Home > Corruption, Papua New Guinea > National Provident Fund Final Report [Part 36]

National Provident Fund Final Report [Part 36]

September 24, 2015 Leave a comment Go to comments

Below is the thirty-sixth 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 36th 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 4C Continued

(c) David Copland was in an undisclosed conflict of interest situation in that Cue offered him a directorship on their board if NPF agreed to take up the Cue shares and convertible notes on offer and to underwrite Cue’s share issue. At the same time, Mr Copland was actively advocating that NPF should take up the offer;
(d) Mr Cleary of Wilson HTM was an active proponent of NPF and POSFB supporting Cue’s MIMPEX bid, by underwriting and participating in the share issue. He attended meetings with Mr Kaul, the managing director of POSF and the chairman of both funds, advocating this course of action, which would be very beneficial for Wilson HTM who was acting on behalf of Cue with regard to the share issue and the underwriting;
(e) Minister Haiveta became actively involved in securing capital from POSFB for Cue’s proposed share issue;
(f) The active participation and advocacy by Mr Cleary of Wilson HTM, Mr Jacobs of Cue; Minister Haiveta and Mr Copland, helped create a feeling of nationalistic pride compelling national participation in a fledgling PNG resource project. This close involvement of outsiders, motivated by a mixture of nationalism, politics, profit and pride influenced Mr Kaul to deviate from his true focus, which should have been exclusively on the best interests of fund members;
(g) The NPF board abrogated its responsibility by:
(i) failing to reprimand management for unauthorised share purchases;
(ii) granting management unfettered powers on August 27, 1996; and
(h) Mr Kaul gave false information to Cue about NPF’s board resolution.

Offer by Chinese National Petroleum Corp (CNPC)

In October 1996, NPF was offered the chance to escape from its loss-doomed investment in Cue when CNPC contacted Mr Kaul with an offer to buy NPF’s Cue shares. Mr Kaul turned to Mr Jacobs of Cue for advice.

Mr Jacobs urged Mr Kaul to ask for an impossibly high price. The NPF board really abdicated their responsibility by authorising Mr Kaul to sell “if an acceptable offer was received otherwise an aggressive stance would be maintained to grow the company”.

However, the board gave no guidance about what it considered would be an acceptable offer. With the market price of Cue at 7.4 cents, Mr Kaul “killed the deal” by making a “not negotiable” offer to sell NPF’s Cue shares to CNPC for 20 cents a share.

The trustees and Mr Kaul are again accountable to NPF members for this failure of fiduciary duty to give expert, objective consideration to the best interests of the members.

This offer deserved serious consideration solely from the viewpoint of NPF members and it was improper for Mr Kaul to seek and follow the advice of Mr Jacobs, as Mr Kaul’s duty, in this matter, was not to the Cue board, of which he was a director, but to NPF (See paragraph 9 of the Cue Report).

In November 1996, Cue carried out an exhaustive in-depth self-appraisal, which was fully aired at a board meeting that Mr Kaul attended. It brought to the surface serious problems about Cue’s corporate strategy and management ability. At the NPF December meeting, Mr Kaul failed to brief the NPF board on these matters and the board resolved to increase its Cue share holding by 3 per cent every six months.

In January, Mr Copland was appointed to the Cue board. The other NPF trustees assumed he held this position as NPF’s second representative director, which NPF had long requested.

Unknown to them, however, Mr Copland accepted the appointment as an independent director not as NPF’s representative. This put him in a conflict of interest situation. By failing to disclose this fact, while continuing to attend and vote on issue regarding the Cue investment, was a breach of his fiduciary duty as well as being improper conduct. Mr Copland should be referred to the Ombudsman Commission for consideration as to whether or not he has committed an offence under the Leadership Code (see paragraph 11).

NPF Supports Cue’s Indonesian Venture with PT Wirabuana Prajamija

In January 1997, Mr Kaul, as a Cue director, voted to approve Cue issuing 40 million additional shares at 20 cents per share to fund an Indonesian venture with PT Wirabuana Prajamija.

