From Central City to Konebada: Milking Two White Elephants
For almost a decade, according to the nation’s public accounting agencies, a tight-knit group of largely expatriates illegally milked two mega-projects that were meant to deliver benefits and services to the people of Central Province.
Over K20 million in public money is reported to have been spent with derisory results.
In two special
inquiry reports produced by the Auditor General’s Office and Public
Accounts Committee – available together for the first time – it is
claimed that a prominent Australian banker, and a former PNG senior
public servant, aided by at least one Minister, delivered illicit
windfalls to themselves, and Australian, Malaysian, and Filipino
business people.
This illicit
activity is said to have occurred through the long-running “Central
City”, a proposed purpose-built township for Central Province, and the
Konebada Petroleum Park, an industrial zone designed to harness spin-off
benefits emerging from the country’s failed gas and oil boom.
The alleged ringleaders are Australian national, Peter Franklyn Nicholls, and PNG national, Kila Ai.
According to the
special investigation reports, both men are deeply implicated in a
series of illegal transactions that saw tens of million in public moneys
largely squandered.
Reflecting on the
Konebada Petroleum Park, the Public Accounts Committee summarised the
situation: ‘Public money was handed to private individuals who expended
that money as they thought fit – with no control or accountability
imposed by Government’.
It was added: ‘The
same modus operandi was used by the same individuals and companies in
the Central City Development and was, in our opinion, a blatant attempt
to remove the use of considerable amounts of public trust money from
Government control, audit oversight or accountability’.
Indeed,
remarkably, the illegal conduct observed by government accounting
agencies with respect to Central City in the period 1998-2005, are
nearly identical to those observed with Konebada Petroleum Park in
2006-2008. Yet, it appears, little was done to stop the offending
conduct.
In this PNGi
investigates we break open these two mega-projects, that have delivered
little to the PNG public, and look at the largely foreign groups who are
reported to have benefited from lavish payments illegally awarded
through these projects.
The Key Players
The scolding inquiry reports produced on these two white-elephant mega-projects point the finger at a number of individuals.
The first is
Australian banker Peter Nicholls OBE, who has worked for Commonwealth
Bank and Papua New Guinea Banking Corporation (PNGBC).
Nicholls entered the Central City mega-project scene with a questionable pedigree that harks back to scandals from the 1980s.
In 1986 it was reported that the Pangu business arm, Damai Pty. Ltd., had obtained a loan of K700,000 in two instalments from the Papua New Guinea Banking Corporation … the PNGBC loans were made on the security of a block of flats owned by Damai, but the beneficial owners of Damai were not revealed. There was criticism of this large loan made on nebulous security by the PNGBC’s freewheeling expatriate manager, Peter Nicholls, who has since resigned; but a Law Reform Commission enquiry into the loan was aborted under political pressure.
Nicholls also
enjoyed a close relationship with a company that featured in the
Commission of Inquiry into the forestry sector, led by Judge Tos
Barnett.
In particular, Nicholls was Company Secretary and Director of Tamworth No.35, a firm that the inquiry states was used
by then prominent politician, Ted Diro, to secretly hold interests in a
logging joint venture, with Malaysian business partners (for the full
story, click here).
The firm also rented out a unit to the same Malaysian partners, a
transaction identified by the Commission as yielding Diro improper
benefits. Nicholls specific role in administering this corporate vehicle
used by Diro to manage his improper relationship with Malaysian loggers
was not documented in the inquiry.
Arguably,
Nicholl’s closest subsequent commercial associate over the past twenty
five years is Filipino national, Ofelia Raymundo Carlos.
She acts as
Secretary in most of Nicholl’s companies. Carlos was also Secretary of
Konebada Petroleum Park Authority Limited, a private vehicle set up to
initially manage the industrial park mega-project.
Carlos and
Nicholls list their registered address in IPA documents as Unit 306,
Pacific View Apartments. This is a property once owned by Ted Diro
through Tamworth No.35, and let out by the former Minister to his
Malaysian joint-venture partners.
