Probe finds K125m illegal

Main Stories, National

The National – Thursday, June 23, 2011

THE controversial K125 million loan from Nasfund to the Kokopo district was illegal and placed contributors’ savings at considerable risk, a confidential brief to the government reveals.
The brief, from the Central Bank, was to have formed part of the report that was to have been tabled in parliament by Peter O’Neill on Tuesday, the day he was removed as minister for finance and treasury.
The brief revealed that the loan, obtained via a Treasury Department mechanism called the sovereign community infrastructure treasury bill (SCITB), did not have approvals from parliament, cabinet, treasury and the Central Bank and was outside the national budget.
It further revealed that middlemen companies and individuals received K20 million in fees and commission long before any project got off the ground in Kokopo. The bulk of the fees, K20 million, was said to have been paid to Malco, a company incorporated in 2008, owed by a single proprietor, one Alan Waters.
Communications Minister Patrick Tammur appointed Malco on Nov 27, 2009, as the exclusive coordinator for fund raising, fund management and legal requirements for the SCITB.
Six companies submitted invoices for a total sum of K69.8 million. This amount was paid to Malco according to the brief.
The other companies were Niugini Asset Management Ltd; Covec (PNG) Ltd; Kokopo Earthmoving Ltd; JGBBE Consulting Engineers Ltd; and Golding HKG Ltd.
Only K55 million remains of the total K125 million in an account held by Nasfund’s investment manager, National Capital Ltd.
In an attempt to ensure Nasfund contributors did not lose any funds, the cabinet, via decision No.51/2011, agreed to issue inscribed stock to settle the SCITB of K125 million but the Central Bank has now recommended that the government reviews that decision as payment of the money would mean there would be no one responsible or accountable for winding up the SCITB and for dealing with residual items such as equipment and contractors’ bills.
The Central Bank has further recommended:
*Termination of the investment manager and joint Nasfund CEOs Rod Mitchell and Ian Tarutia;
*Appointment of a receiver/manager to wind up the SCITB;
*Freezing of the National Capital Ltd account with the balance of K55 million; and
*An investigation be commenced into the tendering and procurement process.
The brief stated in part: “The ability to recover K125 million and the balance of the NCL account of K55,151,382 is not certain.
“There are outstanding creditors and creditors continue to accrue such items as administration fees, advisory fees and hire of equipment, etc.
“Any NEC decision be dependent upon Nasfund appointing a receiver/manager to deal with the proper wind-up of the SCITB including dealing with outstanding creditors.”
The report asked the government to seriously consider recovery action against companies for fees and commissions paid.
A separate investigation order by Prime Minister Sir Michael Somare is still pending.
In October 2009, upon receiving a request from Tammur for a K300 million loan from the Chinese government, Treasurer Patrick Pruaitch approved the SCITB.
In January last year, Waters, through his company Malco (PNG) Ltd, was engaged to be the exclusive coordinator for the issuance of K125 million of the SCITBs, to raise funds for water and infrastructure developments projects in the Kokopo district outside of the budget process.
The road projects included the following:
*Butuwin to Nangananga upgrade and sealing;
*Ulgunan road upgrade and sealing;
*Ulaveo to Lelenge maintenance;
*Malaguna to Tokua maintenance;
*Tobera to Talubar maintenance;
*Wainge to Malemale maintenance; and
*Bitapaka to mouth of Warangoi River upgrade and sealing.
The water supply projects included the following:
*Supply of 1,216 water tanks with purifiers and
cartage tanks; and
*Establishment of a main water supply in the Kokopo district.
Malco’s engagement as executive coordinator included a requirement to underwrite the issuance.
Malco then engaged an Australian funds management company, Backwell Lombard Capital, to be co-underwriter.
Subsequently, Pruaitch approved the engagement of National Capital Ltd to issue the treasury bills and manage the proceeds.
National Capital Ltd was previously owned by both Backwell Lombard Ltd and Nasfund.
However, Nasfund sold its share at the end of last year.
National Capital Ltd is also Nasfund’s fund manager.
National Capital Ltd issued all the SCITBs to Nasfund in March last year.
The SCITBs were issued for a period of one year, at an interest rate of 7.05%.