consult with any appropriate Permanent Parliamentary
  Committee, but
  this subsection does not confer any right or impose any duty of
  consultation after the
  initial stages of the preparation of the Budget or appropriation.

  Sections 211 and 212 of the Constitution sets out the accounting
  requirements of public
  moneys.

  211. Accounting, etc., for public moneys.

  (1) All moneys of or under the control of the National Government
  for public expenditure
  and the Parliament and the Judiciary for their respective
  services, shall be dealt with
  and properly accounted for in accordance with law.

  (2) No moneys of or under the control of the National Government for

• Page 466 of 475

• public expenditure
  or the Parliament and the Judiciary for their respective
  services, shall be expended
  except as provided by this Constitution or by or under an Act of
  the Parliament.

  212. Revenue and expenditure without prior approval.

  (1) If at the beginning of a fiscal year the Parliament has not made
  provision for public
  expenditure by the National Executive or expenditure by the
  Parliament or the
  Judiciary for their respective services for that year, the
  National Executive, the
  Parliament or the Judiciary, as the case maybe, may, without
  authorization other than
  this section but in accordance with an Act of the Parliament,
  expend amounts
  appropriated out of the Consolidated Revenue Fund for the purpose
  not exceeding in
  total one-third of its respective budgeted expenditure during the
  immediately
  preceding fiscal year.

  (2) The authority conferred by Subsection (1) lapses when the
  Parliament has made
  provision for the public expenditure for the fiscal year in
  question, and any amounts
  expended by virtue of that subsection are a charge against the
  expenditure so
  provided for and shall be properly brought to account
  accordingly.

  Sections 217, 218 and 219 of the Constitution established that
  Ombudsman Commission sets
  out its purpose and functions.

  Appendix – Relevant Laws Page 234

  217 The Ombudsman Commission

  (1) There shall be an Ombudsman Commission, consisting of a Chief
  Ombudsman and
  two Ombudsmen.

  (5) In the performance of its functions under Section 219 (functions
  of the Commission)
  the Commission is not subject to direction or control by any
  person or authority.

  (6) The proceedings of the Commission are not subject to review in

• Page 467 of 475

• any way, except by
  the Supreme Court or the National Court on the ground that it has
  exceeded its
  jurisdiction.

  (7) An Organic Law shall make further provision in respect of the
  appointment, powers,
  procedures and immunity of the Commission.

  (8) In this section ―conduct‖ includes–

  (a) any action or inaction relating to a matter of
  administration; and

  (b) any alleged action or inaction relating to a matter of
  administration.

  218 Purpose of the Commission

  The purposes of the establishment of the Ombudsman Commission are—

  (a) to ensure that all governmental bodies are responsive to the
  needs and
  aspirations of the People; and

  (b) to help in the improvement of the work of governmental
  bodies and the
  elimination of unfairness and discrimination by them; and

  (c) to help in the elimination of unfair or otherwise defective
  legislation and
  practices affecting or administered by governmental bodies.

  219 Functions of the Commission

  (1) Subject to this section and to any Organic Law made for the
  purposes of
  Subsection (7), the functions of the Ombudsman Commission are—

  (a) to investigate, on its own initiative or on complaint by a
  person affected,
  any conduct on the part of—

  (i) any State Service or provincial service, or a member of
  any such
  service; or

  (ii) any other governmental body, or an officer or employee of
  a
  governmental body.

  (2) Subject to Subsections (3), (4) and (5), and without otherwise
  limiting the generality
  of the expression, for the purposes of Subsection (1)(a) conduct

• Page 468 of 475

• is wrong if it is–

  Appendix – Relevant Laws Page 235

  (a) contrary to law; or

  (b) unreasonable, unjust, oppressive or improperly
  discriminatory, whether or not
  it is in accordance with law or practice; or

  (c) based wholly or partly on improper motives, irrelevant
  grounds or irrelevant
  considerations; or

  (d) based wholly or partly on a mistake of law or of fact; or

  (e) conduct for which reasons should be given but were not,

  Section 255 of the Constitution sets the procedures that lead to the
  proper decision making.

