Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 30]

National Provident Fund Final Report [Part 30]

September 15, 2015 Leave a comment Go to comments

Below is the thirtieth part of the serialized edited version of the National Provident Fund Commission of Inquiry Final Report that first appeared in the Post Courier newspaper in 2002/3.

NPF Final Report

This is the 30th extract from the National Provident Fund (now known as NASFUND) Commission of Inquiry report. The inquiry was conducted by retired justice Tos Barnett and investigated widespread misuse of member funds. The report recommended action be taken against several high-profile leaders, including former NPF chairman Jimmy Maladina. The report was tabled in Parliament on November 20 by Prime Minister Sir Michael Somare.

Executive Summary Schedule 3C continued 

Board Fees And Allowances Paid Between 1994-99. 

The table below details board fees and allowances paid between the period 1994-1999:

npf 30 a

The above figures have been rounded off to the nearest kina.

Executive Summary Schedule 4A Investment in Lihir Gold and Vengold Inc.


The stated purpose of NPF’s heavy investment in Vengold, a small Canadian mining and exploration company which held direct and indirect interests in Lihir Gold Ltd (LGL), was to indirectly (through the Vengold investment) take up a strategic interest in LGL so as to benefit from anticipated corporate takeover activities relation to LGL.

Prior to 1997, NPF held shares in LGL directly but swapped these in April 1997 for shares in Vengold.

Thereafter, NPF purchased shares in Vengold on-market, building up a 19.9 per cent interest in that company.

As NPF’s interest in Vengold became diluted by Vengold share issues, NPF continued buying in order to maintain its 19.9 per cent holding, exercising its entitlements to appoint a director to the Vengold board (Mr Kaul, Mr Fabila and Mr Maladina served, in turn, as directors of Vengold).

In order to drawdown on its kina and $A facilities with the Australia & New Zealand Banking Group Limited (ANZ) from which NPF’s aggressive investment strategy was being financed, NPF pledged its Vengold, and other shares, with ANZ Nominees.

As the economic climate turned against NPF and the price of Vengold and other shares began to fall, NPF was obliged to pledge more and more scrip in order to maintain the 150 per cent security to loan ratio that it had covenanted with ANZ.

In late 1998, NPF was unable to maintain the security to loan ratio with ANZ and was in repeated breach of its loan covenant. It was obliged to sell off most of its equity portfolio in order to retire its debt to ANZ (see the report on borrowings from ANZ Schedule 2E).

Meanwhile, the price of Vengold shares had steadily fallen from a high of $A2.55. When Vengold was sold off in 1999, NPF consequently suffered a realised loss of $A38,772,881 on the investment.

NPF’s Investment in LGL

NPF first invested in LGL by purchasing K7.7 million of 1 per cent debentures in April 1995, believing the price would rise sharply and enable it to take a capital gain by a quick sale. Prior board and Ministerial approval was obtained. The Commercial Investment Division (CID) of the Department of Finance (DoF) recommended the investment without making any independent critical analysis.

In June 1995, when NPF investment manager Noel Wright judged the price was right, NPF sold the debentures, making a profit of K2.2 million. This was done without the Ministerial approval which was required under the Public Finances (Management) Act 1995 (PF(M) Act).

Happy with the successful result of this first speculative investment in LGL, the NPF board approved the purchase of 10 million shares in LGL’s first share issue, for a cost of K15 million, with the expressed intention to sell off five million for another short-term profit.

Minister Haiveta approved the investment on the basis that five million would then be sold off for profit. No adequate consideration was given by NPF management or board or by DoF or the Minister, to the fact that NPF was now launching itself down the slippery path of speculative, risky investment in an unproved gold mining venture, the risks of which were quite obvious on the face of its prospectus.
Minister Haiveta approved the purchase and subsequent quick profit taking without taking advice from DoF.

Having acquired the shares at $A1.50, NPF held on to them rather than making the approved quick sale and profit taking, even when the share price rose to $A2.50 in November 1996.

Trading In Options

Buoyed by the apparent success of NPF’s speculative investment, Mr. Wright took NPF along the even riskier path of trading in Vengold options. This was done entirely without the board’s knowledge.

When it was later discovered and forbidden by the board, Mr. Wright secretly continued to trade in options (see Schedule 4L).

This was an early indication of Mr. Wright’s propensity to act on his own authority, without reference to the NPF board.


(a) The recommendation made by DoF to the Minister for the purchase of K7.7 million LGL debentures, contained no objective analysis or assessment;
(b) The sale of K9.9 million LGL debentures was effected without Ministerial approval, in breach of Section 61 of the PF(M) Act;
(c) Management failed to brief the board adequately before purchasing the K15 million LGL shares;
(d) The NPF Board of Trustees failed to seek expert advice or to properly consider the risk factors before resolving to invest K15 million in LGL. This was a breach of their fiduciary duty to the members of NPF. They are personally liable for any losses suffered as a result of this investment. It is unlikely that they would succeed in using a defence of “acting in good faith”;
(e) The Minister for Finance Mr Haiveta, approved the K15 million share purchase on an inadequate brief from the NPF and without seeking or receiving advice from the DoF;
(f) NPF management acted improperly by investing in options, contrary to a board direction. Those officers concerned, Mr Kaul and Mr Wright may be personally liable for any losses incurred by their breach of duty. It is unlikely they could claim a defence of “acting in good faith” as they were acting contrary to an express board direction not to invest in options.

