Ministerial PMIZ Concerns Spot On

Origins of PMIZ

In November 2007 the Minister for Commerce and Industry, Gabriel Kapris, announced  that his government had bold plans to transform Madang into the ‘tuna capital’ of the world .

This, he explained, would be facilitated through the construction of a special economic zone, named the Pacific Marine Industrial Zone (PMIZ).

The Minister later noted that the project would be built on state land twenty minutes north of Madang town, known as Vidar plantation.

He claimed, the site would ‘house up to 10 tuna factories, capable of creating more than 30,000 jobs and hundreds of spin off opportunities’. 

_{Image: Artist’s impression of the proposed PMIZ project.}

To fund the project’s construction costs, in 2009 a tied loan from the Chinese state was secured by Minister Kapris on behalf of the Somare government.

Loan conditionalities include the use of Chinese contractors in the PMIZ’s construction and operation. NGO Act Now claims 70% of the soft loan would have to be awarded to a Chinese contractor. 

According to the current Minister for Commerce and Industry the contract for phase one of PMIZ was indeed awarded to China Shenyang International Economic & Technical Co-operation Limited, without approval from the Central Supply and Tender Board – a fact that should put any advocate of good governance on immediate notice.

Matters get more worrying once we turn to a local company which has been subcontracted to conduct key PMIZ construction work, which the current Minister alleges is marked by outrageous costs and derisory results.

The company’s name is Aces Ventures, its Managing Director and joint-owner is the former Commerce and Industry Minister and PMIZ architect, Gabriel Kapris.

The blessed history of Aces Ventures

Incorporated on 3 October 2008, Aces Ventures was initially owned by a Papua New Guinea citizen, Ernesto Bautista (51%), along with Filipino national, Jeanie Nieva (49%). 

Ernesto Bautista is something of a road construction magnate. One of his other companies, Greenhill Investments, for instance, has benefited from sizeable government contracts.

The Public Accounts Committee observes, for instance, that ‘Greenhill Investment was paid K 2,001,222 between 2002 and 2004 for road maintenance work [in East Sepik Province]’.

The Committee claims: ‘Procurement processes were apparently not followed but despite this fact three payments amounting to K881,590 were made to Greenhill Investments for the Sepik Highway Road Construction Project’.

The Committee continues:

Subsequent to these payments, the Provincial Supply & Tenders Board agreed to a contract with Greenhill Investment and the balance of K 1,119,632 of the K 2,001,222 appears to have been paid upon the approval. Both the Committee and the Auditor General found great difficulty in tracing details of the payments due to a lack of any records at all. No attempt at all has been made by the Department of Finance (or any one else) to bring any accountability to this transaction.

Nevertheless, Greenhill continued to win lucrative public works contracts in East Sepik. Notably, in light of the current topic, the company was awarded a K7.9 million contract to build a ’60m all-weather bridge over the Brugham River’.

We are told by The National that ‘the bridge is an initiative’ of the ‘Maprik MP Gabriel Kapris who sought funding from the national government [in 2011]’.

Like Greenhill Investments, Bautista’s other business Aces Ventures has also been the beneficiary of large government work contracts. For example, Aces Ventures was awarded K8 million to build a bridge in the Maprik electorate whose MP at the time was – you probably guessed, Gabriel Kapris. It was funded through the District Support Improvements Program.

According to the Post-Courier, the Commerce and Industry Minister (Gabriel Kapris) ‘said the contractor had delivered on past projects and he was confident that they would again deliver on the bridge project’. 

It appears Minister Kapris was so impressed by the work of Aces Ventures, that shortly after he lost his parliamentary seat in 2012, he acquired a 26% stake in the company, which Kapris evidently purchased from Ernesto Bautista for K300,000. 

_{Imagine: Aces Ventures Meeting Minutes, 5 June 2013}

The deal was a particularly good one for Kapris. By 2012 the infant company had a stated net worth of K3,448,560, in effect he had purchased a K896,625.60 stake for K300,000 (and this does not take into account the value of its existing contracts, future potential contracts). 

Kapris also became the company’s Managing Director and Chairman. 

_{Image: Share Transfer Form, 8 August 2013}

_{Image: Annual Return 2012}

After the Somare government was ousted by Peter O’Neill, Aces Ventures new shareholder Gabriel Kapris warned the O’Neill government against mothballing the PMIZ project.

He claimed such a move would put the PNG state ‘in question internationally and this is not good for the country’.

PMIZ and Aces Ventures

One can understand why Kapris may oppose the mothballing of PMIZ. Under Kapris’ stewardship Aces Ventures has enjoyed significant success in Madang, as it cleans up on PMIZ construction work.

According to media reports and a National Court judgement, Aces Ventures has been involved in clearing  land, construction of fencing, and building roads in the PMIZ area. In addition to its PMIZ work, Aces Ventures obtained a K973,390.20 contract to upgrade and seal 9.2km of the Ramu Highway in Madang (its not clear if this is PMIZ related).

However, now serious questions are being raised over the PMIZ construction efforts by the new Minister for Commerce and Industry, Wera Mori.

