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• OMBUDSMAN COMMISSION

  OF

  PAPUA NEW GUINEA

  REPORT OF AN

  INVESTIGATION INTO

  THE SPRING GARDEN ROAD

  POREPORENA FREEWAY PROJECT

  MEMBERS

  OF THE

  OMBUDSMAN COMMISION

  Charles Maino Ango Wangatau Jim Ridges
  Chief Ombudsman Acting Ombudsman Acting Ombudsman

  18 December 1992

• Page 2 of 397

• OMBUDSMAN COMMISSION

  OF

  PAPUA NEW GUINEA

  REPORT OF AN INVESTIGATION
  INTO THE SPRING GARDEN ROAD
  POREPORENA FREEWAY PROJECT

  PART I: NATURE AND PURPOSE OF THE INVESTIGATION

  1. INTRODUCTION 2

  2. BACKGROUND OF THE FREEWAY PROPOSAL 9

  3. STRUCTURE OF THE REPORT 14

  PART H: RECORD OF EVENTS AND FINDINGS OF THE
  OMBUDSMAN COMMISSION

  4. DECISION TO PUBLICLY INVITE 18
  EXPRESSIONS OF INTEREST: MAY 1990

  5. ADVERTISEMENT INVITING 23
  EXPRESSIONS OF INTEREST: JUNE 1990

  6. RESPONSES TO THE ADVERTISEMENT: JULY 1990 35

  7. SIGNIFICANT INTERDEPARTMENTAL 49
  MEETING: 31 JULY 1990

  8. PROGRESS DURING SECOND 54
  HALF OF 1990
  9. PREPARATION OF SHORTLIST: 73
  FEBRUARY 1991

  10. TERMS OF REFERENCE FOR THE 94
  PROJECT: EARLY 1991

  11. THE MINISTERIAL COMMITTEE MEETING 103
  OF 18 JULY 1991

• Page 3 of 397

• 12. THE RELATIONSHIP BETWEEN THE CHINESE 120
  CONSORTIUM AND THE MINISTER FOR TRANSPORT

  13. FURTHER CHANGE IN COMPOSITION OF
  THE CHINESE CONSORTIUM: SEPTEMBER 1991 155

  14. MINISTER FOR TRANSPORT SIGNS CONTRACT 162
  FOR CONSTRUCTION OF FREEWAY: OCTOBER 1991

  15. ROLE OF THE WORLD BANK IN THE
  SPRING GARDEN ROAD/POREPORENA 178
  FREEWAY PROJECT

  16. FATE OF THE POLICY SUBMISSION FAVOURING 185
  THE CHINESE CONSORTIUM: DECEMBER 1991

  17. CONCERNS ABOUT CREDENTIALS OF TUNSON
  ENGINEERING CO LTD: 196
  DECEMBER 1991 – JANUARY 1992

  18. MINISTER FOR TRANSPORT EXPEDITES
  PREPARATION OF NEW POLICY 707
  SUBMISSION: FEBRUARY 1992

  19. HISTORY OF THE PROPOSAL BY 217
  KINHILL KRAMER PTY LTD

  20. RESOURCE MANAGEMENT
  COMMITTEE RECOMMENDS RE-TENDERING 238
  OF PROJECT: 20 FEBRUARY 1992

  2L THE MINISTER FOR TRANSPORTS 241
  POLICY SUBMISSION OF FEBRUARY 1992

  22. FAVOURABLE ASSESSMENT OF
  THE KINHILL KRAMER PROPOSAL

  23. NATIONAL EXECUTIVE COUNCIL DECIDES TO
  AWARD PROJECT TO KINHILL KRAMER 284
  CONSORTIUM: 24 FEBRUARY 1992

• Page 4 of 397

• 24. OVERVIEW OF EVENTS BETWEEN APPOINTMENT
  OF KINHILL KRAMER CONSORTIUM AND 290
  SIGNING OF CONTRACT: FEBRUARY – MAY 1992

