Minister and Secretary Misled Govt Over K10 Billion Tower Deal

A Dodgy Deal Claims State Solicitor

The rationale for the Waigani office block is set out by Personnel Management Secretary John Kali on 11 May 2011, in a letter to the Lands Secretary:

Some departments are housed in Government owned offices but the vast majority occupy leased premises. The annual cost for leased accommodation in Port Moresby has risen to approximately K108 million. The Government has, as a result of the above situation, determined that the public service should be concentrated in Waigani and the Government land be developed/redeveloped in order to accommodate staff in owned premises i.e. a Waigani Office Precinct should be developed.

Then on 5 September 2012 the Minister for Public Services, Puka Temu, ordered John Kali to begin negotiating a Build Operate Lease Transfer (BOLT) style arrangement with a company Naima Investments Limited, that would apparently solve this problem, or so it seemed.

Another report produced by the Ombudsman Commission reveals, the year before, Indonesian fugitive Joko Tjandra acquired a PNG work permit as CEO of Naima Investments Limited (Tjandra is also known by the alias Joe Chan). Tjandra had fled Indonesia the day before he was convicted of a major fraud by the Indonesian Supreme Court.

The Ombudsman Commission observes ‘Naima Investments Limited did not submit any proposal to the Minister for Public Service’. It is unclear how the Tjandra led company came to be at the centre of this major proposal being spearhead by Puka Temu.

Three weeks later on 25 September an MOU was struck with the company, under Kali’s leadership.

The rapid pace of the project hit a snag on 3 October 2012 when the Government Office Allocation Committee raised legal concerns over what was being proposed. Advice was sort from the State Solicitor, Daniel Rolpagarea.

He made clear any deal which would oblige the state to pay over K300,000 for a good or service, needed to be put out to public tender through the Central Supply and Tender Board (CSTB).

Rolpagarea explained:

Even though the purpose of the PFMA [Public Finances (Management) Act] is to regulate public expenditure and it may be argued that in this case there is no funds being expended by the State for the construction of the building and fit-out works, however, the rentals that will be expended under the leasing arrangement is part and parcel of the BOT [Build Operate Transfer] arrangement and therefore cannot be separated as a separate component from the construction of the building.

It is not clear whether John Kali shared the advice with his Minister, Puka Temu. Nevertheless it can be reasonably assumed that as an experienced Minister Temu would be aware of the Public Finances (Management) Act and its implications.

Nevertheless, Minister Temu made a NEC submission asking them to approve the arrangement with Naima Investments Limited, despite the fact there had been no public tender.

In effect, the State Solicitor’s clear advise was being ignored.

On 9 January 2013 the NEC approved the proposal ‘in principle’. On 3 April 2013 an aggrieved State Solicitor wrote to John Kali.

The State Solicitor had received evidence that John Kali in fact told the Government Office Allocation Committee that Mr Rolpagarea green lighted proceeding with the Naima Investments office block deal without public tender.  Rolpagarea made clear this was a lie. He had never given the green light to circumvent public tender or the CSTB:

In the last GOAC [Government Office Allocation Committee] meeting held on the 8 March 2013, you informed the members that the Prime Minister was in agreement with the new proposal by Naima made in Singapore and that a new Cabinet submission was being prepared for Cabinet to endorse … The new Submission as I understand … will direct GOAC to negotiate the Commercial terms of the pre-lease agreement. You further advised that this was being done in accordance with the advice from me. However, as I recall, my advice to you dated 29 November 2012 was for your department to prepare an Information Paper to inform Cabinet of the initial proposal by Naima and I had further advised you that the tender process must be complied with regarding that proposal. My advice to you was not for you to seek Cabinet’s approval because under the Public Finance (Management) Act (“PFMA”), NEC will only act on the recommendation of the CSTB. Unfortunately this was not done for the initial proposal by Naima Investment Limited.

Mr Rolpagarea reiterates the advice in no uncertain terms:

As I had advised you in that letter referred to in para.9 above, Section 40(5) of the PFMA is clear, such transactions are subject to the tender process and therefore the requirements of the PFMA must be complied with. To deviate from the process would result in a breach of that law and would invalidate the awarding of that contract to Naima Investment Limited. The National Courts have held in The State v. Barclay Bros (PNG) Ltd that a contract that does not comply with the tender requirements under s.40 (1) of PFMA is void.

