PNGi INVESTIGATES
Is Ihu SEZ a new honey pot for rent seekers and profiteers?
Reportedly, a gleaming new city is about to arise from the swamps, grasslands and forests of Gulf Province.
Across 85,000 hectares of land a mirage-like world of sparkling new government buildings, world class public services, a light-rail system, a deep-sea port, new military base with its own airstrip, hotels and an international airport are all to be built.
There will evidently be well paid jobs for everyone. As many as 200,000 will be employed in timber processing alone. The revenue from new industries, petrochemicals, fish and timber processing will pour into government coffers. As much as K12 billion a year is promised to boost the nation’s annual budget.
To turn all this into reality, K100 million in public money is being entrusted to a private company with no identifiable record for transparency, accountability or good governance.
Named the Ihu Special Economic Zone, the project has been given the green light by the National Executive Council, and will operate in effect like a mini-nation within a nation with its own unelected governing authority and regulatory regime, reduced tax rates and relaxed labour laws, all of which is designed to attract major investments.
The project is led by Peter KenGemar, a geologist and a business partner of Mozammil Gulam Abbas Bhojani who was recently convicted in Australia over a conspiracy to bribe local officials in Nauru. There is no suggestion KenGemar was implicated in this conspiracy.
This comes against a wider backdrop where mega-projects have proven particularly vulnerable to abuse, owing to the large volumes of public money involved and the lack of accountability or oversight.
Central City, Durand Farm, the Konebada Petroleum Park, Pacific Marine Industrial Zone, the K10 billion Waigani office complex, and Finschhafen Cryptocurrency Economic Zone are just a few recent examples reported on by PNGi.
Experience would indicate Ihu Special Economic Zone ought to be put under the microscope.
Grandiose plans
The list of tall claims made about what the Ihu Special Economic Zone will encompass and the benefits it will deliver have a dream-like quality.
The state of the art public facilities will include a large new hospital, a light rail transport system, resorts and hotels, parks and leisure areas, a new university and technology centre, and modern executive-style housing estates.
Image: Ihu SEZ facilities will include, clockwise from top left, a modern hospital, light railway, residential estates and a new university.
On the industrial side, there will be up to a million jobs in manufacturing with 200,000 people employed in timber processing and another 200,000 in fisheries and the rest in oil, gas and petrochemicals, according to project director, Peter KenGemar.
Other estimates are rather more modest, reflecting the lack of clarity and confusion surrounding the project, but still substantial; 25,000 direct jobs and 250,000 indirectly employed.
The industries attracted by the SEZ will generate substantial government revenues according to project proponents. K10-12 billion a year will be pouring into government coffers upon completion of just the first stage. This would effectively double the national government’s current tax income, which is estimated at K11 billion for 2021.
How one single industrial zone can deliver as much tax revenue to the government as the whole of the rest of the economy is not explained. It seems an especially tenuous prediction given the SEZ aims to attract industries to the area with promises of reduced taxes and free trade.
The Special Economic Zone Authority Act offers generous corporate and income tax reliefs on top of duty free imports and exports.
Delivering the promised revenues will not come cheap though. The total cost to build the Ihu SEZ is a staggering US$6 billion (K21 billion) over fifteen years according to recent statements by KenGemar.
US$2 billion will be spent in the first five years to fund critical infrastructure. This is after K100 million is spent on the ‘social and environmental licensing’ – land acquisition and impact studies.
These numbers are substantially higher than the K4.4 billion cost announced in other recent headlines and in presentations made by KenGemar in 2019 and 2020; again reflecting the general confusion and apparent loose arithmetic that is part of the project design.
KenGemar has also made eye-watering claims about the amount of timber resource in Gulf province that could be processed in the SEZ.
The remaining timber resource in the Kikori concession alone, he claims, is worth US$6 billion in round log form and that could be tripled or quadrupled to over $20 billion through downstream processing [see 6.35-7.08 in the video above].
The $6 billion figure claimed by KenGemar is almost seven times the value of all the timber harvested in the whole of Gulf Province over the last twenty-seven years.
When contacted by PNGi, Peter KenGemar refused to say if he stood by all the claims he has made about the benefits the SEZ will deliver and failed to provide any documents to support his numbers.