It was clear at the time that this Indonesian folly that Cue embarked upon, was going to overstrain its financial resources and therefore endanger NPF’s investment in Cue, but Mr Kaul neither advised nor consulted NPF (as NPF’s representative director on the Cue board) before supporting the move.

He obtained NPF approval by way of an urgent circular resolution to sub-underwrite 20 per cent of this placement costing $A1.6 million. NPF would receive a sub-underwriting fee of $A80,000.


(a) NPF management were in breach of their duty to the board by not obtaining any expert analysis of this proposed investment and by providing only a false one-sided view of the benefits to Cue and to NPF. They did not provide any advice about the risks of the proposed investment or about the fact that it did not comply with NPF’s investment guidelines;
(b) The trustees who voted in favour of the investment, without seeking further advice, failed their fiduciary duty to NPF’s members. Minister Haiveta foolishly and improperly approved this investment, without seeking DoF advice and Mr Kaul and the NPF management then breached Section 61(2) of the PF(M) Act by committing NPF to the sub-underwriting agreement before receiving Ministerial approval.

NPF Supports Cue’s Attempt To Purchase Saga Petroleum ASA Assets (SAGA)

Between March and April, Cue considered an attempt to raise funds in order to purchase Saga’s Indonesian assets for $US15 million plus $US15 million.

By April, Cue had decided to make a cash offer of $US25 million. Both Mr Kaul and Mr Copland were actively involved in Cue’s deliberations on issuing a share placement to fund the proposed offer for Saga’s assets.

In April, Mr Wright signed a letter on behalf of Mr Kaul from NPF to Saga, which had been drafted by Mr Jacobs of Cue. The letter assured Saga that Cue had NPF’s support, although at this stage the NPF board had not been consulted.

In May 1997, without the benefit of any briefing or background paper from its Investment Division, the NPF board resolved to sub-underwrite $A10 million of Cue’s $A21 million float.


(a) Mr Kaul and Mr Wright failed in their duty to provide full information and expert advice to the NPF board on the sub-underwriting proposal;
(b) Mr Copland did not declare his “conflict” which was apparent because he was supposedly appointed an independent director of Cue and had already been granted 200,000 options in the ordinary shares of Cue;
(c) The NPF trustees did not consider the underlying risks of what Cue was proposing;
(d) The NPF trustees did not consider the implications for NPF’s investment portfolio, particularly the increase in NPF’s already over-exposed PNG resource stocks;
(e) Mr Kaul did not inform the NPF board that he had voted in favour of a Cue shareholder resolution to issue new shares for the proposed acquisition of Saga’s Indonesian assets; and
(f) Clearly, this further investment in Cue was a speculative investment and this issue should have been considered.

In further support of Cue, Mr Kaul wrote to Saga on May 9, falsely stating that NPF’s shares in Cue were unencumbered when in fact they had been bought with money borrowed from ANZ and were held by ANZ Nominees as security.

The Saga Sale and Purchase Agreement (SPA) was announced on the May 12, 1997. It was also announced that ANZ Securities would underwrite a Cue share placement to raise between $A21-25 million to finance the $US27 million cost of the SPA. NPF subscribed for $A5 million worth of shares and sub-underwrote an allocation of a further $A7 million.

Mr Copland and Mr Kaul, both members of the Cue board, personally sub-underwrote $A100,000 each without disclosing this to the NPF board. They were both therefore in an undisclosed conflict of interest situation, considering their positions with NPF.

Mr Haiveta Imposes Conditions On His Approval

When NPF applied for Ministerial approval for this investment, Salamo Elema, First Assistant Secretary for the Commercial Investment Division, recommended that it be rejected, stating that NPF already owned 20 per cent of Cue and had two directors on the board. He felt that exposure of a further $A10 million by participating in the proposed investment, would be completely contrary to the Investment Guidelines.

However, there was also a second, simpler DoF brief prepared, which recommended that the investment be approved. It seems the Minister acted on the latter brief as he granted approval on June 4, 1997. Then on June 19, the Minister applied conditions to that approval, in terms which reflected the wording of Mr Elema’s brief saying:-

“My approval is subject to the following conditions:
* Minimum value of acquisition of additional shares in Cue by NPF not to exceed K5 million in accordance with Section 61 of the PFM act;
* Reduction in NPF’s holding in Cue to 10 per cent as soon as practicable; and
* Reduction within three months (i.e. by August 31) of NPF’s equity portfolio to 60 per cent of its total investments.

