Philip Eludeme and the third Manumanu Land Scandal

While much has been written and said about the Manumanu land scandal, the grossly inflated sums paid from taxpayer funds to Philip Eludeme, the long serving Chairman of the Central Supply and Tenders Board (CSTB), have been largely overlooked.

Yet, Mr Eludeme walked away with a cool K16 million for two parcels of land that he had purchased four years earlier for just K200,000, according to the Administrative Inquiry Chaired by John Griffin QC.

Mr Eludeme, a senior public servant, made a profit of over K16m at the taxpayers expense

The amount paid to Mr Eludeme was ‘vastly excessive‘ and the result of ‘considerable impropriety‘ Griffin QC observes. But, no further action has been taken either to recover the money or prosecute Eludeme.

Perhaps that is unsurprising given another striking feature of the case.

It appears the two land transactions were disclosed in advance to the Ombudsman Commission and only proceeded after blessing had been given by the Commission.

Yes, that is right.

According to the evidence presented to the inquiry, the very body allocated responsibility for enforcing the Leadership Code and protecting the nation from political corruption, sanctioned a deal in which a senior public official was able to sell two pieces of land to the State for a price that was ‘plainly excessive‘ and which involved obvious collusion, wrongdoing and fraud.

While the Ombudsman Commission’s role in facilitating the fraud may have been the result of underfunding, overwork and inattention, rather than anything more sinister, the ease with which Mr Eludeme was able to proceed in plain sight once again highlights the obvious ineffectiveness of current oversight mechanisms.

That ineffectiveness is further compounded by the failure of either the police Fraud and Anti-Corruption division or the Ombudsman Commission to take any follow-up action after receiving the Administrative Inquiry findings.

The Background

The story begins in 2012 when the National Executive Council made a decision to relocate the Murray Barracks and Lancron Navel Base to new locations outside Port Moresby.

To effect the move, five portions of land were subsequently acquired, including Portions 422, 423, and 406 (located at Manumanu) and Portion 698 (adjacent to Jacksons airport).

PNGi has previously examined the details behind the purchase of Portions 406 and Portions 698 and the roles played by various high profile figures, including government Ministers,  William Duma and Fabian Pokand former Minister’s  Tim Neville and Ben Micah.

Now we turn our attention to Portions 422 and 423. These two portions were acquired by the Department of Defence in 2015, from companies owned and controlled by Philip Eludeme, according to Griffin QC. The prices paid were K7.4 and K9.2 million respectively.

Mr Eludeme was, at that time, the Chair of the Central Supply and Tenders Board (CSTB). It is a position he held from 2012 until earlier this year.

Under Eludeme’s stewardship the CSTB has attracted much controversy and criticism over its processes and decision making. Controversy that has recently led to its abolition.

From 1 April, the CSTB has been replaced by a National Procurement Commission which sits under the control of the Department of Finance.

Philip Eludeme though, has a much longer history of involvement in national financial scandals. He first came to prominence in the National Provident Fund (NPF) scandal.

A Commission of Inquiry found Eludeme acted as a frontman for one of the central conspirators, Jimmy Maladina. The Inquiry accused Eludeme of perjury, bribery, and unprofessional conduct as an accountant. He was referred to both the police and Institute of Accountants for follow up investigation and sanction.

Eludeme also featured in the findings of the SABL Commission of Inquiry (CoI), because of his ownership of a company at the centre of the Bewani oil palm and logging scam, Bewani Palms Management Limited.

The Administrative Inquiry

The Administrative Inquiry appointed to investigate the Defence Force relocation land deals was a belated political response to the public outcry over the exorbitant prices paid and the questionable roles played by some senior political figures.

The inquiry’s damning report was handed to government in October 2017.

It revealed there had indeed been ‘considerable impropriety which almost certainly included financial inducements to public servants’.

The inquiry, however, was hampered by its lack of investigative powers. It could not force witnesses to give evidence; could not cross-examine them under oath; and it could not demand documentation be handed over.

