PNGSDP/Cloudy Bay Scandal Blown Wide Open

The 'Fire Sale' of Cloudy Bay

In 2007 PNGSDP purchased an 80% stake in Cloudy Bay from the Constantinou Group of Companies. Cash consideration of K36 million was paid.

It was the programme’s first forestry investment. Cloudy Bay was intended to be a landmark example of sustainable forestry practice with 100% downstream processing.

The company’s principal assets was a forestry concession that comprised of ‘149,000 hectares and an estimated 2.1 million cubic metres of standing sawlog volume’. Cloudy Bay also owned a Wood Processing Centre at 9-Mile in Port Moresby.

During 2010 PNGSDP acquired the final 20% stake in Cloudy Bay for nil cash from Constant Investment Limited. In return, the latter was ‘relieved from its shareholder funding agreements’.

PNGSDP plumbed nearly 300 million Kina into the project between 2007-2013.

By 2011 Cloudy Bay had been awarded the ‘internationally recognised Forest Stewardship Council Controlled Wood and Chain of Custody environmental and social certification in recognition of its responsible management of the forests under its control’.

PNGSDP observed, ‘it is the first large scale commercial forestry operation in PNG to achieve this certification for selective harvesting of native forests’.

Then ‘on 20 February 2014, the directors approved the disposal of the shares in Cloudy Bay Sustainable Forestry Limited which had timber harvesting, milling and selling operations in the Central Province in Papua New Guinea’.

According to PNGSDP, ‘the Company has received an initial consideration of US$5,190,733 (PNG Kina 15,000,000) at the time of completion’.

The remaining K25 million was settled through a vendor loan provided by PNGSDP to the purchasers.

However, PNGSDP notes ‘the deferred consideration receivable of US$8,651,222 (PNG Kina 25,000,000) has not been recognised as eventual receipt is not considered probable’. In other words it appears PNGSDP did not expect that this loan would be paid back by the purchasers.

PNGSDP defended the deal claiming, ‘since the expropriation of Ok Tedi, which was PNGSDP’s sole source of income, PNGSDP has not been able to finance the full operation’ of Cloudy Bay.

Prime Minister O’Neill labelled it a ‘fire sale’.

The beneficiaries of the sale were Lifese Engineering (PNG) Limited who acquired a 75% interest, and OPPA Limited which acquired a 25% stake.

Lifese Engineering was ultimately owned by two brothers, the Australian nationals Ibraham Elomar and Mamdouh Elomar, both of whom are currently serving prison sentences in New South Wales.

OPPA Limited is owned by Australian national Nick Roniotis. According to PNGSDP Roniotis’ ‘associates’ also have a stake in OPPA, including “Executive X”. Because OPPA Limit is registered in the British Virgin Islands, one of the world’s most infamous secrecy havens, it is impossible to independently verify this claim.

Now to examine the core allegations made by PNGSDP.

Theft and Conflict of Interest: PNGSDP's Allegations

In a recent statement to the media Nick Roniotis claims, ‘PNGSDP had made capital investments of at least Kina 440 million between 2007 and 2013 [PNGSDP puts it at K300 million]. In 2014, Lifese and OPPA bought Cloudy Bay, “lock stock and barrel” … for just Kina 40 million [only K15 million has been paid] … This was a pretty good deal by any stretch’.

Roniotis continues ‘never look a gift horse in the mouth, but not a bad price for the Elomars and me to be asked to pay to PNGSDP, representing a discount of at least 90% against what PNGSDP had itself invested in the same assets’.

However, PNGSDP argues a gift horse should be looked square in the mouth if the Chairman of the Cloudy Bay Board overseeing this ‘gift’ sale, is also your close business associate.

In an explosive press release published on 23 April 2018, PNGSDP alleges that the sale of Cloudy Bay ‘was driven by a prominent businessman who, at that time held a role with PNGSDP and, in that capacity, was appointed to the Cloudy Bay board’.

The media statement continues:

It was while in that position of influence that the person in question surreptitiously obtained money and other benefits to which he was not entitled. When the purchase of Cloudy Bay was agreed to in 2014, Lifese granted a 25 percent carried interest to OPPA Limited, a British Virgin Islands company owned by a Nick Roniotis and associates including the person in question. He did not reveal his involvement in OPPA, nor his relationship with its principle shareholder, to PNGSDP at any point during the sale process despite the clear conflict of interest.

