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National Provident Fund Final Report [Part 72]

November 12, 2015 Leave a comment

Below is the seventy-second 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 72nd 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 7b Continued 

Findings

(e) NPF management, specifically Mr Mitchell and Mr Mekere, were in breach of their common law duty to the NPF board in failing to obtain and provide this expert opinion;

(f) The NPF trustees were in breach of their fiduciary duties to the members of the Fund in failing to obtain this advice.

(g) The NPF management were remiss in not providing the Minister and the DoF with the contrary advice given by PwC and FPK that NPF would be better off continuing with the BoH assignment agreement;

(h) The DoF review and assessment was detailed but it followed NPF’s own line of reasoning closely and failed to address whether it might be best for NPF to retain the BoH agreement and (possibly) to sell the BSP shares separately;

(i) The Secretary of the DoF was in a conflict of interest situation as adviser to the State on the one hand, which would benefit if Finance Pacific gained from the deal. On the other hand, the Secretary also had a duty to ensure that the best interests of NPF and its members were safeguarded. The Secretary and his senior officers were remiss in not ensuring that independent advice, focusing entirely on NPF’s best interests, was obtained;

(j) The Minister, Sir Mekere Morauta, was also in a similar conflict of interest situation as he was required to consider the best interests of both the State (through Finance Pacific) and NPF. He was not advised that PwC and FPK had advised NPF against unwinding the BoH assignment transaction; and

(k) Sir Mekere acted in accordance with the NPF request, after considering a detailed brief from DoF in support of it. His approval was properly granted, in the circumstances.

Possible ulterior motives behind the Finance Pacific offer

At the time the Finance Pacific offer was being considered, the executive chairman of Finance Pacific was Peter O’Neill. The chairman of the NPF was Jimmy Maladina and the NPF corporate secretary/legal counsel was Herman Leahy.

The commission’s investigations into the NPF Tower fraud, which are reported upon in detail at Schedule 2, have disclosed a criminal conspiracy to defraud NPF to which these three persons were linked.

The conspiracy, in fact, succeeded in illegally obtaining K2.5 million from NPF and it was contemporaneous with this proposed purchase of Roadstock and BSP shares by Finance Pacific. The deal came to nothing because Mr O’Neill was terminated from Finance Pacific before it was completely in place.

In the light of the other evidence linking Mr O’Neill, Mr Maladina and Mr Leahy, the commission is very suspicious of the bona fides of this proposed purchase and of Mr Leahy’s role in ignoring the PwC and FPK reports and of his role in strongly advocating that NPF approve unwinding the BoH transaction sale, despite the negative expert advice.

As the sale did not eventuate, the commission did not pursue these inquiries any further.

Payment Of Interest And Management Fees To NPF Interest 

On the commission’s calculations, the State has honoured its obligations under the Freeway loans, in fact there has been a small over payment of interest of approximately K25,000.

Management fees 

For each loan agreement, an annual management fee of K10,000 was payable to NPF.

The State failed to pay and the NPF failed to collect these fees. At March 5, 2001, the NPF took action to recover the sum of K283,932.35 from the State.

Findings 

At paragraph 11.3, the commission found:

The failure by NPF management to seek payment of management fees, payable on each of the Freeway loan agreements, was a serious failure of duty.

Concluding Comments

The investment in the Poreporena Freeway loans turned out to be one of NPF’s more profitable investments as it returned a comfortable dividend of 14.67 per cent per annum plus management and line fees.

There have, however, been some very worrying features.

Firstly, there was the failure of NPF management and trustees to seek independent expert advice about:

(a) the structure of the loans which resulted in the mismatch between the interest rate and maturing conditions of NPF’s loan facilities with the banks from which it borrowed compared with the interest rate and maturing conditions of the on-lending to Curtain Burns Peak.

The mismatch left NPF in a losing situation during the period when the ILR interest it was paying to the lender bank, exceeded the fixed interest rate it was receiving from the borrower. As the period of the loan to Curtain Burns Peak was a fixed 10-year term. NPF was persuaded to assign the loans to the Bank of Hawaii at a considerable discount in order to extricate itself from this unfavourable situation;

(b) the “off balance sheet” revised funding arrangements whereby Curtain Burns Peak (instead of the State) became the borrower. Before seeking advice on this legally controversial arrangement, NPF had already lent K10 million’

(c) The Bank of Hawaii transaction proposal;

(d) The proposed sale of the Freeway (and other State loans) together with NPF’s BSP shares to Finance Pacific.

Secondly, the conflict of interest situation facing DoF senior officers who had “State” responsibilities to obtain funding for the Freeway Project and who also “put together” the loan arrangements with NPF and applied pressure on NPF to borrow the money to on-lend to the State (directly and through Curtain Burns Peak). The same officers were also involved in making recommendations to the Minister to approve NPF’s loan arrangements.

The conflict was particularly severe for officers like Vele Iamo who was also an NFP trustee with a fiduciary duty to act only in the best interests of the members of the NPF, yet he was also a member of the State committee responsible for keeping up the supply of necessary funds so the State would not be in breach of its project agreement with Curtain Bros.

The failure of these public service representative trustees to declare their conflict of interest and refrain from voting on the Freeway loan resolutions at NPF board meetings was also a breach of fiduciary duty.

Thirdly, management on some occasions failed to consult the board and acted without board authority. This included Mr Wright’s unauthorised activities in August 1997 to redeem deposits and alter security arrangements. Mr Wright also acted improperly by applying incorrect accounting principles to book K18.5 profit in 1997 on the BoH transaction, which resulted in an incorrect bonus being paid to senior management.

Finally, Minister Haiveta who failed on several occasions to seek advice of the DoF before granting approvals under Section 61 of the PF(M) Act, was possibly guilty of improper conduct under the Leadership Code.

Executive Summary Schedule 7c

NCD Water and Sewerage Ltd/Eda Ranu Loan Funding

Forward

This is a summary of the commission’s report Schedule 7C which deals with NPF’s loans to the National Capital District Water & Sewerage Ltd (NCD W&S). Unless otherwise stated, paragraph numbers referred to in this summary are references to paragraphs in Schedule 7C.

Background

Following a Cabinet submission from the then Minister for Finance Chris Haiveta, the NCD W&S Ltd was set up under NEC decision No. 85/96 of May 31, 1996. Its purpose was to take over responsibilities for water supply and sewerage from the National Capital District Commission (NCDC). The trading name of this new organisation is Eda Ranu.

The same NEC decision also directed the Department of Finance (DoF) to review various options for the funding of this newly created entity.

Department Of Finance Submission

The Department of Finance policy submission to the Minister in support of the Minister’s Cabinet paper details the background to the loan as follows:

  • ON September 3, 1996 (SIC) (NPF Board approved K5 million loan to Eda Ranu on August 27, 1996, at meeting No.102) the board and management of NPF agreed to provide a commercial loan of K5 million to NCD Water and Sewerage Pty Ltd under the same terms and condition as the Poreporena Freeway loans.
  • It was advised that the option to convert the loan to equity could be considered at a later date but at that stage the NPF board had no interest in being part owner of the water supply company;
  • IT was said that the terms and conditions were “quite favourable” to Eda Ranu and the State.

The wording of this policy submission brought out clearly the latent conflict of interest facing the DoF and the Minister, as DoF and the Minister also had a duty to take into consideration the interest of NPF. In this case, they did not do that sufficiently.

NPF’s Decision To Lend Funds To NCD Water & Sewerage Ltd

NPF board approved a K5 million loan to Eda Ranu in their meeting held on August 27, 1996. The terms of this loan were similar to the loan NPF had given to the Poreporena Freeway project.

NPF’s Funding Of The K5 Million Loan

NPF’s original intention was to fund this loan through its current loan facility with the ANZ bank.

However, NPF eventually sourced funds to meet this loan commitment of K5 million through its BSP loan facility of K30 million. The K30 million facility is dealt with in Schedule 2C “Borrowings”.

NPF Seeks Legal Advice About Reliance On State Guarantee

The State guarantee for the K5 million loan to Eda Ranu was dated October 31, 1996. NPF sought legal advice from Gadens Lawyers about its reliance solely on the State guarantee, given the State’s current cash restrictions in meeting its ordinary budgetary expenses. The legal advice they received stated that it was dangerous for NPF to rely solely on the State guarantee and NPF was advised to ask Eda Ranu to grant a fixed and floating charge over the borrower’s assets in addition to the State guarantee. Establishment Of A Debt Sinking Fund

In order to address NPF’s concern about the Government guarantee, Eda Ranu was to establish a debt sinking fund by way of a trust account with a commercial bank. NPF was advised of this move in a letter dated October 11, 1996, from Salamo Elema of the DoF. This same letter also advised that the first drawdown was required by November 4 to enable Eda Ranu to meet is payroll commitments.

