OC RECOMMENDS PM TO BE INVESTIGATED UNDER LEADERSHIP CODE

PRIVATE & CONFIDENTIAL - The Ombudsman Commission recommends that the Prime Minister, Hon Peter O‘Neill, CMG be referred to the Ombudsman Commission to be investigated under the Leadership Code.

• The Prime Minister, Hon Peter O‘Neill, CMG, MP committed the State to purchase 149, 390,244 shares in Oil Search Ltd without prior approval from the NEC.

• The Prime Minister, Hon Peter O‘Neill, CMG, MP failed to present the Government‘s proposal on the borrowing of a loan from UBS AG (Australia Branch) on the floor of Parliament for debate and approval as required by Sections 209(1), 211 and 212 of the Constitution.

• The Prime Minister Hon Peter O‘Neill, CMG, MP personally sponsored and submitted NEC Policy Submission No. 67/2014 and misled the NEC to approve the borrowing of AU$1.239 Billion from UBS AG to buy shares in Oil Search Ltd when evidence revealed that proper procedures were not complied with in regard to the engagement of the Financial, Legal and Technical Advisors pertaining to the laon.

• The Prime Minister Hon Peter O‘Neill, CMG, MP failed to consult Petromin Holdings Ltd to be the State‘s subscriber and nominee to acquire shares in Oil Search Ltd when it was clear under the Petroleum PNG Holdings Limited Authorization Act 2007 that Petromin Holdings Ltd shall be consulted on such matters.

• The Prime Minister Hon Peter O‘Neill‘s, CMG, MP committed a misconduct  in office when he committed the State to a borrowing of UBS AG Loan of AU$1.239 Billion to buy shares in Oil Search Ltd. That is, the Prime Minister deliberately did not comply with the relevant laws and procedures leading up to the borrowing.


5. RECOMMENDATIONS


[5.1] CONSTITUTIONAL FRAMEWORK FOR MAKING RECOMMENDATIONS
As indicated in Chapter 1, the general purpose of this investigation is to determine whether any of the conduct under investigation was wrong, or whether any laws or administrative practices were defective.

The Commission is expressly authorized to form such opinions by Section 22(2) of the
Organic Law on the Ombudsman Commission.

If, after making its investigation, the Commission comes to the conclusion that some of the conduct was wrong or that any law or administrative practice was defective, it is authorized to make recommendations. Such recommendations are made under Section 22(2) of the Organic Law on the Ombudsman Commission.

Section 22(2) OLOC:


If in any case to which this section applies the Commission is of the opinion that any service, body, person or other appropriate authority should –
(a) consider the matter further; or
(b) take certain specific action; or
(c) modify or cancel any administrative act; or
(d) alter any regulation or ruling; or
(e) explain more fully any administrative act; or
(f) do any other thing,

the Commission shall report its opinion and the reasons for its opinion, to the Minister responsible for the relevant service, body or person and to the Permanent Head or statutory head responsible for the service, body or person, and may refer the matter to the Public Prosecutor if action by him is warranted and may make such recommendations as it thinks fit.


In this chapter, recommendations are made based on the findings of wrong conduct and defective administration referred to earlier in the report.

Each recommendation is set out as follows:
o The recipients (i.e. the persons to whom the recommendations are directed) are identified.

o The main reason for making the recommendation, are stated.

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[5.2] RECOMMENDATIONS CONCERNING PARTICULAR INDIVIDUALS
We recommend that some individuals have their continuing public employment carefully reviewed. The Ombudsman Commission is of the opinion that holders of public offices must continue at all times to be accountable for their actions, even if they have left the position in which they were found to have committed the wrong conduct and are occupying new positions.

[5.3] RECIPIENTS OF RECOMMENDATIONS
When we make recommendations we are obliged by Section 22(2) of the Organic Law on the Ombudsman Commission to identify the service, body, person or other appropriate authority who has to carry them out.