The statement goes further, accusing “Executive X” of corruption:

PNGSDP takes its responsibilities as a good corporate citizen very seriously and immediately launched an internal investigation into the matter. This revealed extensive corruption including substantial payments in exchange for arrangements whereby PNGSDP was supposed to forgive its loan to Cloudy Bay. The business man was acting without authority. Furthermore, PNGSDP board was unaware of that arrangement and would never have consented to it. As soon as the internal investigation was finalised, the findings were tabled before the PNGSDP audit committee which, in view of the seriousness of the matter, decided to commission an independent investigation. That was duly finalised and verified the fact that very serious misdemeanours had in fact taken place and that the prominent businessman referred to above had been at the centre of this corruption.

PNGSDP has not stated who this individual is at the centre of these serious allegations.

At the time of the offending sale Cloudy Bay’s Board of Directors had three members, Patricia Joy Caswell, Mathew Morris and Rex Paki. PNGi could uncover no links between Caswell a leadership and strategy expert, or Morris a development economist, and Mr Roniotis.

On the other hand we have identified multiple close commercial links between Mr Paki and Mr Roniotis.

Indeed, PNGi has uncovered the strongest body of evidence to date putting Rex Paki at the centre of this scandal.

We will now present the evidence uncovered. The allegation of corruption cannot be confirmed. However, PNGi has proof that Paki in his role as Cloudy Bay Chairman operated under a clear conflict of interest, which does not appear to have been declared.

The evidence against Rex Paki

First lets look at the Cloudy Bay Board minutes dated 28 February 2014 where the alleged ‘fire sale’ was consented to by two of Cloudy Bay’s three Directors.

The two consenting Directors were Patricia Caswell and Rex Paki. Caswell was also a PNGSDP Director, nominated by BHP Billiton.

This document indicates that Rex Paki failed to declare any conflict of interest at the meeting, or indeed recuse himself from the Board meeting (which would have meant there was no quorum). PNGSDP alleges that at no time did Paki declare a conflict of interest.

Yet Mr Paki clearly had a conflict of interest. He was in business relations not only with Nick Roniotis of OPPA Limited, but Mamdouh and Ibrahim Elomar of Lifese Engineering, who are currently serving a four year prison sentence for bribery related offences.

Exhibit one – a historical company extract for the Australian firm Ram Business Consultants Pty Ltd.

So at the time Rex Paki oversaw the sale of Cloudy Bay to the Roniotis company OPPA Limited (and Lifese), Roniotis was a Director with Rex Paki and his wife Sarah, at Ram Business Consultants Pty Ltd, a firm owned by the Paki family.

Exhibit two – the mining exploration firm Lifese Exploration was incorporated on 5 June 2012. Its registered address is Unit 101, First Floor, Pacific View Apartment. This is the head office for Ram Business Consultants.

Nick Roniotis and Mamdouh Elomar are Directors of Lifese Exploration – both men are chief beneficiaries of the Cloudy Bay sale.

Mamdouh owns 75% of the shares. Argos Global (Pacific) Ltd is a 15% shareholder.

This moves us on to exhibit 3 – the company extract for Argos Global (Pacific) Ltd.

Nick Roniotis is a 50% shareholder in this company, while Pius Silue is the other 50% owner. Pius Silue is also the Port Moresby manager for Ram Business Consultants, a firm headed by Rex Paki, and legally owned by his wife Mina.

In other words at the time Rex Paki chaired the Board of Directors meeting approving the sale of Cloudy Bay to firms owned by Roniotis and Elomar, their mineral exploration company was registered at Ram Business Consultants’ head office. Additionally, one of the owners of Lifese Explorations, Argos Global in turn was 50% legally owned by an employee of Paki’s.

Exhibit 4 – Lifese Engineering (Pacific) Ltd. Lifese Engineering (Pacific) Ltd is a company ultimately owned by the Elomar brothers, Nick Roniotis and Pius Silue. Its registered postal address is the same one that is employed by Ram Business Consultants.

What these exhibits establish is that Rex Paki was in a close commercial relationship with Nick Roniotis of OPPA Limited. He was also commercially linked to Mamdouh Elomar. None of this is declared in the meeting minutes sanctioning the sale of Cloudy Bay.