Another individual to list Unit 306 as their residence at the same time
as Carlos and Nicholls, is Sir Moi Avei. Sir Moi is said to have also
played a key role in Central City and Konebada Petroleum Park Authority,
when Minister for Petroleum and Energy.
The other key
individual, alongside Nicholls, alleged to be at the centre of the
Central City and Konebada scandals, is former PNG civil servant Kila Ai.
Before being
involved in these two projects at the centre of the special inquiry
reports, Kila Ai, had been Deputy Secretary (Policy and Planning), in
the Department of Finance, and then Secretary, Department of Planning in
1997. In both instances it appears Mr Ai worked under the Minister
Chris Havieta, who in 2001 became Minister for Petroleum and Energy.
Conflicts of Interest Abound
According
to the Public Accounts Committee and Auditor General’s Office over the
course of these two failed mega-project, Peter Nicholls earnt at least
K3,360,463.51, through payments made to his consultancy
company, Financial Investment and Resource Management Services Limited
(FIRMS), in addition to K123,846.50 in rental payments for a unit owned
by FIRMS.
Kila Ai, is
alleged to have earnt at least K2,390,356, through his consultancy firm,
Nikita Consulting, which he co-owns with Inez Ai.
The consultancy
contracts behind these significant payments were found in both inquiries
to have been illegally awarded to the respective firms, and rather
crucially, both men sat on the bodies governing the projects, creating
what was deemed a clear conflict of interest.
Funding for both
mega-projects – which allowed these evidently improperly awarded
consultancy contracts to be paid – was funnelled through a series of
government Trust Accounts, which were largely unaccountable and
off-the-grid with respect to accepted record keeping practice.
‘A review of those
grants received by the Central City Project’, the Auditor General
notes, ‘revealed that the funding was provided on an adhoc basis with no
conditions attached or required to release the funds’. A total
of K12,552,400 went through the Central City trust accounts.
With respect to
the Konebada mega-project K8.8 million went through the Trust Account.
The Public Accounts Committee observes: ‘This Committee has no doubt
that the operations of this Trust Account were intentionally and
deliberately hidden from the Auditor General and from Government
scrutiny’.
The Trust Accounts
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In the case of
Central City project governance was provided by a Steering Committee,
which Kila Ai and Peter Nicholls both sat on alongside Australian
national, Hans Euscher. It also appears for a period that the Chair of
the Central City Steering Committee, was Sir Moi Avei, whose connection
to Peter Nicholls has already been noted.
The Konebada
Petroleum Park Authority governance was overseen by a Working Group.
While the members of the Working Group is not fully set out in the
Public Accounts Committee inquiry, the report suggests it included Kila
Ai and potentially Peter Nicholls: ‘The Konebada Petroleum Park Working
Group and the management of its Trust Account was handed to private,
unaccountable individuals who were also the persons involved in the
Central City Development’ (later in the report it is stated: ‘We also
find that the persons actually “managing” the Trust Account i.e. Mr Kila Ai and the individuals comprising the Working Group’). It is also apparent that Sir Moi Avei again played a key role in project governance.
Day to day
operations of both projects were the responsibility of a Project
Management Team. The rump of the Project Management Team in both cases
was Peter Nicholls and Kila Ai, who also acted as private consultants
for the two mega-projects. It is unclear if they were paid salaries in
addition to consultancy fees.
With respect to Central City the Auditor General observes:
The “Project Management Team” as appointed by the Steering Committee comprised Messrs Kila Ai, Peter Nicholas [sic] and Hans Euscher. These persons were also members of the Steering Committee before been appointed to the management team. They were also formally engaged as consultants through their respective firms and have been continuously providing services to the project. These consultants have been made signatories of both trust accounts. However, there was no evidence of such authority been formally approved by the Steering Committee. It must be appreciated that “conflict of interest” undoubtedly existed from the out set and prevailed throughout the life of the project.