  255. Consultation

  In principle, where a law provides for consultation between persons
  or bodies, or
  persons and bodies, the consultation must be meaningful and allow
  for a genuine
  interchange and consideration of views.

  [7.1.2] ORGANIC LAW ON THE OMBUDSMAN COMMISSION

  13. Functions of the Commission

  For the purposes of Section 219(1)(a) (functions of the Commission)
  of the Constitution the
  functions of the Commission, in addition to the functions specified
  in Section 219(1)(b), (c),
  (d) and (e) (functions of the Commission) of the Constitution, are
  to investigate, on its own
  initiative or on complaint by a person affected, any conduct on the
  part of–

  (a) any State Service or a member of any State Service; or

  (b) any governmental body, or an officer or employee of a
  governmental body; or

  (c) any other service or body referred to in Section 219(a)
  (functions of the
  Commission) of the Constitution that the Head of State, acting
  with, and in
  accordance with, the advice of the NEC, by notice in the
  National Gazette,

• Page 469 of 475

• declares to be a service or body for the purposes of this
  section.

  17. Proceedings of the Commission

  (1) Before investigating any matter within its jurisdiction, the
  Commission shall inform
  the responsible person of its intention to make the
  investigation.

  (4) Nothing in this Law compels the Commission to hold any hearing
  and no person is
  entitled as of right to be heard by the Commission except that—

  (a) where a report of the Commission may affect a State Service,
  provincial
  government body or statutory body, the Commission shall
  provide
  reasonable opportunity for the Permanent Head of that service
  or the
  statutory head of that body, as the case may be, to comment on
  the
  subject of the investigation; and

  Appendix – Relevant Laws Page 236

  (b) the Commission shall not make any comment in its report that
  is adverse
  to or derogatory of any person without—

  (i) providing him with reasonable opportunity of being heard;
  and

  (ii) fairly setting out his defence in its report.

  18. Evidence

  (1) Subject to the provisions of this section and of Section 20, the
  Commission may from
  time to time require any person who in its opinion is able to
  give any information
  relating to any matter that is being investigated by the
  Commission to furnish to it
  that information and to produce any documents, papers or things
  that, in the opinion
  of the Commission, relate to any matter being investigated by it
  and that may be in the
  possession or control of that person.

  (3) The Commission may, by instrument in writing, summon any person
  who in its opinion
  is able to give any information relating to any matter that is
  being investigated by the

• Page 470 of 475

• Commission, to attend the Commission at a time and place
  specified in the summons
  for examination by it on oath or affirmation.

  21. Preservation of secrecy

  (1) The Commission may direct that any evidence given before it, or
  any document, paper
  or thing produced to it, be not published.

  [7.1.3] ATTORNEY-GENERAL ACT 1989

  The Attorney-General Act 1989 is an Act of Parliament that outlines
  the roles and functions of
  the Attorney-General.

  8. Legal advice and opinion

  (4) On matters affecting the conduct of the business of the State
  where legal issues
  arise or might arise, legal advice shall be provided by the
  Attorney-General, either
  in his capacity as principal legal adviser to the National
  Executive or under
  Subsection (2) or (3) to the exclusion of all other lawyers
  unless the Attorney-
  General, in his absolute discretion, authorizes the giving of
  legal advice by any
  other person.

  [7.1.4] CENTRAL BANKING ACT 2000

  The Central Banking Act 2000 is an Act of Parliament that promotes
  the implementation
  of monetary policy and financial regulation and prudent standards to
  ensure stability of
  the financial system in the country.

  7. Objectives of the Central Bank

  For the advantage of the people of Papua New Guinea, the objectives
  of the Central Bank
  are:

  Appendix – Relevant Laws Page 237

  (a) to formulate and implement monetary policy with a view to
  achieving and
  maintaining price stability; and

  (b) to formulate financial regulation and prudential standards
  to ensure stability of

• Page 471 of 475

• the financial system in Papua New Guinea; and

  (c) to promote an efficient national and international payments
  system; and

  (d) subject to the above, to promote macro-economic stability
  and economic
  growth in Papua New Guinea.