It, therefore, recommended full follow-up investigations by the police Fraud Squad and the Ombudsman Commission; bodies with ‘substantial investigative powers’ who could compel witness and force the disclosure of documents, and thereby ‘establish the extent of the wrongdoing and the persons involved.

The Land

The land at the centre of the scandal involving Mr Eludeme are Portions 422 and 423, located at Manumanu in Central Province.

This land was designated a State Lease in 1968. At that time it was known as Portion 489. It covered an area of 409 hectares.

It is not disputed that Portion 489 was acquired by ‘companies associated with Mr. Philip Eludeme’ in 2011 for the sum of K200,000 (equivalent to K489 per hectare).

After purchasing Portion 489, the land was subdivided into three new portions, Portion 422, 423 and 2724. Portion 422 comprised 138 hectares, Portion 423, 170 hectares.

The State Lease over Portion 422 was issued to Flystone Amusements Ltd and the lease over Portion 423 was issued to Kosi Investments Ltd.

It is not disputed that Mr Eludeme owned and controlled the companies that held the leases over Portion 422 and 423.

In evidence to the inquiry, Eludeme said that in addition to the K200,000 purchase price for the land, he spent K60,000 on survey fees and had paid for the land to be fenced.

In November 2014, Eludeme publicly advertised Portions 422 and 423 for sale. The advertisements, which appeared in both daily national newspapers, did not indicate a sale price for the two portions.

On 27 February 2015, the Defence Council approved the acquisition of Portions 422 and 423 as Defence Force sites.

On 1st March, Mr Eludeme received a land valuation from an agent he had commissioned in the sum of K16.4 million.

A few days later, Mr Eludeme rejected an offer from the Department of Defence to buy the two portions of land for exactly that amount.

The following month the Department of Lands issued a Notice of Compulsory Acquisition ‘for public purposes and purposes connected with defence… being for the relocation of the Defence Force Murray Barracks’.

Mr Eludeme then indicated he was willing to sell the land and the sale was duly completed later that year.

The Fraud

On 1 March, 2015, Gabriel Du Karap of GDK Valuers and Property Consultants, a private registered valuer, commissioned by Philip Eludeme, valued Portion 422 at K7.2 million and Portion 423 at K9.2 million.

These valuations represented K52,004.33 per hectare for Portion 422 and K53,848.41 per hectare for Portion 423.

According to the Administrative Inquiry, although the wording on the valuations ‘would suggest Mr Du Karap made his valuations on behalf of the Department of Defence, but apparently he was instructed by Mr Eludeme’s agent, Belden Memi and Associates’.

The valuations by Du Karap were, according to the inquiry ‘vastly excessive’. If he was working for the seller, that is not wholly unexpected; a seller will look to advance the higher possible price for his asset.

But, and this was the crux of the fraud set out by Griffin QC, it is then incumbent on the purchaser to expose the seller’s excessive valuation and put forward a much more reasonable figure.

But, instead of challenging DuKarap’s ‘vastly excessive’ valuations, the State’s Assistant Valuer General, Mr Moses Kila, not only endorsed them, he increased them to an even higher amounts.

Not only was there nothing to justify Kila’s valuation from an accounting perspective, it was also done completely outside normal Departmental procedures.

According to the Inquiry report, the proper and normal process in a compulsory acquisition is for the Department organising the purchase to lodge a request with the Valuer General to prepare a valuation.

The Valuer General gave evidence that in this case he never received a request from the Secretary of Lands to prepare a valuation.

All valuations above K500,000 also have to be approved by the Valuer General. But in this case, the Valuer General said he never saw and never approved the valuations for Portions 422 and 423.

The two valuations were instead signed and stamped by his deputy, Moses Kila.

Moses Kila told the inquiry that although the two valuations were signed and stamped by him the reports were actually done by ‘a private valuer’ and he just endorsed those reports.

This itself would be highly improper.