Findings

(a) The pace at which the preconditions to the initial drawdown were being addressed shows clearly the apparent failure by the Department of Finance to critically analyse this loan funding, due to it’s attitude of serving the State’s interest first, even though they have a responsibility to protect the interest of NPF as well;

(b) The execution of the loan agreement was done without the inclusion by NPF lawyers of provisions for the establishment of a trust account and the Finance Minister’s approval for Eda Ranu to borrow from NPF as a precondition;

(c) The execution of the loan agreement was also done contrary to the PF(M) Act, which covered the NCD Water and Sewerage Pty Ltd and therefore required the prior approval of the Minister for Finance for Eda Ranu to borrow the funds.

Concerns Raised About Proposed Trust Account

Following conversations between NPF and Gadens Lawyers, NPF instructed Gadens on November 8, 1996, to write to Eda Ranu and DoF about its concerns regarding the trust account. Stephen Lewin of Gadens wrote to Young and Williams pointing out NPF’s concerns regarding the Trust Instrument on November 8, 1996.

These concerns include:

(a) Part Ill of the Public Finances (Management) Act 1995 (PF(M) Act) is not intended to be used for trust accounts of the type proposed;

(b) Notice by Minister for Finance arguably purports to amend and/or does not comply with the provisions of Part Ill of the PF(M) Act;

(c) Incorrect reference to section 10 (should be section 15);

(d) Poorly drafted notice;

(e) As lawyers for NPF, Gadens Ridgeway have not sighted any executed documents;

(f) Amend the Governor-General’s approval to specifically refer to section 37 of the PF(M) Act; and

(g) Declaration by existing shareholders of NCD W&S Pty Ltd that they hold shares in trust for the Independent State of Papua New Guinea.

Eda Ranu and DoF addressed the above concerns in a letter to NPF dated November 8, 1996. In this letter, Eda Ranu gave an undertaking that:

“1. IF the trust account established pursuant to a deed of trust executed by the Minister for Finance is declared invalid for any reason or the operation of it causes any difficulties, it will execute a new trust instrument with you in relation to the account upon request;

2. THAT it will use its best endeavours to obtain an amended executed approval from the Governor- General within 30 days after drawdown whereby the GG will approve the purpose of the loan pursuant to section 37 of the Public Finances (Management) Act, the loan being clearly stated to be made to NCD W&S Pty Limited.

3. THAT it will obtain a declaration by the existing shareholders of the company that they hold the shares in NCD W&S Pty Limited in trust for the Independent State of Papua New Guinea and will forward executed copies of those declarations of trust to your lawyers and that it will within 30 days satisfy you that 100 per cent of the issued share capital in the company is held legally and beneficially by the Independent State of Papua New Guinea or officers of the State on behalf of the State”. (Exhibit E74)

Lack Of Due Diligence

Right up until the day before the K3 million was advanced by NPF, there were still serious concerns about the legal validity of NPF lending money to NCD W&S Pty Ltd as a means of avoiding restrictions on direct state borrowing from NPF. Right up until the last day, NPF did not have details of the shareholders in the borrower company and whether they were acting as trustees for the Sate pursuant to valid declarations of Trust.

NPF, however, released K3 million of the K5 million to Eda Ranu without confirming who Eda Ranu shareholders were.

Findings

At paragraph 12.1, the commission has found that:

(a) NPF lent money to Eda Ranu without the benefit of knowing who the directors and/or shareholders of the company were and before legal due diligence had been completed; and

(b) The speed at which this loan was being arranged, under pressure from DoF and Eda Ranu, resulted in NPF entering into commitments prior to completion of basic aspects of due diligence and despite expressed concerns about the legality of the arrangements and the effect of hastily prepared trust arrangements designed to avoid doubts about the State’s power to borrow without an Act of Parliament. Drawdowns

The drawing notice from Eda Ranu to NPF predated the loan agreement and guarantee. It was dated October 22, 1996.

In an attempt to correct the drawing notice, Kenneth Frank wrote to Salamo Elema on December 4, 1996, enclosing a substitute drawing notice signed by Eda Ranu dated November 18, 996 (sic) for Mr Elema’s signature.

This action by Mr Frank was improper and risky as it may have legal implications in the sense that Eda Ranu could choose not to pay the interest and principal because the drawing notice predates the loan agreement.

In a letter dated November 8, 1996 to Chris McKeown of BSP, Mr Wright of NPF requested a draw down of K3 million. BSP released K3 million the same day to Eda Ranu.

The second K2 million was presented to Eda Ranu on November 20, 1996. This was sourced from a maturing IBD although Mr Wright made out that it was sourced from the BSP K30 million facility.

Findings

At paragraph 14.1, the commission has found that:

(a) The drawing notice predated the loan agreement and guarantee. While this matter was corrected by Mr Frank in his letter to Mr Elema on December 4, 1996, such action was not proper and it may have legal repercussions in the sense that Eda Ranu could choose not to pay the interest and principal because the initial drawing notice predated the loan agreement.

TO BE CONTINUED

* PART 71 is missing and has not been published in this series

National Provident Fund Final Report [Part 10]

August 18, 2015 Leave a comment

Below is the tenth 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.

NPF Final Report

This is the tenth 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.

Continued from yesterday

Henry Fabila

Prior to the effective termination of Mr Kaul’s appointment, Minister Lasaro purported to terminate Mr Kaul’s appointment and to appoint Mr Fabila without prior consultation with the NPF board as required.

He issued a press statement to this effect. Subsequently, a token consultation with the board was undertaken and the Minister directed the reluctant board to add Mr Fabila’s name to a panel of people recommended for appointment.

At the last minute, Minister Lasaro absented himself from PNG and the previously prepared statutory instrument revoking the appointment of Mr Kaul and appointing Mr Fabila was signed by Acting Minister Sir Mekere Morauta.

Mr Fabila then signed a contract of service with NPF drawn up by Carter Newell, contrary to the provisions of Section 15(e) of the NPF Act, which required his conditions to be set by Ministerial determination.

The procedures for revoking of Mr Kaul’s appointment and appointing Mr Fabila were contrary to the NPF Act and the conduct of Prime Minister Skate and Minister Lasaro amounted to improper interference with the management of NPF.

Mr Leahy failed to advise about these breaches of the NPF Act.

Terms and conditions of Trustees (including Managing Director)Legislation

Terms and conditions of employer and employee trustees are to be determined by the Prime Minister

The only valid determination was by Prime Minister Paias Wingti on December 31, 1986, followed by a valid variation by Acting Prime Minister Haiveta in March 1996.

Section 27 provides for expenses such as airfares, accommodation and reasonable out of pocket expenses of trustees in connection with performance of the board’s functions to be met by the fund.

Trustees terms and conditions

During the period under review, there were several purported determinations of trustees terms and conditions, some of which were invalid:-

(a) NPF board decision of December 2, 1993.
This resolution invalidly increased the sitting allowance from K45 per day to K70 per day and the annual stipend from K1000 per annum to K1200. It was invalid so at the commencement of the period under review on 1st January 1995, trustees terms and conditions were being paid under an invalid board resolution.
(b) Determination by Acting Prime Minister Haiveta on May 30, 1996, of a fee of K20,000 per annum to chairman Copland.
This was beyond power and therefore invalid.
(c) Determination by Acting Prime Minister Haiveta on May 30, 1996, to increase trustees sitting allowance to K250 per sitting and annual stipend to K2000 per quarter backdated to January 1, 1996.
This was within power and was valid.
(d) Determination by Acting Minister Konga of May 6, 1997, under the Boards (Fees and Allowances) Act purported to increase annual stipend to K10,000 per annum and sitting fee for chairman and trustees to K400 and K300 respectively.
This was invalid, as the Board (Fees and Allowances) Act did not apply to the NPF. Even though the non-applicability was realised, the NPF board resolved to accept the extra K50 sitting fee.

Findings

(a) At the commencement of the period under review i.e. January 1, 1995, the NPF trustees’ entitlements and allowances were being paid in accordance with an invalid resolution approved by the NPF board on December 2, 1993.
(b) The increases to trustees fees and allowances approved by Acting Prime Minister Chris Haiveta and gazetted on May 30, 1996, were valid and effective from January 1, 1996.
(c) Chris Haiveta’s approval of a fee of K20,000 per annum for chairman Copland was invalid and ineffective.
(d) The DoF failed to provide an effective mechanism for reviewing fee structures for board members and abrogated its responsibility to advise the Minister on these issues.
(e) Mr Leahy failed his duty as corporate secretary/legal counsel to give correct professional advice on these issues.
(f) Acting Minister Konga’s approval of increases in fees and allowances for NPF trustees in May 1997 was invalid.
(g) The NPF board acted without power, on July 4, 1997, when it resolved to pay an extra K50 sitting allowance to the trustees.
(h) Mr Leahy failed his duty to properly advise the NPF board on these matters.