  8. Functions of the Central Bank

  (1) In pursuance of its objectives the Central Bank may:

  (a) issue currency; and

  (b) act as banker and financial agent to the Government; and

  (c) regulate banking, credit and other financial services as
  empowered by this Act
  or by any other law of the Independent State of Papua New
  Guinea; and

  (d) manage the gold, foreign exchange and other international
  reserves of Papua
  New Guinea; and

  (e) perform any function conferred on it by or under any
  international agreement
  to which Papua New Guinea is a party; and

  (f) perform any other function conferred on it by or under any
  other law of Papua
  New Guinea.

  (2) The Central Bank shall advise the Minister as soon as
  practicable where it considers
  that a body regulated by the Central Bank is in financial
  difficulty.

  [7.1.5] LOANS (OVERSEAS BORROWING) ACT (CHAPTER 133)

  The Loans (Overseas Borrowing) Act (Chapter 133) is an Act of
  Parliament that promotes the
  economic and financial transparency and accountability in the
  interest of a stable
  macroeconomic environment.

  2. General Borrowing Powers.

  (1) The Head of State, acting on advice, may, on behalf of the
  State, borrow from or
  through overseas financial institutions, in such manner and on
  such terms and
  conditions as are agreed on by the Head of State, acting on

• Page 472 of 475

• advice, and the
  institutions, sums not exceeding in total the sum of
  K65,000,000.00 or the equivalent
  in other currencies, for the purposes of–
  (a) meeting the expenses of borrowing; and

  (b) works and services of the Government; and

  Appendix – Relevant Laws Page 238

  (c) making loans to–

  (i) the Papua New Guinea Harbours Board for the purposes of
  the
  Board;

  (ii) the National Housing Corporation for the purposes of
  the
  Corporation; or

  (iii) the Rural Development Bank of Papua New Guinea for
  the
  purposes of the Bank; or

  (iv) the Investment Corporation of Papua New Guinea for the
  purposes
  of the Corporation.

  (2) Any sum borrowed under Subsection (1) shall be applied only in
  accordance with the
  loan agreement with such modifications (if any) as are agreed on
  by the Head of State,
  acting on advice, and the institution concerned.

  (3) A loan agreement shall be made in the name of the State and be
  executed on behalf of
  the State by the Minister or a person authorized by the Minister
  for the purpose.

  (4) As soon as practicable after the execution of a loan agreement,
  the Minister shall cause
  a copy of the agreement to be laid before the Parliament for its
  information.

  (5) Nothing in this section or in a loan agreement constitutes an
  appropriation of the
  proceeds of a loan.

  3. Issue of Instruments (Including Bonds) Under Loan Agreements.

  (1) Notwithstanding anything in any other law, the Head of State,
  acting on advice, may,
  on behalf of the State, issue such bonds, promissory notes and

• Page 473 of 475

• other instruments, and
  on such terms and conditions, as are necessary or convenient for
  the purpose of giving
  effect to the terms of a loan agreement.

  (2) A bond, promissory note or instrument issued under Subsection
  (1) shall be executed
  on behalf of the State by the Minister or a person authorized by
  the Minister for the
  purpose.

  4. Moneys For Repayment of Loans.

  All payments of principal and interest and other charges payable
  under a loan agreement
  shall be made out of the Consolidated Revenue Fund.

  1. Effect of Agreements.

  A loan agreement entered into under this Act has the force of law as
  if contained in this Act,
  and applies notwithstanding anything in any other law.
  6. Exemptions From Taxation, etc.

  Appendix – Relevant Laws Page 239

  Notwithstanding anything in any other law, where a loan agreement
  provides that any
  person, income, matter or thing shall be exempt, wholly or partly,
  and absolutely or
  conditionally, from any rate, charge, tax, duty, levy, fee or
  imposition under any law, the
  person, income, matter or thing is exempt accordingly.

