Peter O’Neill says he plans to fight allegations of misappropriation and corruption in court, saying the claims are baseless.
The former PNG prime minister was arrested upon his return to Port Moresby on Saturday, after being stranded in Brisbane due to COVID-19 restrictions.
Police detained Mr O'Neill for questioning, saying they had "reasonable evidence for misappropriation, abuse of office and official corruption".
The Assistant Commissioner of Crimes, Hodges Ette, said the allegations against Mr O'Neill include that he "directed the National Executive Council to convene and approved the payment of 50 million kina (A$21.92 million) for the generators after the purchase was made".
News that makes sense
Your trusted source for staying up-to-date with the world around you. Get free daily news updates and analysis, straight to your inbox.
The allegations relate to a 2013 purchase of two 15-megawatt generators from an Israeli company, LR Group.
Mr O'Neill said he disputes the claim that the transaction did not follow the correct tendering and procurement procedures.
Mr O'Neill gave SBS News documents he says show that he had parliamentary approval and that current Prime Minister James Marape signed off on the deal at the time in his capacity as Finance Minister.
"This course of police action is highly unusual, and it is the first time ever in Papua New Guinea for an NEC [National Executive Council] and Parliament-approved project to be used in this manner," he said.
One of the legal documents supplied shows Mr Marape's signature authorising the state-owned PNG Power Ltd to enter into a contract with LR Group Ltd - and bypass the standard procurement procedure.
Mr O'Neill stressed that no-one is accusing him of profiting personally and said "shadowy political figures" are behind his arrest.
"We all know that this highly politicised case has been influenced and pushed by dark and shadowy figures behind the scenes wanting to force an arrest," he said.
"If police are truly independent, they should also charge Marape for not following process."
Prime Minister Marape said he would co-operate with any police enquiries, adding that his signature as Finance Minister was done as "amongst the last in the chain of the approval process".
"Finance Ministers signs [sic] Section 46(b) of the IPBC [Independent Public Business Corporation] Act and Section 61 of the PFM [Public Financial Management] Act based on requests from State Agencies including SOEs are always amongst the last in the chain of the approval process".
He said due legal process should be afforded to Mr O'Neill.
"Let's respect him and the police involved, the Leader is innocent until found guilty so let's be respectful and refrain from public commentary."
Mr O'Neill was released on bail after police questioning, and is currently undergoing a 14-day quarantine period in his home in compliance with COVID-19 regulations.
After seven years in the role, Mr O'Neill resigned as the country's prime minister in 2019, following a series of resignations from members of his government.
Police withdrew a warrant to arrest Mr O'Neill on corruption allegations in October last year, after he successfully challenged it in the courts.
