By David Ritter
Controversial global consultancy McKinsey & Company has been unceremoniously dumped from giving advice on how to reduce emissions from rainforests in Papua New Guinea, reports Crikey.
It’s not surprising. As every good conjuror knows, the appeal of an act lies in both the attractiveness of the illusion and the secrecy surrounding how the trick is executed. But if the performance fails or the secret is revealed then the magician might need a new career.
For McKinsey (aka The Firm) those conjuring consultants who boast (“abracadabra!”) that never before has anyone had such problem solving powers, it has been a pretty bad year for tricks being discovered.
Earlier this year Crikey covered the fiasco of McKinsey’s international advice on rainforest preservation, pilloried in analysis undertaken by Greenpeace and the Rainforest Foundation respectively. The environmental critique of McKinsey’s rainforest work has now gone without significant substantive response for many months, despite numerous others including rival consultancies and a senior official at the World Bank giving support to the criticisms.
And now it seems McKinsey has been given its marching orders from advising on reducing carbon emissions from deforestation in PNG. According to an anonymous well-placed source inside the PNG government:
“The McKinsey consultants are no longer working on reducing emissions from deforestation in Papua New Guinea. The last time I saw a McKinsey consultant at the Ministry was in September this year. To be honest, we’re relieved that they are gone, now our own national experts can take up a leading role again.
“It was very confusing when they were here. We were not sure what they were engaged to do. The terms of reference for the consultancy contract were not available to us, and they stepped over into other peoples’ roles. They had close contacts with the old government.
“They were good at presenting their results, but a lot of what they did was copied and pasted from the information we provided them. The cost-curves they provided us were exaggerated and many of the studies used were outdated.
“They left because of the new government that has come in PNG, but also due to NGO campaigning, although we joke that the real reason is that we can no longer afford their bills!”
The government official was corroborated by a second source from civil society in PNG who said:
“The Greenpeace report on McKinsey, and an earlier one by Rainforest Foundation, made us ask a lot of questions about what these guys were doing in our country. ‘What are they here to do? How much are they being paid? How much are our local people paid? What about our national experts?’ These are the questions we were asking. These reports had some impact. McKinsey are a very respected company and before no one could shake them, but these reports shook them. It gave national NGOs a platform to lobby on, and when the new government came in the lobbying paid off.”
Neither source was prepared to be named.
But McKinsey’s annus horribilis has not been confined to rainforest policy. In June, following a journalistic campaign conducted by no less than Paul Krugman, McKinsey was forced to reveal the methods behind what the Nobel laureate clearly considered to be some pretty dodgy work in a report on US health policy. According to Senator Max Baucus, chairman of the US Senate Finance Committee, the McKinsey report was:
“… filled with cherry-picked facts and slanted questions … It did not provide employers with enough information for them to make honest choices and fair evaluations. Rather than correct the major deficiencies in their report, McKinsey has chosen to again stand by their faulty analysis and misguided conclusions.”
McKinsey’s participation in health reform in Britain has also been controversial, with a conflict of interest row erupting after it emerged that The Firm was not only advising the government on reforms to the NHS but also those who would financially expect to benefit financially from the changes. Typically, McKinsey has declined to comment.
But without doubt the most damaging revelation of all has been the insider trading scandal centring on Rajat Gupta, who ran McKinsey from 1994 to 2003 and remained a senior partner until 2007, and another ex-McKinsey partner, Anil Kumar. The fall-out worsened in October when Gupta was charged with five counts of securities fraud and one count of conspiracy to commit securities fraud before a Manhattan court. The current McKinsey chief Dominic Barton has conceded the case is “incredibly distressing and embarrassing” for The Firm.
All of these fiascos are bringing McKinsey unwanted attention. On Saturday an extensive feature in London’s Financial Times was obviously sympathetic to McKinsey (drawing fascinating and derisory assertions about the paper’s partiality in the open comments section) but still highlighted The Firm’s eye-watering charge-out rates, cultish mentality and obsessive secrecy arrangements.
So what happens to the business model of the conjuring consultants when the tricks get found out? When it comes to McKinsey’s advice on reducing emissions from deforestation, the government of PNG has given a clear answer. It now remains to be seen whether other key rainforest nations — including Indonesia — follow suit.