Put simply, the
Auditor General claims Kila Ai, Peter Nicholls and Hans Euscher, were
signatories to a government Trust Account, making payments to their
firms, providing consultancy services to a public project over which
they governed.
In the case of the
Konebada Petroleum Park, Kila Ai, was made Project Manager, and Peter
Nicholls, Finance Manager, through his consultancy vehicle FIRMS. With
respect to the Project Manager role the Public Accounts Committee
observes:
The Auditor General finds that the position of Project Manager was not publicly advertised and this Committee has confirmed that advice. The Project Manager, Mr. Kila Ai, was appointed directly by the NEC without any competitive applications and solely upon the recommendation of Sir Moi Avei the then Minister for Petroleum and Energy. The Minister also advised the NEC that: “To publicly advertise the position will cause an undue delay and may diminish professional services offered by the successful applicant”.
As noted above, in
both cases Kila Ai and Peter Nicholls were paid substantial amounts
from the Trust Accounts for private consultancy services. The inquiries
found that public tender requirements were not met in either case.
For instance, in
the case of the Konebada Petroleum Park Authority, the Public Accounts
Committee states: ‘No tendering procedures were conducted. “Consultants”
seem to have been chosen by the individuals concerned with the
management of the Project with no lawful competitive selective
procurement conducted’.
The consultancy contracts reported as being illegally awarded to Nicholl’s FIRMs and Ai’s Nikita facilitated large payments.
In the case of
Central City, the Auditor General observes: ‘Documents supporting the
invoices comprising signed clock cards and/or timesheets showing actual
hours worked and the natures of jobs performed by both consultants and
contractors were missing from the files’.
More worryingly in
the case of Konebada: ‘Payment vouchers related to expenditures from
the Konebada Petroleum Park Authority Working Group Trust Account were
not made available for examination. These were apparently held by the
Project Manager at his Office at an apartment occupied by him. No
supporting documentation or evidence to substantiate the payments was
held by the Department of Petroleum and Energy or, apparently, by the
Project Manager or its Accountant’.
In other words,
vital public accounting documents relating to significant consultancy
payments, have been withheld by the Konebada Project Manager, who has a
50% stake in one of the firms, Nikita Consulting.
Finally, payments
made in the Central City Project to Hans Euscher should not be
overlooked. A former expatriate civil servant who worked in senior
positions within the Department of Finance, and Department of Works, at
the same approximate time as Kila Ai, he sat on the Steering Committee
and Project Management Team for Central City.
A company he
jointly owned with Australian national, Trevor Kerr, received K525,056
in payments for consultancy services provided to the Central City
project. The Auditor General’s Office observes: ‘We are unable to vouch
most of the payments made to this firm because the relevant vouchers
together with other supporting document showing detail of work done and
the time spent on each job were missing. All payments made in 2001
totaling K166,750 were not supported with any payment vouchers including
invoices’.
Lavish Spending, Illegal Contracts
With
evidence of significant conflicts of interest, no transparency or
oversight, and Trust Accounts bursting at the seams with public moneys,
it will not surprise readers that the special inquiries found both
mega-projects featured lavish spending on travel, hospitality, gifts,
cars and other items of dubious project value.
For example, it is
claimed by the Public Accounts Committee funds reserved for the
Konebada Park Authority was spent renovating a property owned by
Avonmore Limited. IPA records confirm, this company is owned by Peter
Nicholls and his wife, Filipino national, Arlene Ostonal Medina
Nicholls. The company’s secretary is Filipino national, Ofelia Raymundo
Carlos.
Both projects also
featured questionable spending on motor vehicles. For example, ‘In
2005, a new vehicle was purchased [for the Central City project] at a
cost of K89,059 as replacement for a project vehicle that was reported
stolen by criminals. Incident reports as well as police reports on this
incident were not made available’.
