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The deal that nearly broke a nation

The architect John Amory-designed residence in Warrawee sold for $5.95 million
The architect John Amory-designed residence in Warrawee sold to Lynda Babao for K16 million


CANBERRA - In August 2020, the Australian media reported that former prime minister Peter O’Neill’s wife, Lynda Babao, had bought a $6 million (K16 million) house at Warrawee on Sydney’s upper north shore.

A few months before, another Sydney residence associated with the family had been quietly sold for $12.35 million (K33 million).

And three years earlier, in 2017, rumours had begun to circulate that O’Neill owned a plush $35 million (K93 million) house in the upmarket suburb of Point Piper, overlooking the world-famous Harbour Bridge and Opera House.

This property at 2/74 Wolseley road was reported to be occupied by O’Neill’s son, Brian.

A registry search identified the late Sir Theophilus George Constantinou as the landlord.

Sir Theo, as he was known in PNG, owned Rouna Quarries and Monier Cement and was a part-owner of the Airways Hotel and Hebou Construction.

Davis - Theo RIPHe died suddenly on 10 September 2019 at the relatively young age of 59.

Sir Theo had been buddies with O’Neill long before he became prime minister in August 2011.

When O’Neill was re-elected in 2012, Hebou Construction was awarded major road infrastructure contracts in the National Capital District.

Other construction companies - Global, China Chiangzu International, China Harbor, Dekenai and Phoenix Builders - awarded road and building contracts were told to buy their cement from Monier.

Meanwhile in the Bacchus Bar in the Airways Hotel, many discussions involving the government and private sector entities took place over bottles of beer, cognac, whisky and red wine.

It was not unusual to see top political figures, senior public servants and business executives guided to the private dining room and to emerge much later at three in the morning staggering from the bar.

Over time the O’Neill-Sir Theo partnership blossomed into much bigger deals in PNG and offshore.

Late in his prime ministership, around 2017-18, O’Neill sold three companies - Carson Pratt, Southwest Air and Insurance Partners – to Sir Theo for well over K85 million through an entity called Laraguma Ltd.

O’Neill, who is said to have a healthy ego, leads a multifaceted and complicated life.

There seems little doubt that politics, government and private business and personal and public finance all featured in the O’Neill-Sir Theo friendship.

Insiders who know O’Neill well say he is a consummate capitalist first and a politician second.

They believe politics was just a stepping stone in the pursuit of power and wealth.

It is said there has never been Pacific political leader who has wielded more power than O’Neill over public and private sectors.

O’Neill conducted his private business with preferred foreign and PNG partners who were consistently awarded infrastructure, medical, educational material and other contracts.

He was known and admired for his personal attention to and intervention in business matters.

He also took control of major national government decisions, which tended to suffocate Cabinet rule, bypass ministers and personally direct departmental heads and CEOs of state-owned enterprises.

A dramatic case in point was the stunning, and ultimately disastrous, decision of March 2014 to borrow $A1.24 billion (K3.27 billion) from the UBS Bank of Switzerland.

The funds were used to give the PNG government a 10.1% stake in Oil Search.

O’Neill and Treasury Secretary Dairi Vele hyped the deal to Cabinet but, by the end of 2014 just as LNG started flowing in PNG, oil prices tumbled by nearly 60%.

This hit Oil Search shares and less than three years later they had dropped by a staggering 35%.

The PNG government’s K3.2 billion investment was now valued at K2.1 billion.

Struggling to finance the debt, the government was forced to sell the shares at a loss of K1 billion.

A consequent Ombudsman Commission report in 2019 revealed that 15 laws - including the PNG Constitution – had been breached by the investment that had become a financial calamity for the country.

The report found that O’Neill’s conduct as prime minister was wrong and improper because he had committed PNG to purchase the Oil Search shares without Cabinet approval, failed to present the UBS loan proposal to Parliament for approval, and misled Cabinet.

The Ombudsman also made damaging findings of ‘wrong and improper conduct’ against prominent citizens Ben Micah, Isaac Lupari, Dairi Vele, Philip Eludeme, Loi Bakani, Ken Ngangan, Carl Okuk and James Marape, who by this time was prime minister.

The scandal was too big to brush away and in June 2019 Marape announced there would be a Royal Commission to thoroughly investigate the deal.

As the Commission proceeded, O’Neill’s personal involvement in promoting the loan to acquire shares in Oil Search further unravelled.

The lawyer assisting the Commission, Dr James Renwick, said O’Neill was the driving force behind the deal with UBS to the "exclusion of all other ministers".

Former Treasurer Patrick Pruaitch said PNG had been left with a debt burden of K3.2 billion and losses of K1.5 billion.