By Kolopu Waima
Papua New Guinea’s new government will replace the Ambassador for Climate Change, Kevin Conrad, who has been representing Papua New Guinea but lives in New York in the United States of America.
Deputy Prime Minister Belden Namah announced this at the official handover ceremony for the Ministry of Environment and Conservation at the Holiday Inn in Port Moresby yesterday. Mr Namah said that it is no good for someone who has few or no knowledge about the culture, tradition and lifestyle of the people and cannot understand and solve landowner issues in the country to represent Papua New Guinea.
“I want the office of climate change to be restructured and there will be no ambassador living overseas, I want to replace the ambassador for climate change Kevin Conrad, the office must be here and the ambassador must live in PNG, not in overseas. Let some of our own men who know landowner issues very well take on the responsibility so that they can address the issues easily, we want change and have PNG on the safe side, the old regime is gone and this is a new regime”
Mr Namah, who is also the Deputy Prime Minister and Minister for Forest, thanked former Prime Minister Sir Michael Somare for getting political independence but said his government will bring economic independence.
The Papua New Guinea government’s expensive climate advisor McKinsey & Co is taking a lot of criticism internationally for its defective advice…
By David Ritter*
There may be no honour among thieves, but things can be pretty fierce among consultants too. The credibility and credentials of global consultancy giant McKinsey&Co (known to its staff as ‘The Firm’) have been taking a battering lately and it has not taken long for competitors to sniff the opportunity.
McKinsey has been the leading provider of advice on how to reduce carbon emissions from deforestation and degradation of forests (REDD), retained to advise on national plans for Indonesia, Papua New Guinea and the Democratic Republic of Congo among others.
But The Firm’s dominance of the REDD advice market has recently been rocked by serious allegations from Greenpeace and the Rainforest Foundation. According to the two leading environmental organisations, McKinsey influenced REDD plans for rainforest nations are fundamentally defective and could actually lead to significantly increased deforestation, as well as biodiversity loss and mass human rights violations.
So far McKinsey’s public response has been subdued. But things are getting harder for The Firm, with major commercial rivals publically distancing themselves from McKinsey’s controversial approach.
This fortnight has marked the resumption of the United Nations’ climate negotiations in Bonn, and with the urgency of reducing emissions from deforestation high on the agenda, the suite of allegations about McKinsey was sure to be of interest in the corridors.
Your correspondent was in Bonn to join a panel at an official side event covering the McKinsey controversy. Also part of the discussion was Richard Gledhill from PriceWaterhouseCoopers (PWC) in London.
Naturally, the immaculately courteous Mr Gledhill did not comment on McKinsey directly, but in a report recently provided to the UK Government (which along with Australia, Norway and other is among the key donor nations to the emerging international REDD scheme) PWC have already warned against heavy reliance on ‘external consultancy support’. It is hard not to read these words as a thinly veiled reference to the ubiquitous McKinsey.
Even more significantly, the PWC report repeatedly emphasises the need for safeguards on biodiversity and the rights of forest peoples – marking a striking contrast with the problems associated with the McKinsey influenced plans reviewed by Greenpeace and the Rainforest Foundation.
Speaking in Bonn, Gledhill was at times quite blunt. He warned, for example, that without sufficient community and civil society involvement plans to reduce emissions from deforestation simply ‘ain’t gonna work’.
Gledhill’s observations were supported by the comments of another speaker, Dr Justin Ondopa, Director of Climate Change at Ecoforestry Forum in Papua New Guinea who warned that in his country the rights of traditional land holders were being ignored in the development of the McKinsey influenced national REDD plan. These comments come in the same week that the whistle blower website PNG Exposed released details of monies being paid by the Papuan Government to McKinsey. Intriguingly, the website also reports that ‘McKinsey and Co have refused to comply with PNG laws and register with the Investment Promotion Authority and Internal Revenue Commission’.
PWC’s explicit recognition of the need for proper safeguards on biodiversity and the rights of forest peoples for proper engagement is in welcome and stark distinction to the problems associated with the McKinsey influenced plans reviewed by Greenpeace and the Rainforest Foundation.
Not that one should get dewy-eyed about PWC: like any big business consultancy, the bottom line is always going to remain the bottom line. But it seems apparent that PWC have recognised the fundamental methodological failings in the McKinsey influenced plans and see commercial prospects in their rival’s shortcomings.