  7. Operation of Certain Acts.

  (1) Subject to Subsection (2), nothing in the Loans Securities Act
  1960 applies to or
  affects this Act or any agreement entered into under this Act.

  (2) Part VI of the Loans Securities Act 1960 applies to and in
  relation to all sums
  borrowed under this Act.

  (3) Nothing in the Public Finances (Management)Act 1995 applies to
  or in respect of a
  loan agreement made under this Act.

  (4) Nothing in this Act affects the operation of the Loans and
  Assistance (International
  Agencies) Act1971.

• Page 474 of 475

• 8. Regulations.

  The Head of State, acting on advice, may make regulations, not
  inconsistent with this Act,
  prescribing all matters that are necessary or convenient to be
  prescribed for carrying out or
  giving effect to this Act.

  [7.1.6] LOANS (OVERSEAS BORROWINGS) (No.2) ACT (CHAPTER 133A)

  2. General Borrowing Powers.

  (1) The Head of State, acting on advice, may, on behalf of the
  State, borrow from or
  through overseas financial institutions, in such manner and on
  such terms and
  conditions as are agreed on by the Head of State, acting on
  advice, and the
  institutions, sums not exceeding in total the sum of
  K65,000,000.00 or the equivalent
  in other currencies, for the purposes of–
  (a) meeting the expenses of borrowing; and

  (b) works and services of the Government; and

  (c) making loans to–

  (i) the Papua New Guinea Harbours Board for the purposes of
  the Board;

  (ii) the National Housing Corporation for the purposes of the
  Corporation;
  or

  (i) the Rural Development Bank of Papua New Guinea for the
  purposes of
  the Bank; or

  (ii) the Investment Corporation of Papua New Guinea for the
  purposes of
  the Corporation.

  Appendix – Relevant Laws Page 240

  (iii) The Post and Telecommunication Corporation for the
  purposes of the
  Corporation; and

  (iv) Any other prescribed public authorities for prescribed
  purposes.

  (2) The Minister may, on behalf of the State, borrow from or through
  overseas financial

• Page 475 of 475

• institutions, in such manner and on such terms and conditions as
  are agreed by the
  Minister and the institutions, sums for the purpose of–
  (a) refinancing, swapping debt, substituting, replacing,
  rescheduling and
  prepaying the total or any portion of any debt owed by the
  State; or

  (b) bridge financing, provided such borrowing shall not remain
  outstanding for
  more than six months.

  (3) The sums which may be borrowed under Subsection (1) shall be
  such that the total
  value of overseas commercial debt which will be owed by the State
  after any
  borrowing shall not exceed 125% of the estimated internal revenue
  for the year in
  which the borrowing takes place except only as a result of any
  bridge financing and
  subject to Subsection 2(b).

  (4) For the purposes of Subsection (3)–
  ―ordinary revenue‖ includes revenue from taxes, levies, duties,
  fees, rents and royalties
  and also from profits and income from any investment or
  undertaking of the State, but
  does not include any loans, grants or other forms of external aid
  or any capital raised;
  ―overseas commercial debt‖ means sums owed by the State in respect
  of borrowings
  under–
  (a) Loans (Overseas Borrowings) Act 1973; and
  (b) this Act; and

  ―year in which the borrowing takes place‖ means the financial year
  in which the sums
  borrowed are received.

  (5) Any sum borrowed under Subsection (1) shall be applied only in
  accordance with the
  loan agreement, with such modifications (if any) as are agreed on
  by the Head of State,
  acting on advice, and the institution concerned.

  (6) Any sum borrowed under Subsection (2) shall be applied only in
  accordance with the
  loan agreement, with such modifications (if any) as are agreed on
  by the Minister and
  the institution concerned.

  (7) A loan agreement shall be made in the name of the State and be
  executed on behalf of
  the State by the Minister or a person authorized in writing by the