Board expenses

SPREAD SHEET – BOARD EXPENSES
ITEM  1994  1995  1996  1997  1998  1999
Sitting Allowances 5700 6600 9080 9973 9740 34165
Quarterly Allowances 2450 3295 40977 51370 23601 38792
Entertainment 2008 672 1997 3473 230 15042
Meeting Expenses ——- 822 7959 372 1754 5721
Air fares 1560 1122 16446 18807 15826 * 36939
Accommodation 1177 1369 8436 17608 7709 + 49516
Motor Vehicle Hire ——- ——- 9739 5295 5538 ø 27277
Overseas Travel 2092 ——- 2034 903 4402 360
Board Travel Allowance ——- ——- ——- 2846 1665 636
Other ——- ——- ——- 5899 1285 (128)
TOTAL  K14,987  K13,881  K96,667  K116,546  K71,749xx  K214,048

During the period under review actual board expenses rose alarmingly.
* Shown as K19,667 in 1999 comparative;
+ Shown as K10,369 in 1999 comparative;
ø Shown as K8434 in 1999 comparative; and
xx Shown as K81,147 in 1999 comparative

The Secretary of the DoF Brown Bai directed an investigation by the Finance inspectors under Section 64 of the PF(M) Act into expenses for 1998/1999.

It showed gross irregularities and over payments. The inspectors report is set out in detail in Appendix 16.

The commission carried out further inquiries into unjustifiable expenses paid to Mr Kanau.

Findings

(a) The commission adopts the findings of the Finance Inspectors regarding irregular payments and overpayments to trustees in 1998-1999.
(b) The payments to Mr Kanau between June 19 and 23, 1999 regarding travel to Kimbe and car hire allowance and payments in August 1999 on compassionate grounds for accommodation and car hire were improper and excessive and should be recovered.
(c) Both Mr Kanau and Mr Fabila are personally liable to repay the funds spent by Mr Kanau.
(d) The commission recommends that the NPF carry out a complete audit of all trustees’ expenses and allowances during the five years under review and institute proceedings for recovery of overpayments.

Some trustees also received remuneration by representing NPF on the boards of other companies.

This issue is reported in the schedules relating to NPF’s investment in those companies.

Managing Director’s terms and conditions

The NPF Act provides that the managing director’s terms and conditions shall be determined by the Minister from time to time, acting with the advice of the NPF board.

There have been two managing directors in the period under review, Mr Kaul, and Mr Fabila.

Both of them signed contracts of employment contrary to the requirements of Section 15(2).

Mr Kaul

Mr Kaul’s initial contract was signed in July 1993 and it included a provision for payout in the event of early termination.

This was inconsistent with the statutory provision, which guaranteed his security of tenure.

SCMC approval was given to Mr Kaul’s contract but the board did not give advice to the Minister on Mr Kaul’s conditions and there was no determination by the Minister as required by Section 15(2).

Mr Kaul’s contract of re-employment in July 1996 contained a more generous early termination clause.

His payout was increased from three to six months’ salary.

SCMC approval for the new contract was not sought or obtained.

It was, therefore, void, under the provisions of the SCMC Act (See paragraph 5.4.4.4 for details of Mr Kaul’s contract).

Findings

(a) The terms and conditions for renewing Mr Kaul’s employment in May 1996 at the end of his first term did not follow the procedures prescribed in Section 15 of the NPF Act, which required a duly gazetted determination by the Minister after consultation with the NPF board.
(b) Mr Kaul’s new terms and conditions of service were never referred to or approved by the SCMC and the agreement was therefore void as provided in the SCMC Act.
(c) Mr Kaul gave false and misleading information to Minister Lasaro on October 23, 1997, that his remuneration conditions had been approved by the SCMC.

Mr Fabila

Mr Fabila’s contract of employment was prepared by Carter Newell lawyers apparently without reference to Section 15(2) of the NPF Act.

The contract was approved by the NPF board without proper deliberation.

SCMC approval was not sought or granted.

Findings

In the case of their own salaries and conditions of service, both Mr Kaul and Mr Fabila proceeded contrary to the provisions of the NPF Act, bypassing the need for obtaining board approval before seeking the approval of the Minister and the SCMC.

There was fundamental misunderstanding of powers and functions of the Minister as set out in the NPF Act.

Continued TOMORROW

National Provident Fund Final Report [Part 8]

August 14, 2015 Leave a comment

Below is the eighth 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.

NPF Final Report

This is the eighth 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.

INTRODUCTION AND OVERVIEW

Schedule 1 reports upon the legislative and policy framework within which it was intended that the National Provident Fund (NPF) should operate.

It records how NPF management and trustees frequently operated outside of that structure and how, by 1999, that structure had, to a significant extent, broken down in key areas, such as the constitutional integrity of the NPF board, internal governance, accounting, compliance by contributors, investment strategies, reporting obligations and external monitoring and controls. Specific matters, which received detailed investigation, are reported upon in Appendices 1 to 21 that are attached to Schedule 1.

On August 11 and 15, 2000, the commission conducted a seminar in the form of a public hearing to seek the views of 78 participants about the effectiveness of the legislative and administrative structure for the NPF. The proceedings were recorded at transcript pp. 1-121. The report on the seminar is included as Appendix 23 to Schedule 1.

Just prior to presenting this report, the new Superannuation Act 2000 was brought into force and NPF restructured itself and was licensed under the new Act under the name of Nasfund. The NPF Act was then repealed in its entirety and Nasfund now operates under the provisions of the Superannuation Act 2000.

In this schedule, the commission presents its findings and recommendations regarding the legislative structure which applied to the NPF in the years January 1, 1995 to December 31, 1999. Despite the fact that the Act has been repealed, the schedule continues to talk about the NPF and the NPF Act in the present tense, as if the NPF Act and the NPF still exist.

This is partly to ensure that the commission’s report is faithful to its terms of reference and partly because it will be of current benefit to understand how the previous structure was largely by-passed by the former trustees and management with impunity and to consider whether the new structure put in place under the Superannuation Act 2000 successfully overcomes the previous weaknesses.

NPF Act and Rules

NPF is given corporate status and its powers and functions are strictly defined under the NPF Act.

Expenditure of funds is limited to NPF’s objectives and powers as defined in the NPF Act, or other legislation. It is, for instance and importantly, not given the power to borrow or pledge its assets.

It was naturally assumed that NPF’s governing board of trustees would be properly constituted in accordance with the provisions of the Act so that its decisions would be legally valid.

The Act established the NPF as an accumulated benefits superannuation fund for private sector employees. All private employment establishments employing 25 or more employees are required to join the fund, with employers and employees all contributing a percentage of the employee’s wages to be received by the fund and credited to the member’s account. NPF’s funds must be properly accounted for and deposited into a certified bank and invested in accordance with guidelines promulgated by the Minister.

The Act provides that the Minister with responsibility for financial matters, have portfolio responsibility for NPF, with powers regarding appointments to the managing board and some powers regarding termination of appointments.

Under the Public Finances (Management) Act 1995 (PF(M) Act 1995), the Minister was given powers to approve major transactions and investments. Under Section 26 of the NPF Act, the Minister is empowered to promulgate guidelines for NPF’s investments.

It was envisaged that the Minister would receive reports and financial statements on the progress and health of the fund and that these reports and statements would be audited by the Auditor-General and tabled in Parliament.

The Act established that the governing body of the NPF would be a board of trustees consisting of a mix of trustees from the public service (two), from private enterprise (three) and representing employees (three). The managing director would also serve on the board as a trustee.

The legislation

The major pieces of relevant legislation are:-

  1. The PF(M) Act;
  2. The Audit Act and
  3. The Salaries and Conditions Monitoring Act.

The NPF Act 1995 establishes the NPF as an accumulated benefits fund for all workers employed in private enterprise employment establishments employing 25 or more employees unless an exemption has been granted under Section 3(6) or 42, of the Act. Participation is compulsory (The amendment repealing subsection 3(6) was not brought into force).

The NPF falls within the portfolio of the Minister responsible for PNG financial affairs (the Minister) and it is governed by a board of trustees (the NPF board), consisting of two representatives of the public service, three representatives of employers and three representatives of employees. The NPF board is chaired by the Secretary for the department responsible for managing the country’s financial affairs, referred to here as the Department of Finance (DoF).

The Managing Director

The management of NPF is headed by a managing director appointed by the Minister after prior consultation with the board (Section 15), who is also a member of the board of trustees and is therefore himself a trustee pursuant to Section 6(1)(d).

Officers

The managing director has control of the officers appointed by the NPF board on the recommendation of the managing director (Section 19).

