Part 2 – Sweetheart deals cost taxpayers and landowners

THE TRUE STORY OF THE UBS LOAN AND OTHER DEALS BETWEEN THE O’NEILL GOVERNMENT AND OIL SEARCH

Part 2 – Sweetheart  deals cost taxpayers and landowners

BY A SPECIAL CORRESPONDENT IN SINGAPORE

Comments by Oil Search executives and directors at the company’s annual general meeting earlier this year raise serious concerns about its knowledge of many specific instances of corruption in Papua New Guinea relating to its business, and its corporate behaviour.

These instances are separate to the illegal UBS Loan which Oil Search helped to arrange, as detailed in Part 1 How Peter O’Neill and Peter Botten cost Papua New Guinea at least K1 billion.

Some of these issues were the subject of questions in in the Australian Senate, but no satisfactory answers were provided by the Australian officials responsible.

For example landowners in the PNG LNG project are owed hundreds of millions of kina in royalty payments and other entitlements, much of which is paid to the Government by Oil Search and its partners. No-one – not Government, not the PNG LNG partners - has ever provided any credible or verifiable information about the whereabouts of that money and why it has not been paid to the landowners.

Oil Search and its industry partners Exxon-Mobil of the US (the operator), Santos, also Australian, and Nippon Gas of Japan, pay their royalties and other dues to the State of Papua New Guinea and then wash their hands of any further responsibility. It is impossible to imagine that they do not know exactly where the money has gone and what has happened to it.

The comments by the Oil Search directors and executives after the AGM, and subsequent statements on the subject by the Oil Search’s Managing Director, Peter Botten, show that the company is well aware of what is going on, but there is no evidence that it or its partners have ever sought to ensure that the funds have been applied legally and to the rightful beneficiaries – the landowners.

PNG LNG LANDOWNER PROTEST

 

The recently re-elected Government of Prime Minister Peter O’Neill is one of the most corrupt in the world and is virtually bankrupt after more than five years of theft and misappropriation of state funds. There is widespread public suspicion that the hundreds of millions of kina owed to landowners have been applied to purposes and people other than those intended. O’Neill has made many statements on the issue, but has never provided any verifiable facts as to the whereabouts of the money.

Official bodies charged with the oversight of landowner funds, including Kumul Petroleum, the Mineral Resources Development Corporation, other State-owned Enterprises and government departments have become personal fiefdoms of the Prime Minister, in many instances used as sources of personal and political slush funds.

The central bank, the Bank of Papua New Guinea, has been corrupted under O’Neill and is becoming less and less transparent. There is no reason to believe that the missing landowner funds are held there, as claimed by O’Neill, that the funds are secure, and that they have not been misapplied.

Landowner funds held by or controlled by MRDC have regularly been abused and misapplied, or in the case of the Department of Mineral Policy and Geohazards Management, have been the subject of regular attempted raids by members of the O’Neill Government.

The PNG LNG project was partly financed by a $A500 million loan from Australia’s Export Finance Insurance Corporation and $US3 billion from the US Ex-Im Bank, which makes its partners and the project subject to anti-bribery and corruption legislation in both countries, and related international agreements. There are also usually explicit client transparency and accountability provisions in such loan contracts.

Questions have been asked in the Australian Parliament by then Greens Senator Scott Ludlam about the failure to pay landowners their entitlements.

EFIC responded by saying it is not the responsibility of the project to pay the royalties, but it also indicated that it has not conducted any due diligence on the performance of the project – whether for example it had met its legal obligations to ensure that money it had passed on to the State had been applied for the intended purposes. If Oil Search knows that project payments have not been used legally, then it might itself be a party to official corruption. The same applies to its partners Exxon Mobil and Santos.

Questions about Oil Search payments and other support for PNG police and military operations around the PNG LNG project were also asked at the company’s AGM, and later in the Australian Senate.

Landowners, understandably frustrated at the non-payment of their entitlements, have threatened to shut it down on numerous occasions. In response to these threats and instances of widespread violence related to tribal disputes over project benefit-sharing, the Government of Papua New Guinea has called in the PNG Defence Force and extra police on several occasions to protect the project.

PNG LNG and Oil Search specifically make large contributions to these military and police operations, some of which are notorious for their brutality and abuse of human rights. The company pays daily allowances directly to police officers when they are deployed to PNG LNG operational areas, it provides a vehicle for police patrols and donates fuel to the police and the military. Again, formal questions about Oil Search’s relationship with the police and military and the legal basis on which its financial and material support is booked in the company accounts were asked by the ACCR at the AGM. Again the company refused to answer them.

EFIC was unable to answer many of Senator Ludlam’s questions about the payments and logistical support, which may fall under EFIC’s bribery and anti-corruption provisions.

The cosy relationship between Oil Search and the Government, and specifically Botten and O’Neill, has resulted in other questionable deals, although not on the scale of the UBS and IPIC scandals.

The company has also been criticised for its recent use of Papua New Guinea’s tax credit scheme, which is principally aimed at providing infrastructure and services in remote areas around resource projects, often some of the poorest areas in the nation. Companies are able to spend up to 1.5% of their assessable income on “good works” such as schools and aid posts, public service housing, roads and bridges, water and power supples, and other community projects.

However the close relationship between the O’Neill Government and Oil Search has led to a change in the emphasis of the company’s works to showpiece projects in Port Moresby that bear no relation to the original intention of the tax credit scheme. It has been involved in the funding of three Port Moresby showpiece projects recently, which has been widely criticised for their expense during an extended crisis in Government finances.

The buildings are regarded as little more than monuments to Prime Minister O’Neill at a time when the money is desperately needed to rebuild the health and education systems and other essential services that have collapsed during O’Neill’s five-year tenure. Social media has seen a tidal wave of angry comments comparing this spending with the tens of thousands of people dying each year from preventable diseases, lack of medicines across the country, and the general unavailability of adequate medical care outside major centers.

Oil Search committed a total of K380 million to the three projects – the National Football Stadium, the APEC Haus convention center and the refurbishment of a National Government office building.

APEC HAUS, PORT MORESBY

Construction projects such as these are infamous for their inflated contracts to cronies of the Prime Minister, and two of these three are no exception.

The office refurbishment was carried out by L&A Construction and APEC Haus was being built by Global Constructions, which are owned by O’Neill cronies and are regular recipients of generous contracts. There are many unsavoury political machinations surrounding APEC Haus, its cost and financing, the tender and contract process and the builder.

Through these and other tax credit scheme activities Oil Search has been able to significantly reduce its tax bill. Of course, since tax credits are in effect taxpayer funds, misuse on the basis of crooked contracts would constitute a fraud against the State. Once again the question arises of what due diligence did Oil Search do on all the contracts it has been involved in under the tax credit scheme, and what processes were followed?

Oil Search’s involvement in so many questionable and inappropriate activities, coupled with its demonstrable knowledge of official corruption, places the company outside the norms of ethical and responsible corporate behaviour.