In the case of
Konebada, PAC observes: ‘In 2006 one motor vehicle was purchased and in
2007, three were purchased. All four vehicles were registered with
private number plates instead of Z [government] number plates and the
Auditor General could not confirm the ownership, condition and location
of the vehicles’.
This is
symptomatic of a wider problem with the Konebada Petroleum project where
‘public money was spent on bilums, gold jewellery (K4,500),
considerable overseas travel made without records or reports required by
the Financial Instructions’.
For example: ‘The
available records show that on the 5th March 2008, a total of K 164,320
was expended for “TA for travel to Australia for meeting”. Of that
amount of K 100,562.21 was apparently used for “USD notes” and the
balance was sent by TT to Australia for unknown purposes..’.
Similar concerns
were raised by the Auditor General with respect to Central City: ‘Two
(2) payments totaling K8,661 were made to Air Niugini for a business
trip taken by Mr Kila Ai to Singapore. The cash payment vouchers and
invoices were missing from the file … the purpose and outcome of trip is
not known’.
In the case of
Central City, we also know large contracts were awarded to outside
firms. They allegedly involved illegal payments.
The first company,
Bee Construction, was awarded K417,989 to build a police headquarters,
two Hiri District Offices, and two H65 houses during 1999. In total they
were paid K499,147, the Auditor General querying whether this
constitutes overpayment of K81,158. Bee Construction is owned and
administered by a range of Malaysian, Filipino and Singaporean
individuals.
A second major
beneficiary of contracts awarded for Central City, was the company Hebou
Construction. In total Hebou was paid K4,418,876, for road construction
and maintenance. Hebou was then ultimately owned by the Australian
couple, Sir George and Maria Constantinou.
The Auditor
General observes: ‘All payments made in 2000 and 2001 were not supported
with any voucher, invoices and relevant supporting documents. These
documents seem to have been selectively removed and/or gone missing from
the files’.
The Auditor also
pointed to an ‘excess payment of K989,185 [which] is neither supported
by any variation report approved by the Board and/or has any supporting
documents’.
To cap it all off, both mega-projects were criticised for significant volumes in unaccounted salaries and wages.
In the instance of
Konebada ‘cash payments of K 545,124.03 were made – 88.13% of those
payments were for casual workers. How they were employed and for what
purpose is unknown’.
With respect to
Central City, ‘police personnel were engaged for the provision of
security services at the Project site from 1999 to 2003 at a total cost
of K238,422 … This amount was split between food ration and allowance
amounting to K45,000 and K193,422 respectively … there were no
supporting documents comprising invoices and receipts for fortnightly
payment’.
The latter points
to potential police complicity in the mismanagement of funds. This may
explain why there is no public record of officers ever following up on
the scathing findings of the Auditor General.
In Central City
anomalies were found with the appointment of a Project Engineer, Mr Raul
Santa Cruz. The Auditor General notes: ‘He was previously employed by
the Central Provincial Government. There was no formal contract in place
for the Project Engineer nor was there any evidence of this position
been advertised in the local media. Total contract amount for the
position was K190,000 per annum with no tax being deducted and remitted
to IRC’.
This echoes a
wider problem ‘of non compliance with regards to certain aspects of:
Income Tax Act, Public Finance Management Act, Personnel Management Act
and Companies Act 1997’.
The Accountability Black Zone
Set
against a backdrop of largesse and dubious transactions, both
mega-projects, the inquiries report, are stained by a lack of proper
record keeping, inadequate budgets, no oversight from the Finance
Department, and inappropriate auditing.
In the case of
Central City, it is noted that: ‘Proper accounting books and records
were not maintained for both trust accounts. All accounting records were
maintained on Excel Spreadsheets’.
Similarly, with
Konebada: ‘The Project Manager [Kila Ai] failed to submit bank
reconciliation statements, quarterly and annual reports pertinent to the
operation of the Working Group Trust Account – in breach of the law’.