Investment in LGL, January to December 1996

In 1996, Mr Wright authorised the sale and acquisition of LGL shares without referring to the board and without seeking the requisite Ministerial approval. He was acting beyond his authority and is personally liable for NPF’s loss on these transactions.

Managing director Mr Kaul was aware of these transactions and failed to reign in or discipline Mr Wright. By December 1996, NPF held approximately 11,500,000 LGL shares (1 per cent of issued capital).


Mr Wright and Mr Kaul bought and sold shares in LGL, during 1996 for NPF, without board or Ministerial approval. This was respectively a breach of duty (by Mr Wright) and a breach of fiduciary duty (by Mr Kaul) and a contravention of the PF(M) Act.

Investment In Vengold – 1997

In early 1997, Mr Copland and Mr Wright came under the influence of Mr I.W. Telfer the CEO of Vengold and were persuaded that NPF should change its strategy regarding LGL. The idea was to swap NPF’s LGL shares for Vengold shares. This would give NPF a significant interest in Vengold and a seat on its board.

Vengold in turn held first right of refusal over Rio Tinto’s (RTZ) 17 per cent interest in LGL and was confident RTZ would eventually sell, which would place Vengold in a very strategic position to take advantage of corporate plays and takeover bids. Mr Telfer also persuaded Mr Copland, Mr Wright and Mr Kaul that there would a “North American Multiple” as Vengold was listed in Canada and US (North American Mining shares being considered more valuable). Mr Copland, Mr Wright and Mr Kaul then persuaded the NPF board to adopt this strategy. The fact that an investment in Vengold rather than a direct investment in LGL raised additional risks, was not considered and no due diligence was performed on Vengold (A simple study of Vengold’s 1996 financial statements would have revealed it had an acute liquidity problem).


Neither the management nor the board conducted any substantial evaluation or critical assessment of this investment in Vengold regarding the benefits of such an investment.

The commission finds that this was a major failure on the part of the management and the Board of Trustees of their duty and fiduciary duties to the members. It was a significant departure from the investment guidelines applicable to NPF.

BPNG foreign exchange approval was given for the share swap and the purchase by NPF of an additional two million shares.

Lack Of Due Diligence In Share Swap Deal

Wilson HTM acted for Vengold for the transaction and also valued the LGL and Vengold shares for the purpose of the swap. A value of $A2.30 was placed on LGL shares (compared with ASX prices in the period January to April 1997 ranging from $A2-$A2.30. A price of $A2 was placed on Vengold shares).

NPF did not challenge those valuations or seek independent advice (Wilson HTM was clearly not independent as it acted for both sides on various aspects of the deal). Nor did NPF seek expert advice on Canadian corporate law, upon which the transaction was based. NPF’s due diligence on Vengold was based instead on general investment reports issued by two investment brokers.

Minister Haiveta then gave approval for this significant transaction without taking DoF advice. This amounted to improper conduct by Mr Haiveta who, as a Minister, had a duty to act on appropriate advice.


(a) NPF management failed to obtain specific expert advice on the share swap agreement with Vengold and failed to adequately brief the NPF board. This was a failure of its duty;
(b) The NPF board failed to direct management to perform due diligence on this share swap agreement with Vengold and failed in its duty to give the matter careful, expertly advised, consideration. This was a failure of its fiduciary duty;
(c) The Minister, when granting approval to the agreement, was also inadequately advised by NPF and failed to obtain DoF or other expert advice and recommendations. This was a failure by Minister Haiveta to properly carry out his supervisory responsibilities. It amounted to improper conduct;
(d) DoF, which was represented on the NPF board, failed in its duty to be proactive and to ensure expert advice was provided to NPF;
(e) All trustees at the time of the share swap, who were in breach of their fiduciary duty in not seeking expert advice, may be personally liable for any loss to NPF members, which can be traced to that transaction. It is unlikely that they could successfully claim to have “acted in good faith”.

Unauthorised Vengold Share Acquisitions in 1997

Throughout 1997, NPF continued to acquire shares in Vengold in parcels not exceeding K1 million, thus avoiding the need to seek Ministerial approval. These acquisitions, which are listed in Table A (below), were brokered through Wilson HTM, at the direction of Mr Wright. The NPF board was not explicitly informed of the acquisitions, except belatedly in the investment portfolio schedules tabled at board meetings.

npf 30 bnpf 30 c
These purchases occurred during a time when the gold price was steadily declining, as was the share price of LGL and Vengold.

In December 1997, Mr Wright reported to the board that the price of PNG resource stock was failing and that this was causing significant unrealised loss to NPF.

Nevertheless he recommended increasing NPF’s Vengold investment because of LGL’s status as a world-class low production cost mine.

Mr Wright, meanwhile, continued to buy Vengold shares for NPF through Wilson HTM without formal NPF approval or ratification.

No expert advice was sought on the appropriateness of continuing to acquire and to hold the failing value Vengold stock.

Both management (particularly Mr Wright and Mr Kaul) and all trustees in office at the time were in breach of their duty in not seeking expert advice in this failing market situation.


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  1. September 17, 2015 at 6:13 pm

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