Employees

Beneath the officers are the employees of the fund, appointed by the managing director with the approval of the board (Section 21).

Contributions and compliance

Part V of the NPF Act provides for employers to contribute an amount equal to 7 per cent and employees to contribute 5 per cent of each employee’s monthly wage actually drawn. Section 35 obliges the NPF to credit to each member all amounts paid on his behalf.

Section 37 enables the managing director to charge a penalty interest to employers on overdue contributions. Failure to comply is also an offence (Section 36).

Withdrawals and payments from the Fund

Section 49 provides a mechanism whereby the managing director may approve a withdrawal to purchase a dwelling house or site or materials for a dwelling to a maximum limit of 24 times the member’s monthly pay.

Section 52 provides for withdrawal of the full amount standing to the credit of the member’s account on retirement after attaining 55 years, on attaining 55 years after previous retirement, on retirement due to total and permanent incapacity; or immediately prior to permanent emigration from PNG.

Reporting and external supervision

Although the NPF is designed to be independent of government control and interference, the legislation provides for a framework of external monitoring and supervision and for broad policy guidelines and directives on investment policies to be issued by the Minister (Section 26(2)) within which the NPF board and management is obliged to operate.

The NPF Act specifies rules for banking and investing the funds and the Minister is empowered to issue policy guidelines on investments (Section 26 of the NPF Act). Section 30 (now subsumed by Section 63 of the PF(M) Act) requires NPF to submit an annual report to the Minister and to also submit the report to the Auditor-General who, pursuant to Section 29, shall report the result of his audit to be Minister, who, in turn, is obliged to submit the audited report to Parliament each year.

Section 63(2)(b) of the PF(M) Act requires NPF to report quarterly to the Minister on all investment decisions and to provide an annual report on investment performance and an updated five year rolling plan on investment strategies and administrative systems. How this structure, which requires NPF to have in place and to report upon investment strategies and plans, was ignored, is set out in paragraph 16 of Schedule 1.

The formal legislative and administrative structure in place for NPF between 1995 and 1999 is shown in Table 1 below.

Trustees

Schedule 1 reports how the members of the NPF board failed to appreciate and to perform their fiduciary duty as trustees and how this leaves them open to personal liability for loss suffered by the fund and its members, arising from their breach of fiduciary duty. It reports in detail how the repeated irregularities in the appointment and termination of trustees seriously compromised the legal validity of the NPF board. It clearly demonstrates that no single agency was responsible for ensuring that the board was validly established at all times and that appointments and terminations were constitutional.

Problems regarding the determination of trustees’ expenses and allowances are studied in detail, as are the failures to properly administer and account for payments of these allowances to trustees. These are reported at paragraph five and in Appendix 16.

Managing Director

Similar problems with the appointment, termination of appointment and determination of terms and conditions of employment of the managing director are reported in paragraphs 5.4 and 5.4.5 of Schedule 1 which shows how the provisions of Section 15(2) of the NPF Act, requiring a determination by the Minister acting with the advice of the board were ignored in favour of signing a contract of employment with very favourable terms for early termination in defiance of the statutory provisions.

Officers

The appointment, termination and conditions of employment of the other officers are reported upon in paragraph 6 of the Schedule and how the necessity to obtain the approval of the Salaries and Conditions Monitoring Committee (SCMC) was ignored, which had the effect of making the contracts void.

The senior officers were given additional remuneration in the form of a senior officers bonus scheme, which was inappropriate and led to irregular accounting techniques in order to artificially boost the profit-based bonus payments.

In reporting upon the nature and defects of the bonus scheme the commission has made a detailed study of the ineffectiveness of NPF management and financial planning which is reported in detail as specific matter number 20 in Appendix 20.

As with the trustees, the commission has found that there were serious irregularities regarding the determination and administration of expenses and allowances for officers. These are reported at paragraph 8.6.

Employees

The fairly favourable conditions of employment of employees and their access to a home ownership scheme and staff performance benefits are reported in paragraph 9 of Schedule 1.

After the departure of experienced and well trained staff prior to January 1995, NPF suffered from a serious lack of experienced and well trained work force and this is clearly reflected in the lack of efficiency reported upon by the Auditor-General, Pricewaterhouse Coopers (PwC) and KPMG.

There were attempts to restructure all staff positions at NPF. This resulted, however, only in a restructure and salary increase for senior officers.

Overview of officers and employees

Paragraph 10 of Schedule 1 provides a detailed overview of NPF’s management problems and deficiencies as reported by the Auditor-General, PwC and KPMG, which the commission adopts as part of its own findings.

Board forum and decision-making

The structure created for NPF envisioned that decisions would be made by the NPF board in properly constituted board meetings, unless delegated to management.

In paragraph 11, the commission reports on ultra vires decision-making by management; failure by management to properly brief and inform the board prior to seeking a board resolution; decision-making by “circular resolutions” and the board’s frequent failure to obtain the required approval by the Minister for decisions involving transactions over K300,000 (later increased to K500,000).

The problem caused by the participation in board meetings of invalidly “appointed” Trustees is also discussed.

The relationship between structural problems and losses suffered by NPF

NPF failed to develop investment policies and strategies and to report upon them quarterly as required.

Instead, it embarked upon a wholly inappropriate series of high-risk investments in PNG resource and other shares.

It ignored the structural requirement to confine its activities within the boundaries of its statute-given powers. Most notably it borrowed the funds to make these investments, which was beyond its powers.

The NPF board was required to confine its investments within the guidelines set by Sir Julius Chan in November 1993. Its failure to do so was a breach of fiduciary duty by each trustee in office during the period in which these investments were made and retained. Most of

NPF’s huge losses resulted from stepping outside the set structure governing its activities in this way.

The reason these activities and the mounting losses continued for so long is that NPF also ignored the obligatory structural requirement that it report quarterly and annually to the Minister. DoF must have been aware of this but felt no obligation to monitor and rectify the situation.

This was a serious gap in the structure of reporting. With NPF’s reporting to the Minister having broken down, it meant that the Auditor-General’s audit and reporting system also failed to operate, as it required the receipt from NPF of its report to the Minister to set the audit procedures in motion.

Weak governance within NPF was a significant contributing factor to the losses, which NPF suffered.

For most of the time, trustees were badly informed by management and seemed content to passively attend meetings, draw their allowances, sign circular resolutions and not inquire what management was doing.

The managing directors and investment managers rarely sought expert advice, relying on their own ego-driven and extreme views of what were suitable investments and activities for a provident fund.

The trustees almost never questioned or criticised management and never insisted on being given independent expert advice. In this manner, the trustees meekly went along with management’s recommendations to borrow funds for high-risk equity transactions, to invest millions of kina in Crocodile Catering and its foolish Indonesian adventures, to attempt to issue a $A54 million bond and to construct the NPF Tower.

Having embarked upon those ventures, the trustees did not insist upon strict accounting and reports by management as to their progress and NPF’s financial situation.

Criminal conspiracies

In 1999, while NPF’s financial lifeblood was haemorrhaging and it was facing bankruptcy and the complete loss of its member’s funds, its chairman Jimmy Maladina and its legal counsel/board secretary Herman Leahy, with the complicity of its managing director Henry Fabila, in defiance of all legal constraints, set about defrauding the NPF by means of the Waigani land deal and the NPF Tower construction fraud. These criminal conspiracies caused a further loss of just under K3 million to the Fund.

This executive summary will now present the major findings made by the commission in Schedule 1 with a brief summary of the relevant context. References to the relevant paragraphs in Schedule 1 and to the relevant appendix are given.

IRREGULARITIES IN APPOINTMENTS, TERMINATIONS AND CONDITIONS OF TRUSTEES AND OFFICERS

The structural framework for appointing, removing and remunerating trustees and officers, was carefully specified in the NPF Act. The administration of the process was so poor, however, that it undermined the constitutional legality of the board and the integrity and efficiency of the officers.

Schedule 1 examines these processes in great detail in paragraphs 4, 5 and 6.

This executive summary first postulates the formal structure as intended by the Act and then tabulates the period of incumbency of successive trustees, chairmen, managing directors and officer holders, pointing out any irregularities in tabular form.

Finally, this section of the summary sets out the commission’s findings on appointments, terminations and remunerations with brief contextual comments.

The structural framework for appointments, removals and the remuneration of office holders 

The Board of Trustees

The tripartite structure of the board is designed to give representation to the public service (two trustees), the employers (three trustees) and the employees (three trustees).

Appointment of Trustees

The public service representative trustees are appointed by the Minister to ensure that the board contains their professional expertise and to allow for an informal avenue of co-ordination and communication between the NPF and the public service and government (the intention was frustrated because the senior public service representative Iamo Vele rarely attended board meetings. On several significant matters his role as a trustee was in direct conflict with his role as a senior DoF officer).