It is added:
‘Significant amounts of public money passed into and through the Trust
Account with not a single statutory record, account or report being
made’.
The seriousness of
this matter is underlined: ‘Konebada Petroleum Park Authority Working
Group Trust Account was operated outside the Department’s PGAS
accounting system. This is a breach of Clause 4 (b), (c) and 5 of the
Konebada Petroleum Park Authority Working Group Trust Account Trust
Instrument which required the Trust Account to be under the strict
control of the Department and operated within the PGAS accounting
system’.
In both cases
expenditure was kept from the Auditor General’s Office, through the
illegal appointment of a private auditor. Reflecting on the Central City
case, the AGO observes:
The financial statements audits of both the Central City Development Project Management Trust account and Central City Infrastructure Development Trust accounts for the years 1998 to 2005 were done by Kolta and Associates. Kolta and Associates were never appointed by this Office to carry out the audits of these two accounts. Any audit of public monies conducted directly without the approval and supervision of this Office is against the Constitution and the Audit Act.
In almost
identical terms the Public Accounts Committee observes with respect to
Konebada: ‘The Trust Fund financial statements were audited by a private
accounting firm contrary to the Constitution and the Audit Act’.
It is worth noting
that Kolta & Associates is a business name registered to Patrick
Ketapala Kolta. Kolta was a Director at Nationwide Homes from 30/9/1986
until 6/8/1990 when he was replaced by Peter Nicholls. Therefore, there
is the possibility that both men are commercially affiliated, which if
accurate would heighten concerns expressed by the nation’s public
accounting agencies.
Lacking adequate
auditing oversight, both projects were also marred by Department of
Finance failings. ‘There was virtually no periodic monitoring’ of
Central City ‘done over the project from the Department of Finance’, the
Auditor General warns. In the case of Konebada Park: ‘The mismanagement
of this Trust Account and the breaches of the Trust Instrument by the
Working Group were well-known to the Department of Finance as was the
failure to provide statutory documents when they should have been
submitted. Yet the Department did nothing’.
Little Results
After
over K20 million of public moneys was spent on getting two
mega-projects off the ground, under the ‘expert’ watch of an Australian
banker and a former senior civil servant, what was the result?
Both inquiries were unanimous.
‘Funds have been
misused resulting in poor infrastructure’, the Auditor General notes of
Central City. ‘The buildings and site do not reflect the level of
funding put through the proposed township’.
The Public
Accounts Committee paints a similar image of the Konebada Petroleum
Authority: ‘The Project has received and expended a very considerable
amount of public money for very little result’.
Both Kila Ai, Peter Nicholls and his wife, remain active in the corporate economy, according to IPA records. A 2016 document suggests Kila Ai was in fact assuming senior posts – Director, Department of Treasury – well after these reports came to light.
There is no
evidence on the public record that any authority ever in fact followed
up on the serious statement of facts presented by the Auditor General
and Public Accounts Committee.
There is no
evidence on the public record either that the Australian government has
taken any steps to condemn the stated role of its citizens in these two
mega-projects, despite its often loud stance as a good governance
advocate.
What is
particularly egregious about these failings in this case, is just how
explicit the statement of facts are in the two inquiry reports, which as
a result do not mince words in condemning the ringleaders. However,
such condemnation is nothing but a verbal slap on the hand, when
domestic and international authorities do nothing but watch on in
silence.
Prosecutions
aside, even a modest attempt to seize any assets that can be proven in
the courts to have been wrongfully acquired might make life a little
more difficult for those who improperly profit from the public purse.
But with derisory budgets allocated to the nation’s anti-corruption
apparatus, the public should not hold its breath on this front. Of
course, that should not stop us from speaking out for what is right,
even if the odds of action are slim.
What are these Aussie coppers floating around in these vehicles doing? Can there do some real work helping and guiding their PNG counterparts to secure conviction for such people.
ReplyDeleteSame old thivies recycling, no nothing. What are place to enjoy robbing. ...