  25. CONCERNS RAISED BY DEPARTMENT OF WORKS
  ABOUT DRAFT CONTRACT: 304
  MARCH – APRIL 1992

  26. DEPARTMENT OF TRANSPORT RECOMMENDS SIGNING
  OF CONTRACT AGAINST ADVICE OF OTHER 321
  DEPARTMENTS: 22 APRIL 1992

  27. NATIONAL EXECUTIVE COUNCIL DECIDES THAT 332
  CONTRACT MUST BE FINALISED: 23 APRIL 1992

  28. ACTION TAKEN BY FOUR KEY DEPARTMENTS
  PRIOR TO THE NATIONAL EXECUTIVE COUNCIL 334
  MEETING ON 29 APRIL 1992

  29. NATIONAL EXECUTIVE COUNCIL REJECTS ADVICE
  OF DEPARTMENT OF ATTORNEY-GENERAL: 29 APRIL 1992 355

  30. ACTING STATE SOLICITOR GIVES LEGAL CLEARANCE 358
  DESPITE DEFECTS IN CONTRACT: 6 MAY 1992

  31. NATIONAL EXECUTIVE COUNCIL APPROVES 367
  EXECUTION OF CONTRACT: 6 MAY 1992

  32. EVENTS LEADING UP TO EXECUTION OF 375
  THE CONTRACT: 6 – 27 MAY 1992

  33. THE CONTRACT OF 27 MAY 1992 395

  34. EVENTS AFTER 27 MAY TERMINATION
  OF CONTRACT AND APPOINTMENT OF A 400
  COMMISSION OF INQUIRY

  PART III: LAWS RELEVANT TO PUBLIC WORKS CONTRACTS

• Page 5 of 397

• 35. THE PUBLIC TENDER REQUIREMENTS OF 406
  THE PUBLIC FINANCES (MANAGEMENT) ACT

  36. THE PUBLIC WORKS COMMITTEE ACT AND THE
  ROLE OF THE PARLIAMENT IN MONITORING 424
  PUBLIC WORKS PROJECTS

  37. CONTROL OF OVERSEAS 39
  BORROWING BY THE STATE

  38. LAWS GOVERNING FOREIGN INVESTMENT 446

  39. LIMITS ON THE POWERS OF MINISTERS 451

  40. FUNCTIONS OF THE DEPARTMENT OF 460
  TRANSPORT AND THE DEPARTMENT OF WORKS

  PART IV; FINDINGS UNDER SECTION 219(1) OF THE
  CONSTITUTION AND SECTION 22(1) OF THE
  ORGANIC LAW ON THE OMBUDS • COMMISSION

  41. FINDINGS AS TO THE CONDUCT OF THE 468
  FORMER MINISTER FOR TRANSPORT

  42. FINDINGS AS TO THE CONDUCT OF THE
  DEPARTMENT OF TRANSPORT AND 480
  THE SECRETARY FOR TRANSPORT

  43. FINDINGS AS TO THE CONDUCT OF THE
  DEPARTMENT OF WORKS AND THE 497
  SECRETARY FOR WORKS

  44. FINDINGS AS TO THE CONDUCT OF THE
  DEPARTMENT OF ATTORNEY-GENERAL, THE 501
  SECRETARY OF THE DEPARTMENT AND THE
  ACTING STATE SOLICITOR