We are also obliged by Section 22(2) of the Organic Law on the Ombudsman Commission to report our recommendations to both the Minister and, if appropriate, the permanent or statutory head responsible for the service, body or person who has to carry out the recommendations.

In relation to each recommendation made in this Chapter, recipients of the recommendations are listed as follows:

• first, the service, body or person we are asking to do things is identified;
• secondly, the Minister responsible for that service, body or person is identified;
• thirdly, if appropriate, the permanent or statutory head responsible for that service, body or person is identified.

[5.4] RESPONSIBLE MINISTERS
Section 148 of the Constitution provides that each department, section, branch or function of government must be the political responsibility of a Minister. The Prime Minister has the power to determine the titles, portfolios and responsibilities of the Ministers.

At the time of the preparation of this report, the service, body or persons to whom specific recommendations are being directed were the responsibility of the Ministers set out in the table below.

[5.5] MINISTERS RESPONSIBLE FOR FOLLOWING UP ON THE IMPLEMENTATION OF RECOMMENDATIONS
Prime Minister Speaker of Parliament Minister for Finance Minister for Treasury
Minister for Public Enterprises & Investment Minister for Justice & Attorney-General.

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In the event that the title or responsibilities of the Minister changes after the date of this report, the responsibility for notifying the Ombudsman Commission of the steps being taken to give effect to its recommendations will pass to the Minister who, from time to time, has political responsibility for the services, bodies or persons who received our recommendations.

[5.6] DUTIES OF RECIPIENTS TO ACT ON THE RECOMMENDATIONS
The fact that our opinions on things to be done are expressed in the form of
―recommendations‖ does not mean that recipients are entitled to ignore them.

Each recipient is required under Section 22(3) of the Organic Law on the Ombudsman Commission to notify the Ombudsman Commission in writing within 30 days after the day of the service of the report, of the steps proposed to be taken to give effect to our recommendations.

Section 22(3) states:


If the Commission so requests, the responsible Minister, Permanent Head or statutory head as the case may be, shall, within such period as is specified by the Commission, notify the Commission as to the steps (if any) that he proposes to take to give effect to its recommendations.


Accordingly, there is a duty placed on each recipient of a recommendation to notify the Commission; and if it is proposed not to implement any recommendation, there is  a further duty to give cogent and convincing reasons why the recommendations cannot or should not be implemented. These duties arise due to the combined effect of the Constitution and the Organic Law on the Ombudsman Commission.

A failure to comply with these duties may result in the Ombudsman Commission commencing enforcement proceedings in the National Court pursuant to Section 23 of the Constitution.

The Ombudsman Commission made eleven (11) recommendations against those individuals and entitities that have been found to have committed wrong conduct. Below are the recommendations.

[5.7] RECOMMENDATIONS
In line with the above findings, the Ombudsman Commission formulated thirteen (13) recommendations. These recommendations are outlined in the following pages.

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[5.7.1] RECOMMENDATION No. 1


Receipient

1. Chief Ombudsman
2. Prime Minister
3. Chief Secretary to the Government of Papua New Guinea
4. Secretary for the Department of the Prime Minister & National Executive Council.

Reasons

• The Prime Minister, Hon Peter O‘Neill, CMG, MP committed the State to purchase 149, 390,244 shares in Oil Search Ltd without prior approval from the NEC.

• The Prime Minister, Hon Peter O‘Neill, CMG, MP failed to present the Government‘s proposal on the borrowing of a loan from UBS AG (Australia Branch) on the floor of Parliament for debate and approval as required by Sections 209(1), 211 and 212 of the Constitution.

• The Prime Minister Hon Peter O‘Neill, CMG, MP personally sponsored and submitted NEC Policy Submission No. 67/2014 and misled the NEC to approve the borrowing of AU$1.239 Billion from UBS AG to buy shares in Oil Search Ltd when evidence revealed that proper procedures were not complied with in regard to the engagement of the Financial, Legal and Technical Advisors pertaining to the laon.