The employer representative trustees are to be appointed by the Minister from a panel of names submitted by organisations representing employers. This is designed to ensure that this category of trustee is made up of trustees acceptable to the contributing employer establishments (The appointment of Mr Maladina as a trustee was in breach of this requirement).

The employee representative trustees are to be appointed by the Minister from a panel of names submitted by an organisation representing employees (traditionally the PNG Federation of Trade Unions).

Termination of appointment of Trustees

The employer and employee representative trustees are appointed for fixed three year terms subject to terminations upon grounds set out in the Act, and not otherwise.

Section 10 provides mandatory grounds upon which the Minister shall terminate a trustee’s appointment if (relevantly), the trustee:

(c) resigns his office by writing under his hand addressed to the Minister;

(d) absents himself from three consecutive meetings without the written consent of the chairman;

(e) . . .

(f) . . .

(g) being a person appointed under Section 6(1)(e), ceases to be an employee;

(h) being a person appointed under Section 6(1)(f) ceases to be an employer.

Section 10(2) allows the Minister to terminate a trustee’s appointment on the clearly stated grounds of:

“. . . inability, inefficiency, incapacity or misbehaviour”.

These are the only legitimate grounds for termination, yet there were many purported terminations on other grounds.

Where the Minister terminates an appointment, Sub-section 10(3) provides that the Minister shall, by notice in the Gazette, declare the office vacant and sub-section 10(4) provides it shall then be filled in accordance with Section 6.

Schedule 1 traces the history of the appointment and termination of appointment of trustees in detail.

As there were so many irregularities and so little care taken to follow the provisions of the Act, that the board was improperly constituted for long periods of time, which throws the legality of major board decisions into doubt. These irregularities are set out in Table 1 of this executive summary and the commission’s findings on this aspect are set out at paragraph 3 of this Executive Summary.

The chairman

Section (6)(1)(a) provides that the chairman shall be the Secretary of the DoF or his nominee approved by the Minister (An amendment to Section 6 which was enacted by Act No. 40 of 1986, was never brought into force).

Expenses and allowances of Trustees

The Act provides for board expenses and allowances to be determined by the Prime Minister and this power was never delegated.

Schedule 1 shows how the power was illegally exercised by Acting Minister Konga (paragraph 5.3.5) and how the NPF board itself illegally increased its own expenses and allowances (paragraph 5.2.2).

The Finance inspectors’ report has traced serious irregularities in the way board expenses and allowances were administered and calculated and the commission has recommended a full audit and recovery action to be implemented in order to recover the vast increase in expenses and allowances (paragraph 5.3.7.1 and Appendix 16).

There are no provisions for granting additional allowances for the chairman (i.e. the Secretary of the DoF or his nominee).

The managing director

Section 15 of the NPF Act provides that the managing director will be the chief executive of the board and head of the staff.

He is appointed by the Minister by notice in the Gazette after prior consultation with the board.

Sub-section 15(2) provides that the managing director’s salary and conditions shall be determined by the Minister, acting with the advice of the board.

Vacation and termination of office are provided for in Section 16 if the managing director:-

(a) becomes incapable;

(b) resigns;

(c) undertakes outside work without board’s consent;

(d) becomes bankrupt;

(e) is guilty of moral turpitude; the board shall terminate his employment.

Under sub-section 16(2), the board may, with the approval of the Minister, terminate the managing director’s appointment for “inability, inefficiency, incapacity or misbehaviour”.

There is no room for the managing director to be engaged on different terms pursuant to a contract of employment or for his appointment to be terminated on grounds other than those specified in section 16, yet these things happened.

Officers

Section 19 provides that the board may appoint officers of the board on the recommendation of the managing director. Conditions of service of officers may be prescribed in the rules.

Though not stated in the NPF Act, it is clear that the remuneration of officers is subject to the SCMC Act. SCMC approval was, however, rarely sought for officers’ remuneration and conditions, including the benefit of the senior staff bonus scheme.

Other employees

By Section 21 of the NPF Act, the managing director may, with the approval of the board, appoint other employees on terms and conditions determined by the board. Their remuneration is also subject to SCMC approval, which was rarely sought.

Periods of appointment

The periods of office of the successive Minister, secretaries of DoF, chairmen of the NPF board, trustees and managing directors are set out in a graph at Appendix 22 to this executive schedule.

Dates of appointment

The dates of appointment to and vacation of office of the successive Ministers, chairmen of the NPF board, trustees and managing directors and officers of the board are set out in the following table, noting all major irregularities, with references to paragraphs in

Schedule 1 and its appendices.

DATES OF APPOINTMENT AND VACATION OF OFFICE NOTING MAJOR IRREGULARITIES

Position: Minister

Name: Chris Haiveta

Period: January 1, 1995 – August 26, 1997

Irregularity: None

Position: Minister

Name: Iairo Lasaro

Period: September 29, 1997 to August 2, 1999

Irregularity: None

Position: Minister

Name: Sir Mekere Morauta

Period: August 1, 1999 to December 31, 1999

Irregularity: None

Position: Chairman

Name: Gerea Aopi

Period: January 1, 1995 to October 3, 1995

Irregularity: Held position of chairman by virtue of being Secretary of the DoF and vacated the chairmanship on ceasing to be Secretary.

Position: Chairman

Name: Rupa Mulina

Period: October 3, 1995 to January 11, 1996

Irregularity: Mr Mulina became chairman by virtue of his appointment as Secretary of the DoF. He sensed a conflict of interest and willingly complied with Minister Haiveta’s request to nominate Evoa Lalatute in his place. Minister Haiveta proceeded, however, to appoint Mr Lalatute himself, illegally on December 13, 1995. On January 19, 1996, Mr Mulina then signed a nomination of Mr Lalatute which was backdated to December 1995

Position: Chairman

Name: Evoa Lalatute

Period: January 11, 1996 to October 18, 1996

Irregularity: Minister Haiveta’s appointment of Mr Lalatute was beyond power and invalid. This mistake was purportedly corrected when Mr Mulina nominated Mr Lalatute on January 19, 1996 by backdated nomination. Mr Lalatute’s appointment was later wrongly terminated by Minister Haiveta. Only the Secretary of the DoF, Mr Mulina, had the power to terminate Mr Lalatute’s chairmanship which he should have done by revoking his nomination. The termination of Mr Lalatute’s appointment by Minister Haiveta was, therefore, ineffective.

Position: Chairman

Name: David Copland

Period: April 18, 1996 to January 15, 1998

Irregularity: Mr Copland’s initial appointment was tainted by the failure to properly terminate Mr Lalatute’s appointment. Mr Copland’s appointment was probably ineffective. Mr Copland’s subsequent periods as acting chairman was by resolution of board meetings from which Mr Vele was absent. Mr Copland’s appointment was purportedly terminated by Minister Lasaro but no proper ground was stated and it was not gazetted as required by the Act.

Position: Chairman

Name: Morea Vele

Period: January 15, 1998 to August 4, 1998

Irregularity: Mr Vele assumed the role of chairman after his appointment as Secretary of DoF. He then absented himself for nine months without nomination of a successor.

Position: Chairman

Name: Brown Bai

Period: September 1, 1998 to January 27, 1999

Irregularity: Mr Bai actively assumed the role as Secretary of the DoF/chairman when appointed as Secretary DoF. Under pressure from Minister Lasaro and Prime Minister Bill Skate, he stood down and nominated Jimmy Maladina as chairman.

Position: Chairman

Name: Jimmy Maladina

Period: January 27, 1999 to December 31, 1999

Irregularity: Mr Maladina’s appointment was planned by Prime Minister Skate and Minister Lasaro with the assistance of Herman Leahy. Mr Maladina’s appointment as chairman (and as employer representative trustee) was strongly opposed by the Employers Federation who issued a Writ seeking a Court injunction.

Position: Public Service Trustees (Not more than two)

Name: Vele Iamo

Period: February 12, 1993 to january 1, 1999

Irregularity: Mr Iamo was a senior officer in the DoF. He was frequently absent without permission for more than three consecutive board meetings, which should have resulted in obligatory termination of his appointment by the Minister (Section 10 – NPF Act). This did not happen. He was eventually terminated for political reasons by Minister Lasaro for no stated ground and without gazettal as required under the Act. The termination was invalid.

Name: Alphmeledy Joel

Period: January 28, 1994 to February 9, 1995

Irregularity: No irregularities

Name: Evoa Lalatute

Period: May 18, 1995 — no formal termination

Irregularity: Carried on as trustee after his chairmanship was revoked. No resignation, formal termination or gazettal. Uncertainty about cessation of his appointment taints the appointment of his successor with legal uncertainty.