In fact the valuations signed and stamped by Kila were higher than those provided by Du Karap. Du Karap had placed a value of K7.2 million on Portion 422 and K9.2 million on Portion 423. Mr Kila’s valuations were K7.615 million and K9.397 million (a total addition of K612,000).

“Mr Kila found it difficult to explain why he had put a higher value than Mr Du Karap on the 422 and 422 properties”.

The inquiry concluded ‘the most plausible reason for Mr Kila’s behaviour and valuation was financial inducement. Another possibility would be fear of retribution’.

In other words, Moses Kila was either bribed to falsely endorse the ‘vastly excessive’ valuation or he was threatened and acted out of fear.

The only person who we can confidently say benefited from this bribery or threat, was Mr Eludeme.

The Administrative Inquiry concluded that the true value of the land was somewhere around the K488 per hectare mark which Mr Eludeme originally paid. There was nothing in subsequent events that warranted any real increase in value.

The Profit

In 2011, Eludeme bought Portion 489 for K200,000. It covered 409 hectares, the equivalent price per hectare was K489.

The land was subdivided into three Portions, Portions 422 and 423 comprised 308 hectares

In 2015, the State acquired Portions 422 and 423 for K17 million, a price per hectare of K53,246.

That represents an increase of over 10,000% in the value over a 4 year period.

Eludeme says that between 2011 and 2015 he spent K60,000 on surveying fees and also fenced the land, although he wasn’t able to say how much the fencing cost.

Eludeme made a very substantial profit, around K16 million. K16 million that was paid from the pockets of tax payers.

Failed Oversight

According to its website, the purpose of the Ombudsman Commission is

to guard against the abuse of power by those in the public sector; assist those exercising public power to do their jobs efficiently and fairly and impose accountability on those who are exercising public power.

One of its roles is to enforce the Leadership Code; the Constitutional Code of Ethics for our leaders.

Under that Code, a leader, or any company in which he has a controlling interest, cannot seek, accept or hold any beneficial interest in any contract with the State, UNLESS they first obtain the approval of the Ombudsman Commission.

In July 2015, Mr Eludeme wrote to the Ombudsman Commission, disclosing as ‘major transactions’ the compulsory acquisition by the Defence Force of Portion 422 from Flystone Amusements and Portion 423 from Kosi Investments.

He made clear the two companies were owned by him and his family, as already disclosed in his annual returns to the Commission.

Mr Eudeme asked the Commission to inform him urgently should it wish to raise any issue with the proposed transactions.

According to the evidence presented to the administrative inquiry, in October 2015, the Ombudsman Commission granted Mr Eludeme approval to go ahead with the two ‘business transactions’.

There is no evidence the Ombudsman Commission ever inquired into the amount of money to be paid or the process involved in determining the valuation. If it did, then clearly those inquiries were sadly deficient.

This is despite the fact the Central Supply and Tenders Board had had a prior involvement in the matter. At an earlier stage the Board advertised publicly for land to be acquired by the Department of Defence for its relocation exercise and a tender process had been put in place.

According to lawyers representing Eludeme, there were no bids made in response to the tender and the CSTB had advised the Defence Department it could do nothing further. It was then up to the Department ‘to acquire land on its own’.

We do not from the inquiry report know why Mr Eludeme did not offer Portions 422 and 423 to the Defence Board when the tender was publicly advertised.

False records

According to the Administrative Inquiry, the country’s hard working and honest taxpayers have been defrauded of millions of Kina.

Mr Eludeme was the obvious beneficiary.

Investigations by PNGi also reveal that Mr Eludeme seems to have been deceiving regulators and the public by filing false or misleading financial returns for his companies.

Annual returns are an important public statement of a company’s financial position and governance. The returns should provide regulators, lenders, and others entities dealing with the firm with a ‘true and fair view’ of its financial affairs and activities.

The importance of the annual return as an essential part of the corporate governance framework is reflected in the strict penalties for providing incorrect or misleading information.

A company that does not file an annual return within 6 months of its due date may be de-registered (Companies Act Section 366(f)).