A Second Legal Opinion

Evidence suggests John Kali was not happy with the State Solicitor’s recommendation. He quickly requested a second legal opinion from the  Director of Legal & Investigations Division of Derpartment of Personnel Management, Mr Isikel Mesulam.

Mesulam had once served as State Solicitor, but was disgraced after being ‘found guilty of possessing a pornographic video tape depicting his now-estranged wife having sex with him and other men in Port Moresby’ according to Radio New Zealand. Additionally a Commission of Inquiry into the Department of Finance found Mesulam’s legal advice had led to the payment of an ‘illegal and fraudulent claim’ against the state. It also concluded Mesulam ‘had acted without authority when he provided the legal advice thereby allowing the State funds to be misappropriated’.

In the case of the Waigani office block proposal Mesulam informed John Kali in his view the requirement for a public tender was not so clear cut:

I am of the view that the State Solicitor has not fully appreciated the fact that this is a proposal or an offer rather than an invitation by the State to bid and how that aspect can be attributed to the intent and purpose of section 40(5). The offer is coming from Naima, which is different from the normal case where the State invites tenders … I do not think that Section 40 (5) is intended to or should be stretched to cover a situation where an offer is being made to build at private cost but which the State upon agreement would eventually acquire. This is where I believe the law in its current state is inadequate. Although section 40 (5) makes mention of turnkey and build operate transfer contracts, this has traditionally been more to do with the supply of works and services as requested by the State.

John Kali immediately sent Isikel Mesulam’s alternative opinion to the State Solicitor believing this was a slam dunk. It was not.

Rolpagarea writes back to Kali in disbelief at the quality of the legal analysis upon which his “slam dunk” was based. He notes, with a dash of sarcasm, that Kali’s Director of Legal & Investigations Division sourced some of his argument from Wikipedia:

I have noted the different forms of a Build Operate Transfer (‘BOT’) referred to in that Opinion. I have also noted that the explanations on those various transactions were taken straight from the internet encyclopedia Wikipedia. I appreciate the depth of research the Opinion is based on but I beg to differ on most arguments put therein.

A patient Rolpagarea again solicits clear and unambiguous advice on what the settled law is:

In essence and based on instructions received earlier, the proposed transaction involves Naima committing to build a particular building in exchange for the State committing to lease that building. The commitment by the state is a commitment of public moneys and it is consideration for Naima undertaking the building works. Any legally binding commitment of this nature is a contract for works and services within the meaning of Section 40 of the PFMA and this requires public tender … The [second] Opinion attempts to make an argument based on the fact that the arrangement was proposed by Naima. The law does not make this distinction. It does not matter whether the supplier first approaches the State or the State first requests tenders after properly determining its procurement need. All contracts for supply of works and services (over the prescribed amount) must be publicly tendered (s.40(1) of the PFMA) and any contract which is not is void (see State v Barclay Brothers (PNG) Ltd [2001] PGNC 134).

In the face of the State Solicitor’s energetic defence of the Public Finances (Management) Act, John Kali wrote to the Central Supply and Tender Board asking them if they could solicit an expression of interests from companies for a BOLT style arrangement.

The letter is strange in that it hints at a preferred outcome:

Even though the State is comfortable with the Naima Investments Ltd proposal; it is important that we invite public tenders to fulfil the Financial Management Act requirements, in a more transparent way, as recommended by the State Solicitor. Naima Investment Ltd will be required to submit tender proposal as with all other potential bidders.

The CSTB responded that the proposal made no commercial sense. If Naima Investments Limited wishes to build an office block, the CSTB argued, they are welcome to acquire land, build it, and lease it out through the market, like any other company. CSTB wrote:

The Board finally resolved to reject your request and instead invite Naima Investment just like any private company to build the office tower on its own private land and advertise for tenants to lease the building … the Board is cautious that the concept (BOLT) is not feasible and the State will end up with more liabilities than benefits.