What makes this doubly commercially dangerous for McKinsey is that the Firm’s advice is known to have influenced a number of national plans for reducing deforestation which have then in turn been criticized by multilateral funding institutions (as set out here). The clear implication is that when rainforest countries employ McKinsey to advise on their REDD prospects they may be at risk of their wasting money on a product that is unfit for purpose.
No wonder PWC can sense the opportunity.
*Spotted on Crikey
Documents obtained exclusively by PNG Exposed show the Papua New Guinea government paid almost US$ 500,000 (PGK 1.37 million) to international consultancy firm McKinsey & Co in September 2010 for 10 weeks work assisting with the development of PNG’s ‘Climate Compatible Development Strategy’.
Download the documents here – pdf file is 4.8mb
These monies were in addition to the US$2.2 million PNG Exposed revealed last year was paid to McKinsey to prepare a draft ‘National REDD and Climate Change Plan’ ahead of the United Nations climate conference in Copenhagen in December 2009.
The new documents show that on 27 Sept 2010 US$491,678 (PGK1,373,405) was transferred to McKinsey & Co bank account in Singapore on the orders of the Department of Environment and Conservation.
This transfer appears to have been in settlement of an invoice submitted by McKinsey on July 39, 2010 in the sum of US$528,000. There is no explanation for the difference of $36,322 between the invoiced amount and the amount transferred.
The invoice describes the fee as being for ‘professional fees and out-of pocket expenses for Phase II (February to April 2010) in connection with PNG’s Climate Compatible Development Strategy’. In this period McKinsey drafted two documents for the PNG government, a Prelimary draft Climate-compatable development strategy for PNG (dated February 2010) and a further final Climate-compatible development strategy for PNG (dated March 2010).
US$500,000 for the development of a 44-page report works out at about $11,350 per page – not bad work if you can get it!
Interestingly the documents also reveal that McKinsey and Co have refused to comply with PNG laws and register with the Investment Promotion Authority and Internal Revenue Commission. In a confidential memo, dated February 10 2010, McKinsey say that in order to register it would need to provide a list of it shareholders and copies of audited accounts for the last three years. McKinsey says such information is considered to be ‘highly confidential’.
Since April 2010 McKinsey has done yet further climate related work for the PNG government. It has produced ‘A Fast Start REDD Partnership Proposal between PNG and Norway (dated May 2010) a summary of ‘PNG Fast Start Actions’ (dated July 2010) and an Interim Action Plan for Climate-Compatible Development (August 2010). It is not known, at this stage, how much the PNG government has paid for this further work.
As PNG Exposed pointed out last year, the PNG government, rather than developing its own indigenous, Papua New Guinean response to climate change, has been happy to pay for a team of foreign consultants to produce a plan offshore – just so the government has some glossy documents to parade on the international stage in the hope of duping the international community to channel billions of dollars into its coffers.
Of course the money the PNG government is spending on this costly exercise is money taken from the public purse – money that could have been spent on much needed health care or schools.
But the engagement of McKinsey fits well with PNGs whole climate change strategy which is being run off-shore by American consultant Kevin Conrad and his Italian colleague, Federica Bietta, with no accountability in Papua New Guinea or effective consultation with landholder, bureaucrats or politicians.
PNG’s whole climate change strategy has never been debated by PNG’s Parliament or disclosed to the PNG people.
Wari Iamo, Secretary of the Department of Conservation, has gone to the media peddling the story that he supports the government’s announced inquiry into Special Purpose Business and Agriculture leases, conveniently forgetting his own double role in facilitating the land grab.
Iamo says the government is worried because 65% of leases, which in total cover over 5.2 million hecatres of land, have been granted over the last two years and most are for 99 years. Iamo goes on to say that as acting Director of the Office of Climate Change he will be co-ordinating a whole-of-government full review of the leases.
Perhaps Wari hopes that he can take control of the review and somehow cover up the fact that his own Department of Environment and Conservation has granted Environmental Permits for many of the SABLs.
He will also be aware that as Chair of the National Forest Board he has overseen the granting of Forest Clearance Authorities (FCAs) that allow clear-felling of forests within the SABL areas – something that is not allowed under permits granted under normal forestry laws.