• The Prime Minister Hon Peter O‘Neill, CMG, MP failed to consult Petromin Holdings Ltd to be the State‘s subscriber and nominee to acquire shares in Oil Search Ltd when it was clear under the Petroleum PNG Holdings Limited Authorization Act 2007 that Petromin Holdings Ltd shall be consulted on such matters.

• The Prime Minister Hon Peter O‘Neill‘s, CMG, MP committed a misconduct  in office when he committed the State to a borrowing of UBS AG Loan of AU$1.239 Billion to buy shares in Oil Search Ltd. That is, the Prime Minister deliberately did not comply with the relevant laws and procedures leading up to the borrowing.

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[5.7.2] RECOMMENDATION No. 2


Recipients

1. Chief Ombudsman
2. Minister for Finance
3. Secretary for Department of Finance.

Reasons

• Hon James Marape, MP, Minister for Finance was aware at that material time NPCP was not a legally established entity as the PNG Petroleum Company (Kroton) Act had not been certified by the GGPNG in order to be fully in force.

• With the knowledge that his actions were improper, Hon James Marape, MP, Minister for Finance still signed and approved the Memorandum of Approval, thereby enabling NPCP to enter into the Transaction Documents.

• Hon James Marape, MP, Minister for Finance also approved for NPCP to entere into Payment Direction Deed.

[5.7.3] RECOMMENDATION No. 3


Recipient

1. Prime Minister
2. Chief Secretary to the Government of Papua New Guinea
3. Secretary for the Department of Prime Minister & National Executive Council.

Reasons

• Amb Isaac Lupari has no authority to issue advice or instructions to the IPBC or to any Government Agency regarding decisions made by the NEC, as this is the role and the function of the Secretary to the NEC Secretariat or the Chief Secretary.

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[5.7.4] RECOMMENDATION No. 4


Recipient

1. Minister for Finance
2. Secretary for the Department of Finance.

Reasons

• The APC Form is a mandatory requirement that qualifies for funds to be released from the Department of Finance to implement services provided by the Legal, Finance and Technical Advisors.

• The Head of the DoF approves that APC Form indicating that funds are available and that the Chairman of the CSTB endorsed the APC Form and a CSTB file number allocated indicating that a Contractor had been awarded the Contract.

• Dr Ken Ngangan failed to indicate on the APC Form where the funds to pay the Legal, Finance and Technical Advisors would be derived from.

• Dr Ken Ngangan approved the APC Form without Mr Philip Eludeme‘s  endorsement indicating that a Contractor was awarded the Contract to provide Legal, Finance and Technical advisory services to the State.

• Therefore, the APC Form that was approved by Dr Ken Ngangan was null and void in the circumstances according to the fine print at the bottom of the APC Form that stated the following:

1. This Authority to Pre Commit form does not become active until it has been registered and the APC No. has been allocated by the Department of Finance / Provincial Treasury.
2. This Authority to Pre Commit is not valid until a Supply & Tenders Board file number is allocated.

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[5.7.5] RECOMMENDATION No. 5


Recipient

1. Minister for Treasury
2. Secretary for the Department of Treasury
3. Governor of the Bank of Papua New Guinea.

Reasons

• The borrowing of the UBS AG loan was a new arrangement that required the Department responsible to comply with the Public Finance (Management) Act 1995 and the Attorney-General Act 1986.

• Since this was a new loan, it was the responsibility of the DoT to request the assistance of the BPNG to invite interested Financial Advisors and Lead Arragngers to bid for the Contract to provide financial and technical advice in regard to this particular loan to purchase new Oil Search Ltd Shares.

• Mr Vele assumed that since Norton Rose Fulbright the Legal Advisors were retained by IPBC and already working on the IPIC Exchangeable Bond, it was proper for Mr Vele to engage them to provide legal services relating to the UBS AG loan.

• Amongst many roles and functions that the DJAG plays, one such function is to give clearance for State Departments and Agencies to engage Law Firms or private lawyers. In this case, Mr Vele failed to seek advice and clearance from the DJAG on the Brief-Out of legal services to private legal practitionners.