Moreover, UBS, Oil Search, Pacific LNG and other entities involved in the deal were seen to have considerably benefited but the people of PNG lost out big time.

UBS alone made K620 million which an expert witness told the Royal Commission included K285 million in excessive profits which should be repaid.

Renwick also said the investigation into the deal was being hampered by limited cooperation from UBS and law firm Norton Rose Fulbright Australia, which had advised the PNG government.

The UBS loan and Oil Search investment, which O’Neill had rashly pushed through, turned out to be a disaster.

It was yet another example of what occurs when politicians pay too little attention to the people’s interests.

The Royal Commission is expected to present its report on Tuesday 5 April, after being granted an extension prior to Christmas.

The report may yield answers that could result in prosecutions and it is likely to pose even more questions about where the millions of kina went, who got it and about the legitimacy of these transactions.

Sir Theo Constantinou
Sir Theo Constantinou - the great business and personal friend of Peter O'Neill  died an untimely death at 57

It is a right of PNG citizens to know how the loan funds and associated fees were spent - K1.5 billion is a lot of money in any jurisdiction and especially in a country whose basic infrastructure is falling apart and where too many people live in poverty without basic health and other services.

There are many other rumours about the deal; many murky relationships; many allegations of possible impropriety.

O’Neill is said to brag to close friends about the properties he owns in Ottawa, New York, Singapore and Sydney.

People question whether the funds that supported these purchases were obtained legitimately or at the expense of the PNG people.

It is not possible for the average Papua New Guinean business person, nor the average Papua New Guinean prime minister, to accumulate great wealth through the conduct of normal business in PNG.

Perhaps the forthcoming report of the Royal Commission, a Leadership Tribunal, further court action and Interpol will assist the people of PNG to better understand these matters.

O’Neill remains in parliament, elections come up in June, official reports are emerging and interesting times lie ahead.

His once formidable People’s National Congress party, dominant when O’Neill was re-elected prime minister in 2017, is much diminished in size since James Marape succeeded in removing him in a vote of no confidence in 2019.

Marape’s Pangu Pati has 32 MPs in the 111 seat parliament, while PNC is the second largest with 12 and deputy prime minister Sam Basil’s United Labour Party has nine.

But the numbers in the House of Assembly are always very fluid and a comeback for O’Neill, unless he is barred from standing, is not out of the question.

Peter O'Neill and Lynda Babao at an APEC gala dinner in 2013 (WSJ)
Happier days. Peter O'Neill and Lynda Babao at an APEC gala dinner in 2013 (WSJ)

On Christmas Eve 2017 a party was held at the Point Piper mansion in Sydney.

Champagne and wine flowed in honour of Sir Theo and O’Neill. Smartly attired waiters provided delicate canapés and more substantial cocktail delicacies. It was a celebration of great power and great success.

But now the Point Piper mansion has been sold, Sir Theo Constantinou is dead, and Peter O’Neill could have some challenging legal battles ahead of him as well as an unpredictable election in which customarily half the candidates lose their seats.

The scheduled release of the report of the UBS Royal Commission on 5 April may point the way forward to a greater understanding of the roles played by various individuals and entities, who were the winners and who were the losers in the many murky dealings and money flows behind the UBS deal.


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Raphael Dau

Interesting read, all of it.

Ron Knight

Lots of infrastructure projects for Port Moresby, National Capital District and his mates. All inflated well above actual costs. Mostly covered by China-owned companies.

PNG was shocked awake when Premier Xi Jinping visited and we saw two walls of red-shirted Chinese citizens on either side of the road to nowhere!

Albert Schram

What is most amazing is how many people still believe Peter O'Neill’s regime was great and that he was the Pacific Adam Smith for the economy.

Of course, all those he appointed to state institutions, including universities, are still there.

Dino Naing

The PNG Ombudsman’s report in 2019 revealed 15 laws, including the PNG Constitution, had been breached.

It found that Peter O’Neill as prime minister purchased Oil Search Ltd shares without Cabinet approval, failed to present the UBS loan proposal to Parliament for approval and misled Cabinet.

Joseph Kanene·

I hate feeling like a third class citizen in my own country. It's hard to dream here.

Everyone knows but we can’t do anything about it. If he spent K96 million on a single haus, what chance do we have? This isn't a defeatism, it's just reality. It's hard to dream.

Adam Dennis

A good nuanced article. “Australia continues the 99-year lease over the Port of Darwin granted to Chinese company Shandong Landbridge by then trade minister Andrew Robb in 2015. The day after he left parliament in 2016 Robb took an $880K a year job as a consultant for Landbridge.”

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