  45. FINDINGS AS TO THE CONDUCT OF THE
  DEPARTMENT OF FINANCE AND PLANNING 506

• Page 6 of 397

• AND THE SECRETARY FOR FINANCE

  46. FINDINGS AS TO THE CONDUCT OF THE 512
  NATIONAL EXECUTIVE COUNCIL

  PART V; RECOMMENDATIONS OF THE OMBUDSMAN COMMISSION

  47. RECOMMENDATIONS CONCERNING LAWS RELEVANT 518
  TO PUBLIC WORKS PROJECTS

  48. RECOMMENDATIONS AS TO THE EXERCISE 529
  OF POWERS BY MINISTERS

  49. RECOMMENDATIONS CONCERNING THE POWERS 534
  AND DUTIES OF DEPARTMENTAL HEADS

  50. RECOMMENDATIONS CONCERNING PROCEDURES 536
  OF THE NATIONAL EXECUTIVE COUNCIL

  5L RECOMMENDATIONS TO THE DEPARTMENT 544
  OF TRANSPORT

  52. RECOMMENDATIONS TO THE DEPARTMENT 548
  OF ATTORNEY-GENERAL

  53. RECOMMENDATIONS TO THE DEPARTMENT 550
  OF FINANCE AND PLANNING

  54. RECOMMENDATIONS TO THE MINISTER FOR
  TRADE AND INDUSTRY AND THE INVESTMENT 554
  PROMOTION AUTHORITY

  55. RECOMMENDED DISCIPLINARY PROCEEDINGS 557

  56. RECOMMENDATIONS CONCERNING THE FUTURE OF THE 561
  SPRING GARDEN ROAD/POREPORENA FREEWAY PROJECT

  PART VI SUMMING UP

  57. SUMMING UP 566

• Page 7 of 397

• LIST OF EXHIBITS 571

  i

  PART I 1
  NATURE AND PURPOSE OF THE INVESTIGATION

  2

  1. INTRODUCTION

  (1.1] THE OMBUDSMAN COMMISSION’S DECISION TO CONDUCT AN
  INVESTIGATION

  On 27 May 1992 the Governor-General, Sir Wiwa Korowi, signed a
  contract
  on behalf of the Independent State of Papua New Guinea for the
  design,
  finance and construction of a freeway in the city of Port
  Moresby. The
  Governor-General was acting on the advice of the National
  Executive
  Council, which a few weeks earlier had given final approval
  for the signing
  of the contract.

• Page 8 of 397

• The Ombudsman Commission received information from a number of
  different sources suggesting that normal procedures had not
  been
  followed. It was also alleged there were irregularities in the
  contract
  negotiations and that the terms of the contract were heavily
  weighted
  against the interests of the State.

  After making preliminary inquiries, it appeared that the
  project had neither
  been put to tender nor considered by the Parliament. As it was
  the
  Commission’s understanding that public works projects of this
  magnitude
  (the contract committed the State to a minimum payment of US
  $67 million
  plus interest) were subject to these procedures, the
  Commission decided
  in May 1992 that it would conduct an investigation, on its own
  initiative, into
  the circumstances leading to and surrounding the decision of
  the National

  Chapter 1

  3
  Executive Council to advise the Governor-General to sign
  the contract for
  the design, finance and construction of the freeway.

  [1.2] JURISDICTION

  The Commission conducted its investigation under the
  Organic Law on the
  Ombudsman Commission. Section 13 authorises it to
  investigate, on its
  own initiative, any “conduct” on the part of any
  “governmental body” or any
  of its officers. The Commission can thus investigate the
  conduct of any
  arm, department, agency or instrumentality of the National
  Government,
  including the National Executive Council (Schedule 1.2(1)
  of the
  Constitution).

  The Commission can investigate the policy of the National

• Page 9 of 397

• Government or
  a Minister, to the extent that the policy is contrary to
  law or to the National
  Goals and Directive Principles, the Basic Rights or the
  Basic Social
  Obligations or any Act of the Parliament (Section 219(3) of
  the
  Constitution).

  The Ombudsman Commission is not authorised to conduct an
  investigation
  into the conduct of private citizens and companies.
  Nevertheless, in the
  course of reporting its findings and opinions on the
  conduct of
  governmental bodies, it is sometimes necessary to comment
  on the
  conduct of others who may not be within the jurisdiction of
  the
  Ombudsman Commission. That has happened in this report: we
  have
  occasionally made comments on the conduct of private
  companies, as part
  of the formation of an opinion on the conduct of various
  governmental
  bodies.

  Chapter 1

  4

  [1.3] THE PURPOSE OF THIS INVESTIGATION

  The purpose of this investigation was not to report on whether
  the city of
  Port Moresby needs a freeway. That could have formed a part of
  the
  investigation, because Section 219(3) of the Constitution
  allows the
  Ombudsman Commission to inquire into National Government
  policies
  which are contrary to the National Goals and Directive
  Principles.

  The second of our National Goals is for all our citizens to
  have an equal
  opportunity to participate in, and benefit from, the

• Page 10 of 397

• development of our
  country’. Directive Principles 2(3) and 2(4) require that
  every effort be
  made to achieve an equitable distribution of the benefits from
  development
  and an equalisation of services throughout the various parts
  of the country.

  It is arguable whether these objectives were advanced by the
  decision of
  the National Executive Council to commit a large amount of
  public money
  to the building of a freeway in the nation’s capital;
  especially as it is widely
  recognised that the rural infrastructure of our country is
  seriously under-
  developed.

  Nevertheless, the Ombudsman Commission decided, in its
  deliberate
  judgment, not to make that policy decision of the National
  Executive
  Council the subject of this investigation. We were concerned,
  instead, with
  the decision-making process which attempted to implement that
  policy.