State Solicitor Rolpagarea concurred with the CSTB. If Naima Investments desires to build an office block, he notes, it is welcome to using market mechanisms. It cannot expect the state to underwrite the investment with a BOLT agreement produced in violation of the Public Finances (Management) Act.

Then comes the bombshell.

Temu Misleads Government

In a letter to the Prime Minister dated 1 July 2013, the Public Services Minister Puka Temu misrepresents the CSTB’s advice and omits entirely the advice of the Solicitor General:

In response to this request for open tender, the CSTB stated there was no need for a public tender process because the State would not be forking out public funds for the construction of the new office complex. During discussions with you on this matter you instructed for an open and transparent process in the engagement of a developer/investor for the construction of the new office complex. Therefore, regardless of the response from the CSTB and in compliance with your directions I have directed the Secretary for Personnel Management in his capacity as the Chairman of the Government Office Accommodation Committee to call for Expressions of Interest commencing on Wednesday, 3 July 2013 for a period of one month. [Bold added]

Minister Temu’s selective summary of the letter is highly misleading. The CSTB in fact warned against a BOLT arrangement, claiming it was not feasible. It recommended that if Naima Investments wished to build an office block, it was welcome to using market mechanisms.

Based off this misleading advice from the Minister for Public Services, an expression of interest for the BOLT project was issued by the Department of Personnel Management, an approach that was not in line with the PFMA or the State Solicitor’s legal advice.

Nevertheless, it went ahead. Among other things the expression of interest required a capability statement showing the company has completed at least three BOLT style projects before, in addition to a company profile ‘including financial statement for 2011, 2012, 2013. Including financial turnover within the last 3 years’.

Three companies were shortlisted on the basis of this expression of interest. Following a policy submission made to Cabinet on 28 August 2013, the NEC ‘approved in principle, Central Land Limited to be the financier/developer of this project’ (Prior to 2013 Central Land Limited was known as Baibua No.1 Limited).

This NEC decision was potentially improper for a number of reasons. First, there had been no public tender organised by the CSTB, as required under the Public Finances (Management) Act. Second, Central Supply Limited was a shell company, with no employees, no turnover, and no assets, according to its own annual returns. It clearly failed to meet the requirements set out in the expression of interest.

A third concerning factor, Central Land Limited shared a registered office address with Naima Investments Limited, the company which had been hand picked by Minister Temu to build the Waigani office block in 2012, in a deal deemed illegal by the State Solicitor. Additionally, Naima Investments and Central Land have the same Director, Lady Eleana Tjandranegara – sister of Joko Tjandra – and the 95% shareholder in Central Land Limited, a Hong Kong entity, is currently owned by an individual Agnes Tjandranegara.

Diagram: Central Land Limited and its ties to Naima Investments 2013/14

Nevertheless, John Kali immediately began steps to implement the deal with Central Land Limited.

State Solicitor Rolpagarea again attempted to halt this illegal sequence of events, informing Kali it was in violation of the Public Finances (Management) Act in a letter dated 12 September 2013:

Given the foregoing it would appear that the process that led to the awarding of the contract to CLL [Central Land Limited] has not complied with the requirements under the PFMA [Public Finances (Management) Act] in terms of the tender requirements. CSTB [Central Supply and Tender Board] is the legally mandated body to procure and should have been the body that publicly invited the tenders as opposed to inviting EOIs [Expression of Interest] as was done in this instance. Furthermore, depending on the financial threshold of the contract, CSTB would have been required by the law to make a recommendation to NEC to award the contract accordingly …The failure to comply with the requirements of the PFMA leaves the State exposed to potential suits (Judicial Review proceedings), by those applicants who were unsuccessful, for non-compliance with the requirements of the PFMA if the project continues with CLL as the developer. Furthermore, a contract entered into without complying with the process will be deemed void and unenforceable (State v Barclay Brothers (PNG) Ltd N2090).

Despite this clear advice, Kali continued to execute the arrangement with the shell company, Central Land Limited.