Name: Gerea Aopi

Period: February 8 to August 28, 1998

Irregularity: Mr Aopi was appointed as public service representative trustee prior to completion of Mr Lalatute vacating office as a trustee. As there were still two public service trustees, there was no vacancy for Mr Aopi in this category, so his appointment was invalid.

Name: Abel Koivi

Period: April 1, 1996 to January 19, 1999

Irregularity: Appointment was invalid because there was no vacancy in this category of trustee. Mr Koivi was an officer with Air Niugini when it was privatised at which time he ceased to be a public servant and was no longer qualified to be a public servant representative trustee, but he remained in the position. Two years and five moths later, Herman Leahy attempted to rectify the situation by having Mr Koivi’s Air Niugini position declared to be an office in the public service.

The termination of his office as trustee by Mr Skate as acting Minister was without prescribed ground and was not gazetted as required.

Name: Brown Bai

Period: January 19, 1999 to December 31, 1999

Irregularity:After he stood down as chairman (under pressure) Mr Bai remained Secretary of the DoF and he was also appointed as a public service representative trustee. Whether Mr Bai’s appointment was valid depends upon whether the irregular termination of the appointments of Mr Iamo and Mr Koivi were effective.

After appointment Mr Bai absented himself without permission from many more than three consecutive meetings making himself liable for obligatory termination by the Minister. This did not happen.

Name: Mickey Tamarua

Period: January 19, 1999 to October 29, 1999

Irregularity: The validly of Mr Tamarua’s appointment depends on whether the termination of the appointments of Mr Iamo and Mr Koivi were valid — otherwise there was no vacant public service representative trustee position for him to fill.

Mr Tamarua’s termination as a trustee was sudden, with no grounds given and no gazettal.

Consequently, formal date of his termination and its legality is uncertain.

* Three Employee Representative Trustees

Name: John Paska

Period: February 12, 1993 to February 7, 1999 and February 19, 1999 to December 31, 1999

Irregularity: Mr Paska’s appointment was allowed to expire on February 6, 1999, leaving a gap before his reappointment. Mr Fabila and Mr Leahy exploited this situation to reintroduce the proposal to buy the Waigani land in Mr Paska’s absence

Name: Michael Gwaibo

Period: February 12 1993 to February 7, 1999

Irregularity: No irregularity. His appointment was allowed to expire. For a long period, there was no third employee representative trustee.

CONTINUED ON MONDAY

Paki’s departure from PNGDP/OTML is a good thing Mekere!

October 4, 2013 2 comments

Is the government’s grab for PNGSDP/OTML a good thing? Its hard to say. What about the departure of Rex Paki from its Board of Directors? To this we can issue a much more definitive yes. While Sir Mekere Morauta may have slammed his replacement by Isaac Lupari, Papua New Guineans should breathe a sigh of relief.

In October 2012 PNGexposed raised serious concerns about Paki’s position on the board following the release of a report on the Paga Hill demolition by the International State Crime Initiative. For our efforts, we were slammed by Transparency International PNG Chairman, Lawrence Stephens, who is also a senior manager at PNGSDP.

He claimed:

“Come on oh nameless ones! Take some deep breaths and ask yourselves if you are really prepared to publicly defend the rights of Papua New Guineans and if it is really necessary for you to throw stones from the shelter of annoninimity. Much as you might like to claim the oppositie there is nothing astonishing in any loyal Papua New Guinean seeing the difference between accusations and convictions. Shame on you, whoever you are”.

The irony is we have men like Stephens and Morautu being held up in the international media as anti-corruption warriors, but what did they do about Rex Paki for all these years?

For those unfamiliar with Paki’s past, here is our original post from 2012:

Over the past 20 years Paki has appeared before two Commission of Inquiries (Finance Department and National Provident Fund), two Public Account Committee Inquiries, and a Supreme Court case where he was slammed by the full court.

Paki was intimately involved in the Paga Hill development in Port Moresby between 1997-2000, a development which has recently been making headlines for forced evictions and corrupt property deals – link.

In January 2004 the Public Accounts Committee reprimanded Paki’s company Ram Business Consultants (RAM) for issuing an “empty cheque” to the Accountants Registration Board, and then “practicing without … formal registration”.

Two years later in a separate investigation – which Paki attempted to block – the PAC found that over an 18 month period (1998-2000) the Public Curator’s Office had paid RAM K1,561,062 (approx US$640,000), without the existence of a contract, proper invoices, or evidence that any work had been done.

Two Commission of Inquiries (COI) also found reason to censure RAM. Following its first appearance, RAM was accused by the COI of receiving “improper benefits” and charging clients “excessive” fees; in the firm’s second appearance, the COI found that RAM had substantially inflated a cash-flow projection, so a prominent client could amplify his damages claim against the state.

In light of these PAC/COI findings, it is perhaps not surprising that most recently in an appearance before the Supreme Court, Salika DCJ, Gabi J and Hartshorn J, described Rex Paki as “evasive and dishonest”, following Paki’s extraordinary efforts to frustrate the process of discovery (Paki was being sued for allegedly overpaying himself as liquidator of Motor Vehicle Insurance Ltd).

Those interested can access the original story in full here:

A second article by Dr Kristian Lasslett:

The debate with Transparency International PNG can be viewed here:

37 Years of Corruption: Do we accept corruption as a norm or is there a way forward for the country?

April 16, 2013 5 comments

By Lucas Kiap on PNG Blogs

For the last 37 years of nationhood, we have been letting corruption to grow systematic and systemic – making our lives difficult, limiting our opportunities, making our systems malfunction, setting back our progresses, creating loopholes for our systems to be manipulated, distorting of our democratic values, depriving and denying us of our basic human rights and trapping millions of our citizens in poverty.

We have forsaken our country and its future by confessing and accepting corruption as a norm, part of our history, cultures, and traditions. We have regarded it is as part of our way of life, for instance “Big Man” are not punishable even when they commit serious crimes. We regarded “wantok system” or nepotism as helping one another or returning a favor. Bribery has been regarded as normal and is considered as a gift to facilitate requests in a speedy or timely manner. Unfortunately, our traditional norms have presided over western norms. We are a nation at confusion and lost between two extreme worlds – one inherited from our ancestors and one inherited from colonial masters during independence.

At this juncture, I would like to propose this question – do we accept corruption as a norm or is there a way forward for the country after 37 years of corruption?

In this article I attempt to answer the above question in three parts. The first part, I write about corruption as I see it. The second part I write about corruption as the rest of Papua New Guineans see it according to my 12 years of judgment. In the third or final part, I write about the way forward for the country as according to the way I see it.

CORRUPTION AS I SEE – A UGLY MONSTER
When I first begin to understand the corruption problem in the country 12 years ago in 2001, I want to find out how it affects my life and my country. As I searched deeply into the problem of corruption I came face to face with a young, ugly, and black monster yet appeared friendly. The monster was appeared to be looking healthy, well fed and looked after. From its appearance I could guess it was 37 years of age. The monster starred at me with its big and red eyes through which I could be able to see all its internal organs. I saw the intestines and what it has been feeding on. I could see human bones – the bones of the mothers died of breast cancer, the bones of children died of malnutrition, the bones of tribal warriors died in tribal fights and the bones of those who died as the direct result of lack of basic government services. As a searched further deep into all its internal parts and organs I noticed some of the ugliest sights decorated with sign boards of different shapes and sizes I had never imagine exist in our real world today. The writings on the signboards read, “I will deny and deprive you of the opportunities to education, employment, health care, transport and basic government services”. The sight of what I saw really frightened the hell out of me – drained and exhausted all my energy. I sat motionless, my heart pounding, eyes filled with tears of bitter sadness – all I could managed to say was “God, why are you letting this to happen for so long in a country where its people considered to be your own people or Christians?” As I come to face to face with this deeply rooted monster, I see my future slowing evaporating before its eyes.

Corruption as it appears to me is a sinister monster with thousands of mouths that we have been feeding and looking after for the last 37 years of nationhood. We have tamed it to be our family member, best friend, relative, wantok and countrymen. We have let it grow its roots among family, cultural, social, political and economical settings. In the dark when no one notices it, it has slowly been creeping and knocking at the doorsteps of every Papua New Guineans, feeding on our greed and selfishness to escalate the deteriorating of our integral and moral human values. As a result, we have been in the race to be the conquerors of Mt. Everest before others, we want to reach the North and the South Poles to rewrite history, we want our initials curved on some deep sea monsters, we want to fly our flags on the moon, and we want to travel to Jupiter before the NASA scientists.

Yes we have mustered the art for the destruction of our own country and future and we are already addicted to it – we are on an endless mission.

Corruption as I described above is a monster to me. But what about the rest of Papua New Guineans think? Read on to find out what I think is their perceptions about corruption in the country.