PNGi cannot verify whether Rex Paki is the part-owner of OPPA Limited as alleged by PNGSDP. OPPA is registered in a secrecy haven where the public cannot access corporate disclosures.

However, because there are multiple conflicts of interest that were apparently not declared, the risk of potential impropriety is certainly higher.

If those at the centre of this conflict of interest had a corporate track record of social responsibility and honest dealings the risk would be somewhat reduced. Unfortunately, the opposite is the case.

Paki, Roniotis and the Elomars: A Background Check

Rex Paki and his firm Ram Business Consultants are well known to authorities in PNG. They have been slammed in multiple Commissions of Inquiry, by the Supreme Court and the Public Accounts Committee.

Paki, for instance, was a key figure in the Commission of Inquiry into the National Provident Fund. The Commission claimed that Paki was implicated in a serious fraud, which he allegedly benefited from through charging excessive fees.

Several years later the Commission of Inquiry into the Department of Finance alleged that Paki’s firm Ram Business Consultants helped the politician-businessman Andrew Mald inflate damages in legal action against the state. The Commission claims Paki’s firm ‘deliberately inflated the NPV [Net Present Value] by K4,659,650 for reasons known only to themselves’.

Perhaps not surprisingly in light of the above allegations, the Supreme Court described Paki as ‘evasive and dishonest’, in a case where the businessman was being sued for allegedly overcharging Motor Vehicle Insurance Limited by K792,512.

The Public Accounts Committee has also censured Paki on multiple occasions. The most notable of which centred on an inquiry into the Public Curator’s Office. The Public Accounts Committee claim that over an 18 month period (1998-2000) the Public Curator’s Office paid Ram Business Consultants K1,561,062, without the existence of a contract, proper invoices, or evidence that any work had been done. The committee observes:

There was no formal contract … there was no check of the claimed hours worked and no evidence that any benefit flowed to the Public Curator at all. The Auditor General finds that after eighteen months of work, the Public Curator could only a report that a small amount of computer equipment was provided

Paki’s close business associate Nick Roniotis, has an ambiguous corporate footprint in PNG. He has consorted with an alleged underworld figure and men currently serving sizeable prison sentences, along with seemingly more upstanding members of the corporate community.

Roniotis’ first formal imprint on PNG’s corporate sector takes place during 2007 through the firm Telit (PNG) Limited. He jointly owned Telit with Gregory John Melides. Up until his death in 2017 Melides was a key identity in the nation’s gambling industry, receiving an OBE in 2006 for his service to the community and commerce.

Queensland’s Criminal Justice Commission was far less complimentary. According to them Melides was a known underworld figure who bribed politicians to protect illegal gaming machine operations.

Roniotis’ second apparent corporate venture in PNG took place through the firm Yuwilya Ltd, a mining exploration company incorporated in 2010.

His business partners in this venture included Mamdouh Elomar and Theo Yasause. As noted above, Elomar was subsequently convicted of bribery offences relating to a construction contract in Iraq.

Theo Yasause is said to be a member of the ‘East Sepik political elite’. He was convicted for murder after shooting dead rugby league legend, Aquila Emil. Yasause is serving a thirty year prison sentence. However, according to The Post-Courier he is a beneficiary of the “Leave of Absence” scandal rocking the nation’s prison estate.

Another notable partner in the Yuwilya venture was Wilfred Lus who at the time was Chief Geologist at the state owned Petromin Limited. Roniotis later teamed up with Lus in another venture Exploration Mining Petroleum Services Ltd, which was incorporated in 2013.

Lus is not the only executive with a more reputable track record who has gone into business with Roniotis. During 2013 Roniotis took up a 49% stake in Human Resources Business Solutions Limited with Linda Sincha Paru who has been lauded as one of the nation’s leading businesswomen.

More worrying is Roniotis’ expansive relationship with Ram Business Consultants and the Elomar brothers.

On 10 April 2012 Roniotis along with Ram Business Consultants executive Pius Silue, established two companies which they jointly own and directed, Argos Global (PNG) Ltd and Argos Global (Pacific) Ltd.

Two weeks later Argos Global (Pacific) Ltd acquired a 40% stake in Lifese Engineer (Pacific) Ltd, the other 60% was ultimately owned by the Elomar brothers. Roniotis, Mamdouh Elomar and Pius Silue are all Directors.