In regards to these conditions, please point out to the board my concerns as follows:
* That NPF is over exposed to equities in mining and petroleum companies and under exposed to national enterprises in the commercial and industrial sectors;
* That NPF extra investment in Cue is ultimately only helping a foreign company to develop its non-PNG interests; and
* That there appears to be a conflict of interest between the chairman of NPF’s role as protector of national interest in the prudent management of the investments of NPF, and his role as holder of 200,000 options in Cue.

I wish to convey these concerns to your board for appropriate action”. (Exhibits CU648-CU649)

NPF Board Ignores The Ministers Conditions

Mr Haiveta’s letter, which imposed long overdue constraints upon NPF, was tabled at the 107th NPF board meeting on July 4, 1997, just after the national elections that led to the formation of the Skate government.

The board resolved to “wait for the formation of the new government” and then proceeded to disregard Minister Haiveta’s instruction.

All trustees who voted in favour of the investment and all subsequent trustees who had knowledge of Mr Haiveta’s instructions but continued not to apply them, were in breach of their fiduciary duty of care to the members and guilty of improper conduct.

Mr Haiveta gave evidence that he lost the Finance portfolio when the new government was formed and was therefore unable to follow this matter up.


(a) Mr Kaul misrepresented to Saga that NPF’s shares in Cue were unencumbered whereas they were held in the name of ANZ Nominees as security for a loan;
(b) Mr Copland’s personal $A100,000 participation in the sub-underwriting of the Cue share issue, accentuated his undisclosed conflict of interest as trustee and chairman of the NPF board;
(c) Mr Kaul also participated personally in sub-underwriting the Cue share issue thus accentuating an undisclosed conflict with his position as managing director of NPF;
(d) The Minister for Finance approved NPF’s request to sub-underwrite $A3 million of Cue’s share issue, despite contrary expert advice from the DoF;
(e) The Minister’s concerns regarding breaches of investment guidelines were in fact ignored and his concerns about Mr Copland’s conflict of interest were not acted upon until September 1998.

During this period, Mr Copland continued to participate in the “decision-making” process, despite his conflict of interest and NPF incurred substantial losses by investing further in Cue. This was a breach of fiduciary duties by the trustees who were then on the board and by subsequent trustees who became aware of the situation.

It was also a breach of the duty to NPF by the officers who failed to initiate appropriate action to rectify the situation.

Management Makes Further Investments Without Board Approval

Despite the $A25 million placement, Cue was required to raise additional funds to complete the Saga assets purchase and to raise working capital and costs on its Indonesian venture. NPF management advised the NPF board in August of Cue’s intended $A12 million share placement and the matter was discussed. Mr Haiveta’s conditions, however, were not discussed.

On September 10, 1997, Mr Kaul agreed, without board approval, that NPF would sub-underwrite $A400,000 of the placement and then after discussing the matter with Mr Copland, Mr Kaul agreed that NPF would accept a $A1 million shortfall, for a fee, subject to board approval.

NPF was allocated 4,880,000 shares at 25 cents totalling $A1,220,000.

This purchase was made at a premium to market price and was also made without NPF board approval (paragraph 13.15).

Cue Terminates The Saga Agreement

In October 1997, Cue was facing serious financial difficulties because of the Saga commitment and problems with its PT Wirabuana Prajamija joint venture as well as the general Asian Financial crisis.

It endeavoured, unsuccessfully, to reduce its Saga commitments and finally in February 1998, Cue terminated the Saga SPA.

This led to Saga instigating court action against Cue, claiming massive damages, which in turn contributed to the Cue share price falling until it reached 13.27 cents on December 20, 1997.


  1. Sam K Mek
    September 24, 2015 at 12:54 pm

    Corruption @its best…!..We hope to see something has to be done sooner or later!..#Corruption#

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