Minister and Secretary Misled Govt Over K10 Billion Tower Deal

It is so often the case that investigations into abuse of power, public mismanagement and corruption only uncovers reprehensible behaviour by politicians and public servants.

Every now and then though a ray of light breaks through the darkness.

In October 2017 the Ombudsman Commission published the details of a major investigation into an improper and illegal decision by the national Government to appoint shell company, Central Land Limited, to build a 32 storey office complex at Waigani. This would take place through a Build Operate Lease Transfer arrangement.

In effect the shell company, which had close ties to the controversial Tjandra family, would build the complex, and the government would lease it at exorbitant rates. At the end of this lease period the State would acquire the property.

If the deal  had gone ahead as planned, claims the Ombudsman Commission, it would have cost the taxpayers K10 billion over a ten year period. The annual rent for this one office block, would have been four times the annual lease bill for all other government accommodation.

There are clear heroes and villains in this sorry tale of government largesse, illegally executed, for the benefit of a private company tied to the Tjandra dynasty, with no declared employees or capital.

The heroes, or to be more exact, the hero is State Solicitor, Daniel Rolpagarea, who refused to be bullied. He helped to save the public from a K10 billion bill!

Image: Daniel Rolpagarea, State Solicitor

Throughout the whole affair Rolpagarea advised government its proposal was illegal and not in compliance with the Public Finances (Management) Act.

The villains in this tale are John Kali, the then Secretary, Department of Personnel Management and Chair of the Government Office Allocation Committee; and, Puka Temu, who was Minister for Public Services (Kali and Temu have retained positions of high office!).

Image: John Kali, Secretary Personnel Management

Image: Puka Temu, Minister for Public Services

Both men misled government, according to evidence uncovered by the Ombudsman Commission, and used their power to proceed with a deal that was clearly and repeatedly labelled illegal by the State Solicitor, while the Central Supply and Tender Board claimed it made no commercial sense.

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.

Image: Letter from Puka Temu to John Kali, 5 September 2012

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.

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.