CORRUPTION AS THE REST OF PAPUA NEW GUINEA SEE IT – A NORM
Unfortunately, the rest of Papua New Guineans have allowed corruption as a norm, originated from our cultures and traditions. For instance, a “big man” in a typical PNG culture is not punishable by the laws. The big man culture is well versed in PNG politics where politics have been misconceived as a means to personal wealth creation. Politicians or PNG big men begin their political careers as ordinary persons, or civil servants, and graduate as business entrepreneurs after their discontinuation from office. A browse through the political chronicles of PNG will reveal this interesting trend. In fact, most medium scale business activities in PNG are owned or partly owned by politicians and ex-politicians. The emergence of politicians-turned-businessmen or vice versa after 1975, and the difficulties in separating business from politics, had sent out false signals to aspirants to political office. Contesting elections today has become a god sent opportunity to wealth accumulation. Cases of diverting public monies into personal accounts or into those of the politician’s business associates are reported everyday in the daily newspapers.

An example of how politicians or PNG’s “big men” divert and steal public funds – when government funds (millions of Kina) are released for projects, politicians often pretend to open trust accounts to be managed by government department secretaries. While the money is in the trust accounts, a network of signatories to the money is established to draw out the money. When this is done and in order, third parties (often their cronies) are consulted and asked to submit project proposals or register ghost companies with bogus claims so that payments can be made to them. Eventually the money is transferred and shared between the key players. The key players of this political mafia gang type network include some of our politicians; government CEOs, secretaries, directors; and their financial controllers. They establish networks with bankers, accountants, lawyers or other specialists to help them generate, move or store their illicit income. The transaction is often enabled by professionals from many fields. With the network strongly established, creating an atmosphere of mutual trust and reciprocity; they attempt to provide a legal appearance to corrupt transactions, producing legally enforceable signatories; and they help to ensure that no one is blamed in case of detection.

Tribalism in the Highlands and other parts of the has also been promoting the “big man” culture. In the Highlands, where tribalism is common, there is a stiff competition between rival tribes in the numbers game of “big man”. The tribe that boasts more big men is a powerful tribe. As a result the tribal big men in the highlands are as powerful as little gods. When the tribal “big man” commands his tribes, they respond with “yes boss”. All tribal members stand ready to defend their tribal big man even when he is guilty. To promote more members of the tribe to big-man status, the big man usually a politician from the tribe requests tribal members to register ghost companies and submit ghost project proposals. He then diverts all or part of the District Development and Improvement grants or other project funds to the companies where the money is stolen – sometimes there is little work done or most of the times the quality of work done is very poor. The transactions are often aided by government officials and bureaucrats. This practice is widespread and is common in PNG were District Development and Improvement grants or other project funds have been diverted, misused and stolen.

Coupled with the PNG “big man” culture, greed, selfishness and individualism has allowed corruption to be integrated into part of our culture escalating the deteriorating of our integral and moral human values. The selfishness and greed of wanting more has led to people stealing from the State wealth through ghost project proposals or by other means such as registering ghost companies where public funds can be diverted to, often aided by corrupt politicians and bureaucrats who benefit from the scheme. As a result we have developed a culture of only caring for ourselves. We don’t care about the consequences of our actions or decisions in the lives of others. We simply tend to think that what happens to others is “none of our business”. Sadly, this is not a reflection of our Christian values and believes, which we always claim as in a Christian country.

The desire for the destruction of our country and future in the pretext of accepting corruption as a norm for the last 37 years of independence has led to the emergence of a complicated attitude problem. As a result it has become part of our upbringing and has been slowly fueling corruption. We have invented shields of ignorance and pretended that there is nothing happening at our doorsteps or that of our neighbors. We defend ourselves when we are criticized, exposed or investigated for corrupt practices. We always try to play the game of not guilty, knowing well that we will eventually come out clean by manipulating a corrupted and often flawed judicial system. We take refuge as Christians in a Christian Country; pray, attend church services, take the Bread of Life and preach the gospel to be trusted and accepted. We take temporarily relief by blaming others for own problems, taking advantage of a very large illiterate population.

We have accepted corruption as a norm but did we admit it as a problem. In the following I will discuss some of the confessions by our former and current politicians and citizens who admitted corruption is a problem, as reported in our two daily news papers.

CORRUPTION IS A NORM BUT DID WE ADMIT IT?
Our inability to address corruption, confusing ourselves between the two extremes (cultures) – one inherited from our ancestors and one inherited from our colonial masters have allowed corruption to flourish in the social, economical and political settings unattended for the last 37 years of independence. But did we admit we have a problem? In the following, I discussed some of the confessions by our former and current politicians and citizens who admitted corruption is a problem, as reported in our two daily news papers.

When tried to shake off a shaky coalition government surrounded by scandals of the Sandline and economic crisis in 1997, the former Prime Minister late Sir William Bill Skate in a press release, attacked Sir Julius Chan (also a former Prime Minister) as ‘ultimately responsible’ for his Ministers’ conduct during the Sandline crisis. He said ‘our great nation of Papua New Guinea has been plundered and pillaged by a scattering of politicians and corrupt leaders and we want this sad chapter to be closed.’ He then called for an Independent Commission Against Corruption (ICAC), saying ‘if you have nothing to hide you have nothing to fear’. Soon after, Mr Skate expelled Chan’s PPP from the Government. It’s sad especially when a head of a country confessed corruption is an issue yet let unaddressed to grow from bad to worse over the years.

Sir Mekere Mourata when he was PNG’s Prime Minister in 1999 once described corruption in Papua New Guinea as Systematic and Systemic. Systematic because it is well planned, organized and cleverly executed to steal large sums of public funds (money) avoiding being detected and caught. Systemic because the current systems in place or the lack of strict checks and balances facilitates or is conducive for corrupt practices to flourish in the public sector for the last 37 years. Is Sir Mekere Mourata not responsible for failing to promptly investigate into the fatal shooting in June 2001 of Steven Kil, Peter Noki, Thomas Moruwo and Matthew Paven during a police operation against anti-government protesters at UPNG?

Former MP for Lae Open and then Deputy Opposition leader Bart Philemon in 2007 claimed the PNG’s politicians as ‘Dirty money MPs’. He claimed that Papua New Guinean politicians were walking on a “minefield” of “dirty money” from unscrupulous people with money, who were hell-bent on influencing political outcomes for their vested interests. The claim was made at the 7th annual Ethics Symposium of the Divine Word University’s Faculty of Business and Management in Madang. Mr Philemon said the country faced the real danger of seeing its Members of Parliament bought out by those with “big pockets (of money)” to get political favours for their vested interests. “How can we ensure our politicians survive this minefield?” Mr Philemon asked. In direct reference to the 2007 election where he observed large sums of money allegedly used by vested interests, Mr Philemon claimed some of the winning candidates demanded their election expenses be refunded if they were to join certain political groups in the lead-up to the formation of the new government last month. Such claims by MPs are common when in the Opposition but when in the Government it is a rare scenario.

The former National Planning Minister, Paul Tiensten in 2008 claimed that there was a “10 per cent” syndicate operating out of the Vulupindi Haus, the headquarters of the departments of Finance, Treasury and National Planning. The Minister made this revelation when announcing the National Executive Council’s decision to replace department secretary Valentine Kambori with Joseph Lelang. Mr Tiensten said: “This building houses a syndicate … everybody is getting a 10 per cent cut to approve a cheque.” He said National Planning will start cleaning the department and the rollover effect will help clean the other two departments as they work together. Is Mr. Tiensten a credible and reputable person to raise such allegations? From what I know he is yet to tell the people of Papua New Guinea about the disappearance and whereabouts of billions of kina he managed under the National Planning department.

HR Holdings Limited managing director and former chairman of the PNG Manufacturer’s Council Sir Ramon Thurecht in March 2008 made a similar claim of a 30 per cent syndicate involving bureaucrats and politicians begging businesses for money before work can be done. But, he said the businesses could not speak out because of fear the bureaucrats and politicians would retaliate. He said “our biggest challenge now is to work with the Government”.

“Corruption in PNG will reach a dangerous trend if leaders and publics servants implicated are not prosecuted”, prominent lawyer Dr John Nonggorr said in September 2007 when commenting on PNG’s ranking in the Transparency International Corruption Index , which fell by 13 places. Dr Nonggorr said the implications of widespread corruption domestically must not be underestimated. He said it had serious consequences for governments, governance and the continued functioning of a State. Dr Nonggorr said that with basic public services such as schools, hospitals, roads and bridges in a deplorable state throughout the country, the inability of the State to protect public property by preventing corruption, would lead to the loss of respect for the State, its institutions and authority generally. “This would give rise to public disobedience, which may demonstrate itself in public disorder including violence.