The Ombudsman Commission set out the costs to the public of the unfolding illegal deal, where the state would have to lease the office block for a ten year period:

• Base Rental: K1300 x 23,600 x 32 = K981,760,000 (one year rental cost of the building)
• K981, 760,000 x 10 = K9, 817,600,000 (rental cost of the property over the 10 years lease period)
• Office Fit-out Charge: K350 x 23,600 = K8,260,000 (depending on the type of architectural design)
• Total = K9, 825,860,000 (K9, 817,600,000 + K8, 260,000)

K10 billion is the total bill.

Three Men Must be Held to Account

The Ombudsman Commission concludes that the entire deal was illegal.

It argues that under John Kali’s leadership the Government Office Allocation Committee [GOAC] had failed in its legal duties to the people of PNG:

In the opinion of the Ombudsman Commission, the actions of the GOAC were wrong and improper when it:

(a)       obtained NEC endorsement of CLL [Central Land Limited] (by way of EOI [Expression of Interest]) which was outside of the procurement process provided in the PFMA and Part 13, Division 2, Paragraphs 3 & 4a of the Financial Manual;

(b)       did not inform NEC to re-tender CLL’s proposal in line with the PFMA;

(c)        proceeded to sign a MoU with CLL;

(d)       facilitated the engagement of Central Land Limited on the construction of the Multi-Storey (32 Floor) Central Government Office Complex, though that should have been done by the CSTB.

(e)        proceeded with the signing of MoU and negotiated pre-lease arrangements with CLL to construct a 32 Floor Central Government Office Complex, which was exceeding 12 storeys and in breach of the Waigani City Centre Development Control Policy.

The Ombudsman Commission also observes:

In the opinion of the Ombudsman Commission, the action of GOAC was wrong and improper when it withheld vital clause in the MOU, Pre-Lease Agreements and Lease arrangements regarding the cost of the BOLT arrangement on the 32 Floor Central Government Office Complex building project and service which will cost the State approximately K981, 760,000 in one year which is much more higher than the National Government’s annual budget for accommodation/rental which is at K230, 000,000. This particular information did not reach NEC.

Yes you read that right, under the agreement, the annual cost of one office block to the government would be four times, the total government expenditure on accommodation/rental.

So lets recap the key details from the Ombudsman Commission report .

The Personnel Management Secretary, John Kali, with his Minister, Puka Temu, misled government. Then on the basis of an explicitly flawed legal argument, attempted to cause the state to illegally execute a contract with a shell company, in a BOLT arrangement, that would have cost the people of this country nearly K1 billion annually for one office block, which is four times the current total lease bill for government. These actions were done against the clear and unambiguous advice of the State Solicitor and the Central Supply and Tender Board.

So what happens to the villains in this story?

Puka Temu is made Minister for Bougainville Affairs by Prime Minister Marape.

While John Kali has been awarded arguably the most important diplomatic post in the nation, Ambassador to Australia.

Given the serious evidence that Kali misled the Government Office Allocation Committee, and Temu misled Cabinet, which almost led to a scandalous deal with a shell company linked to the controversial Tjandra family – that according to the Ombudsman Commission would have cost the public K10 billion – this is surely grounds for a hearing to consider whether both men should be removed from their entrusted public posts.

It also has to be asked why both men would pursue a BOLT deal rejected by the CSTB as both risky and commercially unfavourable – a conclusion supported by the Ombudsman Commission – and rejected by the State Solicitor as illegal, with a private company that was according to its own annual returns a shell vehicle led by Eleana Tjandra, sister of an Indonesian fugitive reported to be CEO of Naima Investments?

Finally, the legal footing relied on by John Kali was provided by Isikel Mesulam.

Mesulam was a disgraced former State Solicitor convicted for holding illegal pornographic material. To make matters worse a subsequent Commission of  Inquiry found he solicited wrongful advice without authority, which led to the misappropriation of state funds. Yet Mesulam has been able to retain senior public office, and it appears from the Ombudsman Commission report, continues to solicit wrongful advice that if followed in this case would have led to the loss of K10 billion in public moneys.

Surely such serious repeated failures are grounds for a robust dismissal hearing?

Over to you Prime Minister Marape.