The SABLs have also caused a lot of embarrassment for the PNG government in international climate negotiations where Prime Minister Somare’s personal envoy, Kevin Conrad, has been peddling the notion that in return for protecting forests the government should be paid billions of dollars by foreign governments.
Acting Prime Minister, Sam Abal, announced last Thursday he will be setting up a Commission of Inquiry in the issue of SABLs. In the meantime, Abal also announced the suspension of the FCAs approved by Iamo.
Commissions are usually led by a judge with the assistance of two other judges, magistrates, or senior lawyers. Hopefully such an approach will prevent Wari Iamo escaping full scrutiny of his role in the SABL scandal.
Skeptics will however point out that the 2002 Ombudsman Commission inquiry into the illegal allocation of logging rights for the huge Kamula Doso concession to Rimbunan Hijau, recommended Wari be removed from the National Forest Board for his role in supporting the deal. That recommendation was never implemented.
Attention MR Kevin Conrad and Miss Frederlca Bietta
As the recognized representative of landowners (Incorporated Land Groups) in PNG, I correspond to you as their Power of Attorney, and as their Program Director for Voluntary Carbon Projects, which have been established to cease logging and therefore preserve the rain forests for generations to come.
While the stance in Bali taken by you some years ago against USA aggression did promote and prop you up for your CV, it appears that your UNFCCC REDD+ strategy is at the expense of the people and landowners of PNG. PNG people do not support any part of this strategy.
The people of PNG have only ever heard procrastination and misleading information, while you use the PNG forests and biodiversity to collateralize yourself.
No landowner has ever seen a dollar (kina) from your supposed structures, actions and existence. The PNG ILG’s have now asked that you be formally audited to uncover and explain as to where and how any funds you have acquired in the name of PNG have been utilized, and how you are able to represent yourself as self-appointed Ambassadot and Special Envoy for Climate Change with no commission from the people or parliament of PNG.
The ILG’s also enquire as to what arrangements have been entered into with your so called ‘ fmanciers ‘ and if that arrangement includes any land of PNG being taken away from landowners.
It has been commented that you promise milliors in funding from other countries, yet these same countries have put PNG on the lowest priority. The UNFCCC now admits that it is unlikely to see anything from REDD or REDD+ until 2020, let alone a correct mechanism that is supported by all Nations.
Your most recent misrepresentation of PNG was in Cancun Mexico Cop16, where you attempted a massive land grab by trying to make out that ‘your’ Climate Compatible Development Plan is the correct path for PNG. Its inclusion of a so called REDD+ safeguard promoted by you which denies the Human and Environmental rights of PNG people, is unsound advice for them and has no future or compatibility to PNG Customary law. It has never been approved by the people or the parliament of PNG.
Attempted massive land grabs by foreign governments, forcing out the local landowners, and your plan to distribute supposed PNG revenue through the Colombian Business School have also never been authorized and will never be entertained by PNG people. In addition, PNG ILG’s do not authorised or allow Miss Frederica Bietta to negotiate for PNG as a Special Adviser in anyway or form.
I have through Nupan invested millions of dollars of personal funds over four years of constant management to develop, multiple voluntary carbon projects with landowners all over PNG, and that money has been spent in the villages, and with the people during consultation and creating ILG awareness, in preparing for the ILG’s to manage their own futures with their projects.
We have 30 projects on behalf of PNG people that can be implemented in the coming year, and another sixty that will flow from them, and the people do and have always supported myself and the VCS mechanism.
Personally I take affront and claim defamation by your media referral statements such as “Carbon Cowboy” applied to me, and your advice to the Government of PNG that the VCS being ‘risky’ is most certainly misleading, as currently the VCS is the only sound mechanism available to create a commercial revenue for forest protection. The VCS is a UNFCCC sanctioned Standards Organization, respected world-wide. You are attacking the very organization you supposedly represent!
Landowners have been working tirelessly with me and my group to understand and perform their roles for the present and future, and we have been creating a system that will enable the forests to\ be saved from logging now, with the revenue generated by carbon trading going to fund health, education, communication, transport, and infrastructure projects and progressive agriculture planning throughout PNG. PNG projects will provide employment for thousands of people, for 35 to 40 years until restructured. And 90% of all the revenue generated comes back under the control of the ILG’s and the people of PNG, not into someone’s private pocket.
