State lost K3m in Paga Hill rental

THE inefficiency of the Lands Department has cost the State more than K3 million and hundreds of thousands in forgone land rental over land at Port Moresby’s Paga Hill, the Public Accounts Committee (PAC) reports.
Land rent which was set at K250,000 per annum was wrongly reduced to K50,000 which was in arrears to the tune of K237,000 at the time the PAC completed its inquiry in February 2006.
Even the then minister for Lands appears to have had a hand in this deal in trying to exempt rent altogether but for once the Lands Department refused – to its credit.
The litany of errors, omissions and inability to account for what might have transpired by the departmental secretary and his senior management has shocked the PAC.
In the absence of any paper trails, the PAC pieced together a credible report from its own resources.
The following appears to have transpired in relation to the Paga Hill land.
Four applications were made to the PNG Lands Board No. 1991 (Item 2) for grant of the Paga Hill land each seeking a grant of a business (commercial) lease over the land.
One of this was the Paga Hill Land Holding (PNG). 
The Land was still a National Park.
The Land Board No. 1991 convened, so far as the PAC has been able to establish, on Friday Aug 22, 1997.
It was chaired by Ralph Guise.
The PAC has established that was no quorum at this Land Board.
The solicitor-general also advised the Department of Lands and Physical Planning that the grant of the lease was illegal for this reason, but the department ignored the advice.
The PAC reports the Land Board could not have been reasonably satisfied that the applicant could raise K300 million in five years.
Indeed, the committee finds that the lessee cannot pay the land rental and has sought relief from that obligation, much less fund a development of the magnitude required.
The land should have been zoned as sub-divisional land in order that a UDL could issue, but was not and could not have been so zoned.
“The committee finds a complete and inexplicable failure of the department to ensure that even the most basic legal requirements were either imposed or met and this resulted in a total failure to protect State land and public assets,” the PAC said in its report to Parliament.
Police legacy advised the Land Board in writing of its interest in and development plans for part of the land.
Representatives of police legacy apparently attended the Land Board.
The Land Board No. 1991 recommended that Paga Hill Land Holding PNG be granted a lease over portion 1597 Milinch Granville Fourmil Moresby – with an orally imposed condition that the land area the subject of police legacy’s interest was to be excised from portion 1597 by the developer and that police legacy would be granted appropriate title thereafter.
Thus far, the only record of such a condition is a hand written memo or record apparently signed by the chairman of the Land Board Mr Guise. That memo records: 
Recommendations:
“Papua New Guinea Land Board go in favour of Paga Hill Land Holding Co Ltd to develop and improve portion 1597 Granville over (sic) five-year period to a value of K300 million.”
Footnote:
“Company appears to have access to sufficient funds to fulfil requirements.
1. Annexation of police mess to be undertaken by developer in favour of RPNGC; and
2. Department and developer maintain a close liaison to accommodate requirements as highlighted by department.”
The committee concluded that this charitable police asset – and, therefore, State or public asset – has simply disappeared with no protection given by the department.
As of March 2006, there was no development on the land at all. How the Land Board concluded that the grantee could meet the improvement covenant is unknown in the absence of any documentation.
In 2000, a company called Paga Hill Development Co (PNG) Ltd, as opposed to Paga Hill Holding Company was formed.
On Sept 1, 2000, a business lease over portion 1597 Granville was granted to Paga Hill Development (PNG) Ltd and was registered as State Volume No. 24 Folio 159.
How and why this new company, rather than the original grantee, was able to obtain this lease could not be established by the PAC.
The lease should have been issued to the same company that held the urban development lease (UDL).
As it turned out, it appears as though two leases appear to exist over the same land – one UDL made to Paga Hill Holding Company (PNG) Ltd and the other a business lease to Page Hill Land Development Company (PNG) Ltd.
Further, the business lease related to the entire area and assumed that all the land was zoned “Commercial”.
This was not the case. There were varied zonings and the lease was illegally issued.
This lease contained only very basic covenants requiring payment of land rent and an improvement covenant requiring improvements to a minimum of K10 million within five years of issue of the lease – on Sept 1, 2000. Neither covenant has been complied with. No attempt has been made to forfeit the lease by the department for this failure.
This business lease could not have lawfully issued for the reasons that the department has not produced evidence to suggest that 10% dedicated as open space has been excised; that historical relics have been returned to the Department of Heritage or that the lessee could or did not meet the capital cost of establishing open space and renovation of the heritage sites or that they have been handed back to the respective authorities and that the lessee submitted a master plan to the secretary with 12 months or that the improvement covenant in the UDL has been met.
In addition, rent was in arrears and remained in arrears at the time the PAC published and presented its report and that the lessee had failed to meet all conditions and “clearly had no capacity to do so”.
The unimproved value of the land was assessed at K5 million in which case the correct land rental, at 5% of that value, should be K250,000 per annum.
This is the rental appropriate to a business lease.
On the May 24, 2001, the lease was changed by handwritten notation which reduced the land rent from K250,000 per annum to K50,000.
“The committee finds that there is no power to correct the record in this fashion,” the PAC report states.
“When questioned as to the identity of the officer who changed the amount and the legal basis so to do, both the secretary and deputy secretary of the department could not tell the committee.
“There is no explanation for this reduction. This means that with the active collusion of the department, the State has lost a minimum of approximately K900,000 from 2000 until 2005.
“The committee was advised that the lessee could not pay even this reduced amount.
“A departmental officer then agreed to allow the lessee to pay the land rent over a period.
“This officer had no power to do so.
“Why then was the department prepared to unlawfully allow such a lessee time to pay?”
Even at the reduced amount, land rent owing to the State was K237,000 in arrears as at Feb 28, 2006.
The committee notes that as of Feb 28, 2006, the last payment of land rental was made on March 30, 2006.
As if these illegalities were not enough, on Oct 21, 2002, the then minister for Lands agreed to a request from the principal of Paga Hill Development Co Ltd, to waive all past and future rentals until January 2006.
The reason for the request by the lessee was that the land rental could be better used in sourcing international investors to develop the land – a contention with which the minister agreed.
The minister further agreed to extend the improvement covenant from five to 10 years – a decision made with no legal basis at all.
The committee concludes that, for once in this transaction, the department acted correctly in refusing to accept the ministerial waiver of land rental.
There was no evidence of a tender or reserved price for the land.
This failure has cost the State at least K3 million being 60% of the unimproved value.
The Department of Lands has taken no steps at all to protect the position of the State in this regard.

* Any comments on the PAC report or any other instances of questionable deals should be addressed to: [email protected] or [email protected] or The Editor, PO Box 6817, Boroko, NCD