Zero accountability
Good governance and accountability are essential prerequisites for any public enterprise, even more so for one that is seeking to attract billions of dollars in private investment.
Any manufacturer, service provider, financial institution or indeed foreign government is not going to invest in the Ihu Special Economic Zone without doing some basic due diligence.
That due diligence often starts with a look at the companies or bodies involved in overseeing the project, and in particular who sits on their Boards of Directors. A reputable, well intentioned and well run company/body will likely have a range of experienced corporate and public figures on its board, people who have been engaged in relevant industries at the highest level, people with a high level of professional education and who reflect a range of different skillsets.
There are two registered companies that bear the name of the Ihu Special Economic Zone; the Ihu Special Economic Zone Development Company Limited and Ihu Special Economic Zone Enterprise Limited.
According to Minister for Foreign Affairs and Kikori MP, Soroi Eo’e, it is the Ihu Special Economic Zone Development Company that ‘has developed the [SEZ] concept’ and ‘prepared all the necessary documents’. It is also the company that has been approved by the National Executive Committee to implement the SEZ project.
Ihu SEZ CEO, Peter KenGemar, is a director of both SEZ companies. He, along with Serina KenGemar and Henry Eo’o are the only three directors of Ihu Special Economic Zone Development Company.
The Boards of both companies appear to lack the range of relevant experience, skills, independence and diversity that would be expected for a major public and private investment project.
They are also devoid of any central government representation. This is despite a local District Development Authority resolution that the Board of the Ihu SEZ Enterprise should include State representation.
Part of the Minutes of the Kikori District Development Authority meeting of November 2020
Contested ownership
In October 2020, Kikori MP and government Minister, Soroi Eo’e, went public with claims that he had received death threats due to false speculation over the Ihu SEZ project’s ownership structure.
Eo’e said it was false that his son, Henry Eo’e, SEZ project director Peter KenGemar, and himself owned shares in shelf companies set up to administer the project.
“The ISEZ project is totally and wholly owned by the by the KDDA (Kikori Development Authority) through the Kikori Resource Holdings Company on behalf of the people of Kikori District.
“Ihu Special Economic Zone Limited is a shelf company established to carry the shares of the landowners, 50 per cent of which I carry and another 50 per cent which ISEZ project director Peter Kengemar carry on behalf of the LLGs.
“The Ihu Special Economic Zone Development Company Ltd is the third company associated with the ISEZ project.
“This company is 100 per cent owned by Direco Services Limited.
“This company has developed the concept, prepared all the necessary documents for the KDDA and the state, and as per the Special Economic Zone Act 2019.
“The NEC decision No. 269/2020 recognises it as the company that will manage the project office to deliver the project.”
Let’s look at each of these claims in turn.
Firstly, Eo’o’s claim that the Kikori Development Authority owns the Kikori Resource Holdings Company is not true on the face of filings submitted to the corporate registrar at the IPA.
All the 100 shares in Kikori Resource Holdings Company are, according to the official record, owned by Soroi Marapo Eo’o himself.
No trust agreement has been filed with the corporate registrar. So, there is nothing in the company records to suggest the shares are held on trust for or on behalf of any other entity or persons or that Eo’o is simply a nominee shareholder.
Eo’o was, at the time he made his statement, correct correct that 50% of the shares in Ihu Special Economic Zone Limited, which has now been renamed Ihu Special Economic Zone Enterprise Limited, were held by Peter KenGemar and 50% by himself. A few weeks later though, that share structure was changed. Peter KenGemar was removed as a shareholder and 48 of his 50 shares were redistributed to the four Local Level Government Presidents from the Kikori region. KenGemar’s other two shares were allocated to Eo’o, bringing his stake in the company to 52%.
No documentation has been lodged, which would indicate that Eo’o’s shares are held in trust for or on behalf of the landowners, as Eo’o claims.
In any event, it is not clear what the role of Ihu Special Economic Zone Enterprise Limited is or that it owns anything of value. According to Eo’o the ‘Ihu SEZ project’ is owned by the Kikori Resource Holdings Company, and it is the separate Ihu Special Economic Zone Development Company that is managing the project.