On behalf of the thousands of landowners whom I represent, we instruct you to cease these misleading actions immediately that you indulge in by falsely claiming the UNFCCC is bringing money to the people, as to date it has not. It may bring money to yourself and your organization, and if and when it ever comes -it will be for you and those who support you in this fiction, not the landowners and the people of PNG
A major new report suggests illegal logging in Papua New Guinea is more extensive than is generally understood and is ‘a serious impediment’ to Australian aid programs.
The report, Rough Trade, from The Australian Institute in Canberra, says:
Illegal logging is a major cause of deforestation and environmental destruction; it undermines nations’ efforts to manage forest resources for a sustainable industry, destroys the livelihood of forest-dwellers and costs governments large sums in lost revenue. It fosters corruption and is associated with organised crime and violence.
Continued illegal logging demonstrates that governments cannot protect their forest resources and it undermines their credibility for participation in the REDD mechanism.
The Prime Minister of Papua New Guinea stated in The National (11th October 2010) that the REDD+ approach that is being championed by his government is being undermined by the trading of forest carbon through the voluntary carbon schemes (VCS) in PNG.
He describes VCS as being risky and premature.
But how much truth is in what the PM said is anybody’s guess. The PM does not elaborate on the risks involved in the VCS, but the only cheap excuse given is that the VCS are thinly capitalised. The advantages of the VCS over a compliance forest carbon market are not discussed by the PM.
Moreover, the PM failed to admit that REDD markets for forest carbon exists under some VCS, but a compliance market for forest carbon does not exist at the moment and the likelihood of a world market for forest carbon through the REDD+ scheme is far from reality.
The sad fact is that countries in South America, Asia and Africa have gone into VCS, while we are the only ones that are still fighting to engage in a compliance market for forest carbon, which does not exist or is yet to materialise.
Therefore, one wonders why the PM, PNG’s climate change ambassador and the acting director of Office of Climate Change and Development (OCCD) are all hell-bent on a REDD+ carbon scheme under the compliance market.
The reason why the OCCD, the PM and our climate change ambassador are globe trotting on climate change and carbon trade issues is that they want some of that $4.5 billion (US) that has been earmarked for REDD+ projects in developing countries.
So far our negotiations have failed two times to access any international funding because PNG does not want any strings attached to these REDD+ funds.
However, the international community is aware of what is going on in developing countries and will not release any funds until stringent measures are put place by respective governments to protect the rights of indigenous peoples and their forest resources from carbon cowboys.
Earlier this year, the PNGexposed Blog published an article that accused the PNG government of trying to be the “ultimate carbon cowboy”.
Nupan Trading was in the spotlight and was seen as being the culprit in carbon trade deals in PNG, but the PNGexposed Blog article also put the PNG government in the spotlight.
This article has been widely read and circulated over the internet and there are now more suspicions about the PNG government’s moves to have customary landowners snub the VCS.
It makes one wonder whether the moves taken by the PNG government are genuine in reducing emissions from deforestation and degradation of forests and ultimately combating climate change, or, is the PNG government trying to blackmail the international community into giving us funds so that we can put them in our pockets; let alone pay for political stability to protect the so-called “national interest”.
At the moment VCS are legal in a sense that it is a business deal that can be struck between a customary land owing group and a carbon broker.
The government has no control over customary lands therefore it cannot decide which carbon market the customary landowners chose to trade their forest carbon.
However, the OCCD, as the mandated authority on climate change and carbon trade issues in PNG, can facilitate carbon trade business deals between customary landowners and carbon dealers under the VCS.
The only problem with carbon dealers in the VCS is the issue of “carbon cowboys”, but this problem should be addressed by the OCCD.
The OCCD should check on any carbon dealer’s records and give appropriate advice to customary landowners on the authenticity of the carbon dealer and whether his business interest is genuine and has integrity.
However, to date the OCCD has refused to have anything to do with VCS or issue carbon certificates.
The reasons given by OCCD for not recognising VCS in PNG and not issuing carbon certificates to Nupan Trading and other carbon dealers is the same as that given above by the PM.
Regardless of the reasons given by the PM and OCCD about VCS in PNG, these are business deals like any forestry and mining business deals and OCCD will have to cater for that.