Two months later Roniotis’ company Argos Global (Pacific) Ltd acquired a 15% stake in Lifese Exploration (PNG) Ltd, a company that is based out of Ram Business Consultants’ Port Moresby office. The largest shareholder is Mamdouh Elomar (70%), the other owner is Judah Lus (15%).

So what of the Elomar brothers, Mamdouh and Ibrahim.

Their brother Mohamed Ali Elomar is currently serving 21 years in prison for terrorism offences. Mamdouh’s son Ahmed was also sentenced to prison for a four year term after he assaulted a police officer. His other son Mohamed was allegedly killed fighting for ISIS.

Both Ibrahim and Mamdouh are serving a four year prison sentence for conspiracy to bribe a foreign official in Iraq.

Evidence relayed in the New South Wales Supreme Court decision revealed that a ‘decline in the Australian mining and construction sector adversely affected Lifese and its ability to maintain its operations’.

Additionally, as a result of the negative press generated by Mamdouh’s sons and brother, ‘many of its [Lifese] clients and associates stopped dealing with the company’.

Lifese’s chartered accountant reported to the court that ‘the turnover of Lifese dropped from A$24.2 million in the 2013 financial year to A$4.9 million in the 2014 financial year and the work force was reduced from 200 to 20’.

By 2014, Lifese was ‘in decay’.

Yet during this very period PNGSDP felt it prudent to loan Lifese and OPPA K25 million to purchase Cloudy Bay.

So to summarise, Rex Paki is a man censured through his firm Ram Business Consultants in 3 x Commission of Inquiries, 2 x Public Accounts Committee reports, and 1 x Supreme Court action.

There is no evidence that Roniotis has committed any illegal activity, nor has PNGi found evidence of accusations relating to such conduct. However, he has consorted in business with men accused of criminal activity, one was allegedly a part of a illegal gambling syndicate, a second individual Yasause was convicted of murder, while the Elomars were found guilty of conspiracy to bribe. The latter convictions occurred after Roniotis entered into business with these individuals. Finally the Elomar brothers’ immediate family have been linked to terrorism and violence, while they themselves have been found guilty of conspiracy to bribe at a time when their company was ‘in decay’.

Now its time for law enforcement to act

PNGSDP has made serious allegations against Rex Paki. He is accused of corruption and other illegal activities, including a failure to disclose his relationship with Nick Roniotis, and possessing a vested interest in OPPA Limited.

Only police investigators have the power to access records and evidence that could verify these claim.

However, PNGi has been able to establish clear conflicts of interest, that on the face of Board minutes were not openly declared.

The risk of inappropriate activity would appear to be heightened by the corporate track record of those at the heart of the Cloudy Bay sale.

PNGSDP should not, however, be totally absolved of responsibility.

Had its management team conducted basic due diligence in 2014, many of the facts cited above would have been discoverable. It appears there was a failure to properly scrutinise this sale.

PNGSDP as a responsible corporate actor must now publicly report to its key stakeholder, i.e. the PNG public, on the investigations it has conducted into these failings and what steps have been taken to address the underlying problems.

Clearly questions remain for Nick Roniotis to answer. By his own account, the Cloudy Bay sale was an incredible deal, marked by a ‘K400 million discount’.

So it must be asked, did he think it appropriate that this sweetheart deal was overseen by Cloudy Bay’s Chairman, who was his close business associate?

Furthermore, if Mr Paki was an OPPA shareholder (as PNGSDP alleges), and also the government appointee at PNGSDP, new questions would potentially emerge for Roniotis linked to Commonwealth Crimes Act prohibitions.

However, arguably the most serious questions in need of answering must be directed at Rex Paki himself, who appears to be resident in Australia.

Responsibility falls with the Australian police, in partnership with PNG’s anti-fraud squad, to investigate this matter. Unlike the Eremas Wartoto case where Australian authorities allegedly failed to act, this requires a swift response to redeem the Commonwealth government’s reputation in the region.

In particular it must be established whether Mr Paki was involved in corruption and other illegal activity as PNGSDP suggests, including obtaining illicit benefits through the Cloudy Bay sale. And if there is evidence to support these allegation, charges must be brought so Rex Paki is afforded his day in court.