• Mr Vele should have engaged the assistance of the CSTB to conduct the procerment process and awareded the contract of providing Financial, Legal and Technical advice in relation to the securing of the UBS AG loan to purchase new Oil Search Ltd Shares to the best Bidder.

• Mr Vele approached the CSTB after he had already engaged the Legal, Financial and Technical Advisors and the Lender of the Loan. It was evident that the CSTB‘s role in this particular matter was to enable the issuance of the COI and to request the CSTB to apply the COI retrospectively.

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[5.7.6] RECOMMENDATION No. 6


Recipient

1. Minister for Treasury
2. Secretary for the Department of Treasury.

Reasons

• The borrowing of the UBS AG Loan was a new arrangement that required the DoT to comply with relevant laws and regulations in the borrowing and facilitating the transaction to purchase the Oil Search Ltd shares.

• These laws; the constitutional requirements of Section 209 of the Constitution, the Public Finance (Management) Act 1995, the Attorney-General Act 1986, the Papua New Guinea Petroleum Company (Kroton) Act, PNG Fiscal Responsibilities Act 2006, Sections 2(3) of the Loans (Overseas Borrowing) (No.2) Act (Chapter 133A), Oaths, Affirmations and Statutory Declarations Act (Chapter 317) and the Finance Management Manual, should have been complied with by consulting the appropriate authorities.

• Mr Vele‘s ignorance of the laws and regulations was a deliberate act as he had already made up his mind to comply with the Prime Minister‘s directives.

• The State through the DoT, IPBC, Petromin Holdings Ltd and the Office of the GGPNG moved to attain the UBS AG loan to purchase shares in Oil Search Ltd, thereby securing the 10.1% of ownership of Oil Search Ltd.

[5.7.7] RECOMMENDATION No. 7


Recipient

1. Minister for Finance
2. Secretary for the Department of Finance
3. Chairman for the Central Supply & Tenders Board
4. Secretary to the Board, Central Supply & Tenders Board.

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Reasons

• The issuance of the COI is regulated by the Public Finance (Management) Act 1995 and
Finance Management Manual.

• There was no CSTB meeting to deliberate on whether the application for a COI was relevant in this particular matter.

• There are four (4) specific situations that can only warrant the issuance of a COI and these are outlined below:

a. Natural Disaster, or
b. Defence Emergency, or
c. Health Emergency, or
d. Situation of Civil Unrest.

• A COI cannot be issued to retrospectively cover a contract already executed.

• Mr Eludeme issued the COI and approve for its retrospective application in order for the DoT and DoF to raise cheque payments to those Legal, Finance and Technical Advisors that had rendered their services. After the payments were made, Mr Eludeme then ordered for the COI to been withdrawn.

[5.7.8] RECOMMENDATION No. 8


Recipient

1. Minister for Finance
2. Secretary for the Department of Finance
3. Chairman for the Central Supply & Tenders Board
4. Secretary to the Board, Central Supply & Tenders Board.

Reasons

• The issuance of the COI is governed and regulated by Sections 39 and 40 of the Public Finance (Management) Act 1995 and Clauses 13 and 14 of the Financial Management Manual.

• Mr Eludeme‘s conduct on the issuance of the COI to enable the DoF to release the funds to the DoT to pay service providers and then later withdraw the COI after the payments were made was improper and wrong.

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[5.7.9] RECOMMENDATION No. 9


Recipients

1. Minister for Public Investment & State Enterprises
2. Secretary for the Department of Public Investment & State Enterprises
3. Chairman of Kumul Consolidated Holdings Limited Board
4. Managing Director for Kumul Consolidated Limited
5. Chairman of the Kumul Petroleum Holdings Limited Board
6. Manaing Director for Kumul Petroleum Holdings Limited.

Reasons

• The NEC approved for IPBC to direct NPCP to direct GloCo to make payments to NPCP in order for NPCP to pay off the UBS AG loan.