But the position taken so far by OCCD and the PNG Government to snub VCS indicates that there is something fishy going on in terms of carbon trade in PNG, and it goes to cement the suspicion that the PNG Government wants to be the “ultimate carbon cowboy”.
One reason why the government wants customary landowners to snub the VCS is that it wants to keep all carbon credits from REDD+ for its own interest so that it becomes the one and only carbon broker in PNG.
Therefore, if the OCCD facilitates business deals between customary landowners and the VCS and much of the forest areas in PNG are registered under the VCS, there will be few or no forest areas left for the PNG government when an international agreement is reached after 2012.
The PNG Government wants to be the “ultimate carbon cowboy” in PNG so it is playing delay tactics to stall VCS in PNG and to maintain all forest areas for itself to have access to when a compliance market comes on after 2012.
The PM also stated that a climate framework was not yet finalised to protect and safeguard the interests of customary landowners dealing with carbon dealers under the VCS.
However, this is the cheapest excuse that can be given, and it insults the intelligence of people who are familiar with development of policies and legislations.
The issue of climate change has been around since the 1980s, and literature has built up immensely within science and policy domains in the last few years which are available and can be used to develop a climate change framework for PNG.
Thus there is no excuse for the OCCD to say that it has not produced a climate change framework for PNG as yet.
Two offices have preceded the OCCD, in which time a climate change framework should have been produced by now, and the civil societies in PNG have been constantly calling on the government to put in place legislation and policy for climate change.
Moreover, there is sufficient human resource within country that can be utilise by OCCD to draft a climate change framework, but it seems a few handpicked people are being used by the government to run the show so that some peoples’ vested interests are protected.
But since no policy or legislation has been developed for climate change in PNG as yet, it goes to show that the PNG government is deliberately avoiding the issue so that it does not put itself under any obligation to protect its indigenous people and their forest resources from carbon cowboys, of which the PNG government is one of them and the “ultimate carbon cowboy”.
Finally, a few years ago the PM was questioned on his family’s vested interest in carbon trade in PNG and the establishment of a pyramid structure that was establish within the Office of Climate Change and Carbon Trade (OCCCT) to deliberate on carbon financing.
Although time has passed and memories have faded, I am of the opinion that the pyramid structure that existed within OCCCT is still alive and exists within the OCCD and is just waiting to deliberate on any international funding on REDD+ that may come out from the $4.5 billion (US) earmarked for developing countries.
By Ilya Gridneff
Greenpeace has presented the Papua New Guinea government with a “Golden Chainsaw” for being greedy rather than green when it comes to tackling climate change.
Greenpeace gave the award to PNG representative Federica Bietta during climate change talks in Nagoya, Japan, on Monday.
Greenpeace said it chose PNG for the dubious honour for its continued corruption in the forestry sector, stalling UN talks on reducing climate change, disregard for indigenous people’s rights and rampant deforestation.
At the conference, Greenpeace released a 16 page report, PNG is not Ready for REDD, outlining its concerns that PNG is not ready for the complex UN plan known as Reducing Emissions from Deforestation and Forest Degradation (REDD), which seeks to abate climate change through a series of donor funded schemes with forested nations such as PNG.
Greenpeace has criticised PNG for being more interested in donor money than seriously tackling climate change.
“The PNG government is hungry for international funding from REDD but has no plans to stop destroying its own rainforest or reduce its own emissions” Greenpeace forest campaigner Sam Moko said in a statement on Monday.
Mr Moko, who is in Nagoya for the latest climate talks, said the PNG government could not be trusted to stop cutting down trees.
“How can the government be expected to enforce a sophisticated REDD program, which requires thorough monitoring of emissions from reduced deforestation, when it can not keep its own forestry sector under control?” he said.
Earlier this month, AAP reported that PNG’s prime minister and deputy prime minister were at odds with each other over controversial carbon trade schemes that have plagued their country with scandal.
PNG, with its massive forest coverage, has been at the forefront of the REDD debate but the country has been plagued by numerous corruption allegations.
Previous winners of Greenpeace’s Golden Chainsaw include Malaysian logging giant Rimbunan Hijau and numerous logging companies in Brazil’s Amazon forest and the Congo.