The directors also have a personal liability. Where a company fails to submit an annual return that provides all the specified information by the due date, every director is guilty of an offence (S.215(9)) and is liable to a fine of up to K10,000.

With that background lets examine the Annual Returns filed by Philip Eludeme.

Remember, Eludeme’s company Flystone Amusements was granted a State Lease over Portion 422 in 2011. The lease covered 138 hectares of land and was purchased for about K67,000

Eludeme’s second company Kosi Investments was granted a State Lease over Portion 423, also in 2011. The lease covered 170 hectares of land and was purchased for K83,000.

By 2015, the value of these properties had grown exponentially to K7.6 million and K9.4 million respectively. These were the valuations placed on the land by the Assistant Valuer General and these were the amounts paid to Flystone and Kosi as ‘compensation’ for compulsory acquisition by the State.

But this good fortune for Eludeme’s companies is nowhere reflected in their Annual Returns filed with the Registrar of Companies. Returns that were personally signed by Philip Eludeme.

Image: Extracts from the Flystone Annual Returns filed by Philip Eludeme for the years 2011-2016

The Annual Returns for Flystone Amusements for 2011 (the year the company was granted its lease over land purchased for K67,000) all the way through to 2016 (the year after the compulsory acquisition for K7.6 million) show assets of K10,000 and no liabilities.

How can a company that owns a State Lease over land purchased for K67,000 have assets of only K10,000? How can those assets remain fixed at K10,000 while the value of the land apparently rose to K7.6 million?

Image: Extracts from the Kosi Annual Returns signed and filed by Philip Eludeme for the years 2011-2016

The same story is revealed in the returns filed by Mr Eludeme for Kosi Investments. Here the stated assets and liabilities are larger, K732,897 and K735,037 respectively. But again, they never waiver over the six years from 2011 to 2016.

By 2015, Kosi Investments was the owner of a State Lease supposedly worth K9.4 million.

It is hard to escape the conclusion that Mr Eludeme has been filing false or misleading annual returns.

We can also question why the Registrar of Companies has taken no issue with actively trading companies filing exactly identical financial information year after year.

Where to Now?

The case of Portions 422 and 423 and the excessive profit made by Philip Eludeme, according to the Administrative Inquiry, is yet another example of the rampant political impropriety that is blighting the nation and the failed state of our governance institutions.

There are some immediate steps that must be taken to address specific issues this case has thrown up. Just as importantly, there are some longer term structural changes that must be implemented.

Specific short-term response

Clearly the Ombudsman Commission needs to tell the public how and why it gave its apparent endorsement to a land deal that was ‘vastly excessive’ and delivered Mr Eludeme a windfall profit of K16 million.

The Ombudsman Commission should also explain what it is now doing to properly investigate the matter and ensure restitution for the State and punishment of those involved.

Similarly the police Fraud and Anti-corruption division should be instructed to re-open its files and properly investigate Mr Eludeme and the purchase of Portions 422 and 423 by the Defence Department.

Structural changes

There are many structural changes that are needed to address the rampant political corruption.

Perhaps most urgent is the establishment of an Anti-Corruption Commission with wide ranging powers, and legally inscribed independence, led by an impartial and respected figure.

The case of Mr Eludeme and Portions 422 and 423 though also reinforces the need for other measures. These include:

  • Public register of Members of Parliament’s interests.

An publicly accessible, online registry of the share ownership and other interests declared to the Ombudsman Commission by those subject to the Leadership Code. Such public registers exist in many other countries including the United Kingdom, New Zealand and Australia

  • Public register of public procurement

A public sector procurement website with details of all government contracts awarded with a value over K20,000, including tender documents, tender report including name of bidders, the terms and date of contract signature and the name of the successful bidder. Data should be fully searchable.

These changes would directly address two major areas of corruption: government procurement and the abuse of leadership positions. Greater transparency will assist both detection and prevention, including through ‘social auditing’ and provide an effective deterrent.  They will ensure greater transparency and strengthen public trust and confidence in parliamentary processes and decision-making.