OTTAWA — Prime Minister Stephen Harper is expected to establish a limited public inquiry into the Mulroney-Schreiber saga after receiving a report from an independent third party, CTV News has learned.

Sources say independent adviser David Johnston recommended to the prime minister that the government set up a narrow inquiry into Brian Mulroney's business dealings with former arms dealer Karlheinz Schreiber.

He proposed the inquiry focus on whether Mulroney acted improperly in 1993 when he accepted cash payments from Schreiber to lobby on his behalf to promote a German-built military vehicle.

Johnson rejected a full-scale inquiry that would re-examine allegations of possible kickbacks in the 1988 sale of Airbus jets to Air Canada, arguing the matter has already been thoroughly investigated by the RCMP.

However sources, with the knowledge of the independent adviser's report, said the University of Waterloo president was not as clear cut as he could have been in his recommendations for a public inquiry.

For example, Johnston proposed the public inquiry need not be established until after the Commons Ethics committee completes its investigation into the Mulroney-Schreiber affair.

Johnston also left open the door for the prime minister to avoid setting up a public inquiry if he is satisfied with the work of the Commons committee, according to sources.

But a senior insider said Harper has no choice but to immediately set up a public inquiry, otherwise the "opposition will scratch out our eyes."

Johnston handed in his report to Harper on Wednesday and the prime minister indicated it would be released within days.

"I have not had an opportunity to read it. I anticipate doing that very quickly and as I indicated all along we will respond along the lines Prof. Johnston has recommended," Harper told reporters in New Brunswick.

"That was the purpose of establishing the independent adviser and I would anticipate we will release and give our response no later than Monday."

Insiders say Johnston proposed the mandate of the public inquiry should focus on what transpired after a June 23, 1993 meeting between Schreiber and Mulroney at the prime minister's official summer residence at Harrington Lake, Que.

The meeting was held two days before Mulroney stepped down as prime minister.

Schreiber claims Mulroney agreed at the Harrington Lake meeting to help lobby the Kim Campbell government to support Schreiber's plan to set up a light-armored vehicle plant in Cape Breton.

Schreiber claims he later gave Mulroney $300,000 in cash payments for his lobbying activities, including $100,000 in August, 1993 when Mulroney was still a Member of Parliament. He alleges Mulroney did not do any work for the money.

Mulroney has testified he was only paid $225,000 in cash and maintains he did legitimate work for Schreiber, including lobbying world leaders to buy the armored vehicles for UN peacekeeping missions.

Mulroney has admitted he did not pay tax on the $225,000 until 1999 when he learned Schreiber had been charged in Germany for bribery, fraud, forgery and tax evasion. The former prime minister has apologized for accepting cash payments, saying it was a "serious error in judgment."

Based on previous public inquiries, the Mulroney-Schreiber probe could cost taxpayers tens of millions of dollars.

The opposition parties have said Johnston's mandate as a special advisor did not give him the option of rejecting a public inquiry.