• On 9 March 2014, Mr Erastus Kamburi, the Chief Legal Officer for IPBC, requested the IPBC Directors to meet and discuss the Circular Resolutions and Explanation and directives from Minister Micah and the NEC Decision No: 79/2014.

• On even date, the NPCP Special Board of Directors Meeting No: 02/2014 resolved that the Company enter into any Transaction Document to give effect to the Payment Direction and authorised Mr Sonk and Mr Wato with the Power of Attorney.

• Mr Sonk signed the Payment Deed and directed any distributions payable to NPCP from the PNG LNG proceeds to be paid to UBS AG (Singapore Branch), with full knowledge that the National Petroleum Company of Papua New Guinea (Kroton) Act was yet to be certified.

• This is not proper as NPCP‘s existence and involvement in the Loan transaction is questionable as it is not legally established as the proposed Papua New Guinea Petroleum Company (Kroton) Act has not been certified by the Speaker of Parliament in order to be fully in force. Thus the involvement of NPCP in this whole process maybe improper.

• NPCP did not have a sound Balance Sheet to handle transaction of such magnitude.

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[5.7.10] RECOMMENDATION No. 10


Recipients

1. Minister for Finance
2. Secretary for the Department of Finance
3. Minister for Justice & Attorney-General
4. Secretary for the Department of Justice & Attorney-General
5. Mr Carl Okuk
6. Papua New Guinea Law Society.

Reasons

• Mr Vele engaged Mr Carl Okuk as a Legal Consultant for the DoT.

• Mr Carl Okuk acted as the Commissioner of Oath and withnessed the signing of all the legal documentations on the borrowing and the payments to be made to UBS AG and Contractors.

• However, it was established later that at that material time, Mr Okuk Lawyer was not registered with the Papua New Guinea Law Society.

• Therefore, the engagement of Mr Carl Okuk to witness the signing of all legal documents on the UBS AG Loan borrowing was improper.

[5.7.11] RECOMMENDATION No. 11


Recipients

1. All Government Bodies and Agencies.

Reasons
• The Departments and Agencies mentioned in this Report deliberately ignored the relevant sections of the Public Finance (Management) Act 1995 and Clauses within the

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Finance Management Manual dealing speciafically with the procurement and tender of government sanctioned projects.

• The UBS AG loan documentations were signed separately and not in one place with all the parties present. That is, Representatives of the GoPNG and the State signed the loan documentations here in Port Moresby and then sent copies of the same documents to Sydney, Australia where Representative of UBS AG signed.

• The GGPNG and Mr Vele signed the Letter of Engagement witnessed by Mr Carl Okuk engaging UBS AG as Lead Arranger and Facilitator to facilitate the borrowing. Mr Carl Okuk signed as witness not in the presence of both GGPNG and Mr Vele. His conduct was not in compliance with Section 12A of the Oath, Affirmation and Statutory Declarations Act (Chapter 317). See page 246.

• The UBS AG documentations were not included as part of he GGPNG‘s list or items to be executed on that day. The GGPNG himself was not fully aware of the proceedures that were bypassed by Mr Vele to have the UBS AG loan documentations presented before him to approve and sign.

• After the GGPNG had signed the UBS AG loan documentations, Mr Vele sent the same documentations to Sydney, Australia. This act alone exposed and put to risk Papua New Guinea‘s independence and sovereignty.

• The Office of the State Solicitor was not a party to the sgning and eventual engagement of UBS AG as sole Arranger and Facilitator for the State to borrow K3 Billion from UBS AG to purchase shares from Oil Search Ltd.

• Neither the DoT or Mr Vele or Minister Micah wrote back to Mr Bakani and BPNG to advise that the State had decided to engage UBS AG. Hence, Mr Loi Bakani and BPNG were not aware that the State had engaged UBS AG to facilitate the borrowing and that UBS AG was to lend AU$1.239 Billion to the State to purchase shares in Oil Search Ltd.