Eo’o was also correct to say that Ihu Special Economic Zone Development Company is 100% owned by Direco Services Limited. That is not though the end the ownership chain. Direco Limited is, in turn, 100% owned by Genesis Resources Limited and Genesis is in turn jointly owned by Peter KenGemar, John Pipai and Philip Pousai.
Neither Direco Services or Genesis Resources has filed an annual return for any year since 2011. According to those 2011 returns, neither company had any employees and they had combined assets of just K3,100.
With no annual returns for nine years, no declared employees and assets of K3,100, these organisations would appear to be a poor choice to be entrusted with K100 million of public money.
It is unlikely then satisfactory public account will be made of how the SEZ moneys are spent, a situation that exposes the funds to potential abuse. As private companies with private shareholders, none of the three companies involved in the Ihu SEZ will be subject to Auditor General scrutiny as they are not public or State entities.
Thus, it would appear that the corporate structure for the Ihu SEZ provides no statutory accountability and zero transparency.
Company Registration Details
Questionable legality
The Ihu SEZ is being developed by a privately owned company. It is questionable whether this is in fact legal.
The Special Economic Zones Authority Act (2019) was certified into law on 18 February 2020.
The Act governs the establishment, development, operation and regulation of all SEZs in PNG.
The Act creates an SEZ Authority and mandates that this Authority is the single developer and regulator for all SEZs, and assumes responsibility for selection of sites, their development and operation.
The Authority is to be an independent corporate body established as part of the National Public Service and subject to the Public Finances (Management) Act and the Audit Act. It is to publish annual financial statements. This is to ensure SEZs are transparent and accountable.
As we have seen, the two companies bearing the name of the Ihu SEZ are not part of the public service and not subject to the Public Finances (Management) Act and they do not publish annual financial statements.
According to the Act, the SEZ Authority is to be governed by a Board comprising nine Directors drawn from both the public and private sectors. The Act specifically states the Authority’s CEO is not to be a member of the Board and politicians are expressly ineligible.
In contrast, the two companies developing the Ihu SEZ are controlled by a small number of Directors, the CEO sits on the Board of both, a government Minister sits on the Board of one company and appears to own fifty-two percent of the shares.
According to the Special Economic Zones Authority Act, the Chief Executive Officer of the Authority shall have sound experience in the field of law, accounting, management, public or private sector administration, or engineering.
The CEO of the Ihu SEZ, Peter KenGemar is a geologist by training.
Looking at his professional track record there are some details worth noting. In 2016 he entered into business with Mozammil Bhojani and Imran Bhojani, through the company Radiance International PNG Limited.
In 2020 Mozammil Bhojani was convicted in Australia of conspiracy to bribe two Nauru government officials with more than AU$100,000 in kickbacks in return for favourable phosphate shipments for his company Radiance International Pty Ltd. Mr Bhojani was sentenced to two-and-a-half years intensive correction.
Mozammil Gulamabbas Bhojani was convicted in Australia of conspiracy to bribe in 2020. Photo: ABC News
The whole Ihu SEZ concept is premised on giving foreign investors access to the natural resources of Gulf Province – timber, fisheries, oil, gas and petrochemicals. It is hardly reassuring, from a due diligence perspective, that KenGemar’s business partner has an international record for bribery in relation to the trade in natural resources.
Conclusion
Peter KenGemar says K2 million was spent by the central government on the Ihu SEZ project in 202o; this year Waigani is providing K10 million in funding and K100 million has been promised to 2025. How much was previously spent on the development of the project concept by the Kikori District Development Authority has not been publicly disclosed.
There are no publicly available financial statements or audit reports to show how the public money invested in the Ihu project to date has been spent and there is little likelihood there will be any greater transparency in the future.
Project director, Peter KenGemar, has though publicly defended his role in the project and the amount he is earning, although without revealing any figures:
“…my rates working for international companies is very very high. You just have to google international rates and you will find proof for yourself that people of my calibre don’t come cheap because we deliver results. I dont [sic] charge my District and my people of Kikori those rates because my people suffer and need my expertise.”
It is a shame that thus far, that expertise and calibre is not yet reflected in the grandiose and patently unfeasible claims about the project’s potential employment and revenue generation potential, nor is it reflected in the calibre of the transparency and accountability measures put in place to date to safeguard the spending of public monies.