The rest of Papua New Guinea has joined the bandwagon; as I have observed a lot of anti-corruption websites or blogs starting to emerge. Papua New Guineans are now in large growing numbers using the social media to their advantage by writing and posting about our country’s worst night mare, corruption epidemic. Also, the editorial or viewpoints columns of our local news papers contain a significant number of letters or views of Papua New Guineans writing everyday about our friend, relative, and wantok – corruption. Papua New Guineans are now starting to wake up from their long sleep to face their tamed monster – describing it as a faceless evil or something worse, whatever they can think, name or describe it.

CORRUPTION A NORM: HOW MUCH HAVE WE BENEFITED?
We have accepted corruption as a norm yet we have admitted it is a problem yet we let it to flourish unattended for the last 37 years of independence. That means everyone in this country must have benefited from it and are better off than other countries. But how much have we benefited?

I am from the highlands where the PNG’s “big men” culture strongly exists. To me I don’t easily accept the fact that these big men or chiefs have been subjecting the future of our beautiful country to ransom. I find it extremely impossible to understand why Papua New Guineans have been tolerating the big men culture letting them getting away unpunished while we have been suffering in a rich country.

Because I don’t drink from the same cup or eat from the same plate with politicians. I don’t share a same wife and children with them. They don’t provide the daily needs of my family. I struggle everyday to provide something on the table for my family from my own hard work and sweat. The fortnight salary I get is simply not enough to rent a house in the city. It cannot even last two weeks. Having three meals a day is still a luxury and a dream.

I see our politicians with bitter sadness and pain. When I see them, I reflect on the many years of suffering I have been enduring in a rich country. I have been blaming them for making our lives difficult, limiting our opportunities, making our systems malfunction, setting back our progresses, creating loopholes for our systems to be manipulated, distorting of our democratic values, depriving and denying us of our basic human rights and trapping millions of our citizens in poverty.

As a result of corruption, the government of Papua New Guinea has neglected our infrastructure – our lifeline to deteriorate over the years, often blaming the public servants for not implementing government policies.

The daily local newspapers continue to reveal the breakdown of law and order with escalating in violent crimes that often scares foreign investors and tourists away and out of the country. Papua New Guinea is regarded as one of the high risk countries in the world to do business or to visit.

In cities and towns, squatter settlements are quickly developing, becoming a breeding grounds for street ‘mangis’ (boys) who eventually found themselves on the streets searching for opportunities to survive – they simply don’t care if taking another person’s life is a crime or a crime commit to survive. Far worse, there is total no control over the influx of illegal Asian immigrants into the country, taking away business and employment opportunities from the locals. Worse still, there is a stiff rise in the smuggling of cheap low-quality counterfeit goods by Asians into the country, invading government tax systems and feeding our people with rubbish and rob our off our hard earned Kina. The number of illegal businesses (brothels, pornographic movies and gambling) conducted by Asians has dramatically increased over the years, undermining the rule of the law.

These are painful, deep problems that quick fixes will not solve them. But we cannot let it unaddressed only to haunt our future or that of our children’s or their children. There should be a way out and I will discuss this bellow in the final session of my discussion.

IS THERE A WAY FORWARD?
Yes there is a way forward. The big men culture is neither our destiny nor our future. We cannot deny ourselves of a better life and pretend that corruption is a norm. Every Papua New Guinea must be on equal footing with our political leaders and play on a same level playing field. There are no two sets of laws in this country. There is only one constitution for every citizen in the country regardless of creed, race, ethnicity, religious background or political affiliations.

We cannot let big men ruin and deprive our future because we don’t eat from the same cup, eat from the same plate or sleep on the same bed. Everyone should be given and should have equal opportunity to excel in life as one desires. This country and everyone who occupies it from time to time should rise above their full potential.

We are not going to and shall not continue to suffer in a very rich country where we should be better off than other countries that are not rich as our country. Nor we cannot to walk under the shadows of the so called PNG’s “big men” culture. This is not our future and our destiny.

I don’t want my children to go through the suffering that I am going through every day in this rich country. I don’t want to live and die leaving behind a future that is uncertain for my children. When I know that I have the opportunity to at least achieve a change for this country – I don’t want to die without trying it.

The time is now to start act to stop corruption. To stop corruption we must rise above our own fears and doubts. We must defeat our confessions of “big men” culture and reject it. We must trade our greed, selfishness, bribery and wantok system cultures and adopt caring, giving, protecting and defending cultures. Remember, our ability to extract our natural resources to sustain our future will not be achieved without consequences. One day our ability to extract more of these resources will be questioned as our country is struggling to maintain a delicate balance between our increasing demands and natural laws which will eventually come into play and halt our ability to extract more of these resources.

It’s about time we need to write a bible about corruption in Papua New Guinea. Let’s preach our corruption bible in every corner of Papua New Guinea exposing the people who have been stealing and how much they have been stealing from the national wealth. We expose how much they have before becoming politicians or public office holders and how much they have amassed after becoming a public servant. If we can expose corruption to every Papua New Guinean, I believe they will accept it as a message of hope because 99 percent of the populations are not aware of the corruption problem. They are not aware of what we have been writing and discussing on every social networking sites and blogs. None one in this country has committed his life to preach the gospel of anti-corruption.

Yes this is the ONLY way forward. If you truly believe in this country and have been thinking that this country should be on its way progressing and advancing to achieve the status of a developed country in less than hundred years but is not because of the corruption, please do not hesitate to join me. I have lived in this country long enough to know exactly what has been going on. I also know a way forward for PNG to be a country free of corruption but full of patriots who will bet their lives for this country and want to achieve greater and extra ordinary things.

Contact the writer: lucaskiap1080@gmail.com
Facebook : PNG Anti Corruption Movement.

Questions hang over PIH registration and later deals

January 9, 2012 3 comments

By Peter Korimbo

Pacific International Hospital (PIH) was registered under suspicious cirmcumstances. When the issue of registration came up with the Medical Board of PNG (chairman late Dr Pangatana), there were many issues the PIH had to fulfil before a licence was granted to operate as a hospital. The Health Minister at the time used his ministerial power to order the Medical Board of PNG to grant the licence. It was common knowledge at the time that the particular minister a “very close” friend of the principal owner of PIH.

The ownership issue of PIH has to be revealed so the PNG people know. A foreigner came into our country convinced a retirement benefit fund to purchase the property and turn it into a hospital. Unfortunately, the general public may wrongly believe that the hospital belongs to the retirement benefit fund.

Only few years ago Motor Vehicle Insurance Ltd bought shares in PIH. The CEO of MVIL was elected as a director to the board of PIH. This is a bigger scam then what appears on the surface.

With the current public outcry about the fatal mishaps at PIH, we learn late last year that the private hospital, owned by the Independent Public Business Corporation, on the hill was given to PIH even though other reputable local and overseas medical companies bid. The decision was made by the Somare regime. I wonder if Honourable Mekere Morauta [Minister for Public Enterprises] can look into the circumstances under which the decision was made and if there is evidence of foul play in awarding it to PIH then he should revoke it and award it to another bidder who can manage the hospital as a truly INTERNATIONAL HOSPITAL. This hospital on the hill belongs to Papua New Guineans and the business should go to Papua New Guineans. It is known that overseas companies who bid offered in their bid to run it as an international hospital for IPBC. Over to you Sir Mekere.

With influx of multinational companies to PNG currently, PNG will lose out big time in revenue from health sector as we have been now. All their personnel will be sent to Australia for medical problems. PIH here with it’s reputation will be overlooked by these multinational firms.

If the Department of Health is to investigate PIH then Dr Sapuri should disqualify himself as the chairman of the medical board. There is a conflict of interest here.

The Minister of Health now shoul not backdown on his promise to investigate and dismantle this institution which has been responsible for many unavoidable deaths of nationals.

Two years ago I brought an Australian who suffered a severe attack of stroke. He was left unattended on the trolley in the outpatient cubical for more than 6 hours. Just Imagine if he he had another attack. This was because he had no money for up front payment. Finally when the daughter was notified and she came with the money, the treatment commenced.

The doctors who defend PIH now are being forced to do so by the management. Why did they not come for many years now that PIH has been compromising patent care?

Morauta: Woodlawn Capital statement a fabrication

November 29, 2011 4 comments

Minister for Public Enterprises, Sir Mekere Morauta, says Motor Vehicle Insurance Ltd had confirmed to him that it had not authorised the statement released by Woodlawn Capital today, purportedly on MVIL’s behalf.

“The statementis a fabrication,” he said.

“MVIL confirmed to me that it had not approved its release.

“It also omits one central fact: the transaction was illegal because MVIL did not obtain any of the approvals it was required by law to get before proceeding.

Morauta added that Woodlawn should “stop tryingto confuse the issue and just bring the money back.”

Mekere struggles to get a hearing on Glenn Blake and Somare

September 1, 2011 2 comments