The Minister claims:

The perimeter fencing, which we spent K17 million on, was for 9.27km. What it translates to is that the cost of covering one metre was K1833. Likewise with the 2.47km access road, which was built for K5.57 million. That equates to K328,000 for one kilometre of road.

He continues:

Despite sufficient funding, the status of the 2.47 kilometre access road is unsatisfactory, including a 400m segment of the road for which K5.5 million was already paid. Four million was paid for only one item, that is the main gate. Survey and physical zoning remains incomplete, despite K2.25 million paid to land mark valuers eight years ago.

The Post-Courier claims that the Department of Commerce and Industry has raised serious concerns over this ‘unjustifiable and excessive expenditure’.

However, it is not clear from the Minister’s statement, to what extent Aces Ventures is responsible for this cost blow-out.

Further Concerns Over Aces Ventures

Compounding the Minister’s recent statement, an examination of National Court records implicate Aces Ventures in a range of improper transactions.

For instance, it was successfully sued in court by local landowners for K26,400.00, after Aces Ventures refused to pay them an agreed rate for building 162 metres of fencing.

It also purchased  land adjacent to the PMIZ from a vendor, Selon Limited, in 2009. A contract of sale for portions 1214 (36.11 hectares) and 1215 (16.92 hectares)  was signed with Aces Ventures for the amount of K558,700.

The National Court subsequently found that Selon’s principal, Sali Tagau, acquired the land through fraud. Although there is no indication that Aces Ventures was implicated in this fraud.

Completion of the landed acquisition in Madang faced a final hindrance. Portion 1214 housed a residential settlement made up of former plantation workers, who had lived on the location for over two decades.

According to subsequent court proceedings, settlements households were given several hundred Kina each by Aces Ventures to vacate the land. When residents refused, the National Court contends that police were sent to the site by Aces Ventures on 8 December 2010. Then without: 

warning or notice … [police] conducted an eviction exercise: the Police forced them out of their houses and burned down their houses and destroyed their food gardens. As a result, their houses, which were made of bush materials, were destroyed together with their personal possessions and they had nowhere to live and no food to eat.

The National Court found in favour of evicted residents in tort. It was noted that the police had raised the site at the behest of Aces Ventures, without a court order, and then proceeded to unlawfully destroy homes and personal property.

Aces Ventures also owns other prime plots of land which it has acquired through the controversial SABL lease mechanism.

These transactions, it ought to be noted, occurred before Kapris formally took executive control of the company, with a substantive beneficial interest. However, they create a worrying snapshot of corporate governance within an organisation that has received significant works contracts from government authorities.

Action needed

While we know Aces Ventures has been a key subcontractor involved in the construction of PMIZ, no information has been publicly disclosed on the contracts issued to Aces Ventures, or the conditions stipulated in the contract.

Nor is it clear from the Minister’s statement, to what extent Aces Ventures is implicated in his department’s damning assessment. However, if we cross-match this assessment with press reporting, and national court judgements, it is certainly looking more likely, than not.

Added to this the joint-owner and Manager Director of Aces Ventures, is the former Minister responsible for establishing the PMIZ project and securing an EXIM bank loan from China.

This loan was awarded at a time when the Somare government had acquired another EXIM loan, allegedly through bribery, which led to a series of kickbacks being paid to the Prime Minister, his son and intermediaries, if the decision of the Singaporean Court is to believed – given it was a criminal trial, the burden of proof in this case was high.

We cannot infer from this because one EXIM bank loan, along with National Government co-funding, was subsequently used to solicit kickbacks and contracts to politicians and politically exposed individuals, that this necessarily happened in the case of PMIZ.

However, the fact this arrangement was set up in the same approximate period, by the same government, while a key subcontractor is now co-owned and managed by a former politician who set up this initiative, there is reasonable grounds for concern and thorough investigation.

Added to this, one of the principles of Aces Ventures, Ernesto Bautista, received a range of lucrative contracts from Kapris when a politician. It is certainly eye-brow raising that both men are now in bed together through Aces Ventures.

It is encouraging that the current Minister has publicly drawn attention to his Department’s serious concerns over PMIZ expenditure. But this concern must be followed up by decisive action, including criminal investigations that can confirm whether or not, the PMIZ has been abused in a similar way to the Community College project initiated by the Somare government.

Particular scrutiny needs to be given to Aces Ventures, and the relationship between Bautista and Kapris.

Lastly, it might be asked, why pick on a local politician come businessman, when foreigners are gaming the system at a frightening pace? The answer is simple. If we take the Somare case in Singapore as an instructive example, it is clear that PNG’s vulnerability to predation by foreign companies and investors, is significantly increased when there is a culture of corruption among local leaders who are prepared to turn a blind eye to graft and inflated contracts, in return for kickbacks.

To inoculate the body politic from diseases spread by such foreign bodies, we must first ensure the national immune system is boosted by leaders, and a culture, that are focused on the public good and national interest, over their own private fortunes.

Of course, we do not know if the PMIZ case has been compromised by corruption. But clearly the time has come to find out the circumstances behind the premium prices being paid for prefatory construction work at the Madang site.