[5.7.12] RECOMMENDATION No. 12

Recipients

1. All Government Bodies and Agencies.

Reasons
• Those Departments and Agencies mentioned in this Report deliberately ignored the relevant Sections of the Public Finance (Management) Act 1995 and Clauses within the

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Finance Management Manual dealing speciafically with the procurement and tender of government sanctioned projects.

• The Prime Minister committed the State to purchase 149,390,244 shares in Oil Search Ltd prior to the NEC Policy Submission that was prepared by Mr Vele with assistance from the Technical, Finance and Legal Advisors.

• The NEC Policy Submission that requested the NEC to approve the issuance of the COI was misleading on several grounds, namely:

a) There was no situation present at that material time that warranted the issuance of the COI to award the contract to the Contractors and make facilitate payments.

b) The NEC can only deliberate and award contracts where the amount is K10 million and above. Any contract less then K10 million is delegated to the CSTB and other Supply Tenders Boards.

c) The COI cannot be applied retrospectively as it is a breach of the Public Finance (Management) Act 1995 and the Finance Management Manual

• The CSTB Chairman issued the COI that facilitated payments made to the Legal, Finance and Technical Advisors and to those who assisted in preparing a NEC Policy Submission.

[5.7.13] RECOMMENDATION No. 13

Recipients

1. Prime Minister
2. Minister for Treasury
3. Minister for Justice & Attorney-General
4. Minister for Public Enterprises & State Investments
5. Chief Secretary to the Government of Papua New Guinea
6. Secretary for the Department of the Prime Minister & National Executive Council
7. Secretary for the Department of Treasury
8. Secretary for the Department of Justice & Attorney-General
9. Secretary for the Department of Public Enterprises & State Investments
10. Office of the State Solicitor.

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Reasons

• The UBS AG was a new loan arrangement that required new contracts to be awarded to legal advisors engaging them to provide legal advice to the State on the borrowing.

• It was not proper for Mr Vele to have engaged Norton Rose Fulbright and other law firms who were already engaged by IPBC and working on the IPIC loan.

• Mr Vele should have formally written to the DJAG to do a Brief-Out for the State to engage private Lawyers or Law Firms to act on behalf of the State.



6. CONCLUSION


Good and desirable governance of the public institutions as well as the nation is dependent upon good and sound management and decisions being made by those placed in responsible positions. Virtuous public officials and managers understand their roles and responsibilities and perform their duties within the ambit of the laws that governs their conduct. Public officials who are empowered by law to make decisions that will affect the lives of individuals must ensure that they carry out their duties in good faith and in compliance with the laws.

Public officials must exercise due diligence, honesty and dedication in the work they are entrusted with. Inconsistency in decision making or non-compliance with relevant laws creates doubt in the minds of the public that the decision maker has been influenced by outside sources and forces not conducive to good governance and accountability. Professional negligence must be dealt with seriously.

Some characteristics of good governance necessary to eliminate bad administrative practices include honesty, diligence, consistency, competency, compliance with established laws and procedures, and standing up to political interference.

This Report highlights irregularities in the borrowing of the UBS AG Loan and payments made to the Contractors; Pacific Legal Group Lawyers, Pacific Capital Ltd, UBS AG, Ashurst Lawyers, Norton Rose Fulbright of Australia and KPMG to provide finance, legal and technical services to facilitate documentations on the borrowing. It also highlighted that the Department of Treasury failed to request a Brief-Out from the Department of Justice & Attorney-General to engage private Lawyers or Legal Firms. It further highlighted the abuse of the Certificate of Inexpediency by the Central Supply & Tenders Board and the Department of Treasury.

The National Executive Council, the Office of the Prime Minister, Department of Treasury, the Department of Finance, the Central Supply & Tenders Board failed to live up to the expectation of the people and State in complying with the administrative processes and procedures and the Acts governing the operation of the Department.

The officers of the Department of Treasury are to take note of the findings and recommendations made in this Report and make special effort to correct the irregularities for the good of the Department and the people of Papua New Guinea.

The leaders to whom the Ombudsman Commission directs its recommendation are to carefully consider the recommendations and implement them.