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The new Prime Minister of Papua New Guinea, James Marape, has rejected a push to have a senior Australian judge preside over an investigation into the UBS loan affair, raising concerns about its effectiveness.
Marape late last month announced a Commission of Inquiry into the $1.2 billion (US$836 million) borrowed by the Pacific nation from UBS, a move that could subject the Swiss bank's Sydney office and law firms Norton Rose and Ashurst to fresh scrutiny.
The terms of reference for the Commission of Inquiry, which has similar powers to a royal commission, have yet to be set. Nor has a presiding judge been named.
It is understood there was a push to have a senior Australian judge with experience in PNG appointed to oversee the inquiry, given the lack of resources in the local judiciary, and to signal the independence of the commission.
But sources have told The Australian Financial Review that this was explicitly rejected by Marape, who is leaning towards it being overseen by the PNG Supreme Court. Critics fear this would drag out the commission for years without any effective resolution.
In 2014 the Australian government allowed Justice Duncan Kerr to work on an international arbitration matter at the request of PNG. This was seen as the template for allowing a senior Australia judge to preside over the Commission of Inquiry.
The formation of the Commission of Inquiry follows the tabling last month in Parliament by the PNG Ombudsman of a report into the UBS loan, which found 15 laws may have been broken when former prime minister Peter O'Neill agreed to the deal.
It made two adverse findings against Marape, who was finance minister at the time.
Marape told Parliament if the Commission of Inquiry found he did anything wrong he would be the first to resign. He campaigned to oust O'Neill on a platform of anti-corruption.
The Ombudsman did not have the power to examine the role of UBS, legal firms Norton Rose and Ashurt or KPMG, which provided financial advice to the transaction.
The Ombudsman said the UBS loan should have been approved by Parliament and may also have breached PNG's responsible lending laws and its overseas borrowing provisions.
The money borrowed by PNG from UBS was used to buy a 10 per cent stake in the ASX-listed Oil Search. When the oil price fell, PNG was forced to sell the shares, booking a loss of around $420 million (US$292 million).
In a statement, UBS said the proposed Commission of Inquiry provided a "welcome opportunity" for a further, independent review of the investment.
UBS is thought to have made $120 million (US$83.3 million) in fees and interest income from the 2014 loan.
The former head of investment banking at UBS, Guy Fowler, could be called before the commission, as could the outgoing chief executive of Oil Search, Peter Botten.
Oil Search said it would "fully co-operate . . . and if called to give evidence would welcome the opportunity to formally state our position".
SOURCE: FINANCIAL REVIEW/PACNEWS
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