  In accordance with Section 219(1) (a) of the Constitution the
  purpose of the
  investigation was:

  to determine whether any of the “conduct” under
  investigation
  was “wrong”; and

  Chapter 1

  5

  to determine whether there were “defects in any law
  or

  administrative practice.

  [1.4] WHAT IS ‘WRONG’ CONDUCT?

• Page 11 of 397

• Section 219(2) of the Constitution states that conduct is
  “wrong” if, for

  example, it is:

  “(a) contary to law; or

  (b) unreasonable, unjust/oppressive or improperly
  discriminatory, whether
  or not it is in accordance with law or practices or

  (c) based wholly or partly on improper motives,
  irrelevant grounds or
  irrelevant considerations; or

  (d) based wholly or partly on a mistake of law or of
  fact or

  (e) conduct for which reasons should be given but were
  not,

  whether or not the act was supposed to be done in the
  exercise of deliberate
  judgement within the meaning of Section 62 (decisions in
  ‘deliberate judgement’).”

  However, Section 219(2) of the Constitution also provides
  that the

  Ombudsman Commission is not constrained in its determination
  of whether

  conduct is “wrong”, by the examples listed above. The
  Ombudsman

  Commission has a wide discretion to exercise in making this
  determination.

  In exercising its discretion the Commission is guided, in
  particular, by the

  National Goals and Directive Principles and the Basic Rights
  and the Basic

  Social Obligations, as permitted by Sections 25 and 63 of
  the Constitution.

• Page 12 of 397

• Chapter 1

  6

  (1.51 RELEVANCE OF THE LEADERSHIP CODE
  The Ombudsman Commission of Papua New Guinea is entrusted with
  the
  task of administering two Organic Laws:

  the Organic Law on the Ombudsman Commission; and

  the Organic Law on the Duties and Responsibilities of
  Leadership.

  The provisions of the Organic Law on the Duties and
  Responsibilities of
  Leadership, together with those in Division 111.2 of the
  Constitution,
  comprise the Leadership Code.

  We emphasise that this report has not been prepared for the
  purpose of
  recording alleged breaches of the Leaddership Code. The
  procedure for
  dealing with such matters is prescribed by the Organic Law on
  the Duties
  and Responsibilities of Leadership. This report has Int been
  prepared
  under that Organic Law.

  This is a report prepared in accordance with the Organic Law on
  the
  Qmbudsman Commission. Our primary function in this
  investigation has
  been to investigate and report on wrong conduct and defective
  laws and
  administrative practices and to make recommendations
  accordingly.

  In discharging that function the Ombudsman Commission has not
  formed
  any judgment on whether any of the persons involved have

• Page 13 of 397

• breached the
  Leadership Code.

  Chapter 1

  7

  METHOD OF INQUIRY

  The Commission obtained documents and other evidence from a number
  of different sources and used its powers under Section 18 of the
  Organic
  Law on the Ombudsman Commission to summon persons to attend before
  the Commission and give evidence under oath and produce documents
  in their possession or control. Most persons summoned to attend were
  co-
  operative. However it was, on occasions, necessary to warn some
  persons
  of their obligation to comply fully with the terms of the summons
  served
  on them.

  We take this opportunity to point out that it is not sufficient for
  a person
  who has been required to produce all documents pertaining to a
  certain
  subject matter to attend the Commission and produce only some, or
  even
  most, of the documents required. Failure to comply fully with an
  Ombudsman Commission summons is a serious criminal offence under
  Section 30 of the Organic Law on the Ombudsman Commission, the
  penalty for which is a K500.00 fine or three months imprisonment for
  each
  offence (see The State v Allan Ebu Marai, National Court decision,
  O.P. 1
  of 1991, 12.2.92).

  A number of the documents obtained by the Ombudsman Commission
  under summons would in the ordinary course of events be regarded as
  confidential in nature,e.g. those providing evidence of the
  proceedings of
  the National Executive Council. However, the effect of Section 19(1)
  of the
  Organic Law on the Ombudsman Commission is that the Ombudsman
  Commission can only be denied access to such documents when the
  Prime Minister, after consultation with the Chief Ombudsman,
  certifies that
  their production is likely to:

• Page 14 of 397

• Chapter 1

  “(a) prejudice the security, defence or international
  relations of Papua New
  Guinea (including Papua New Guinea’s relations with the
  Government
  of any other country or with any international
  organization) or the
  investigation or detection of offences; or

  (b) involve the disclosure of proceedings, deliberations or
  decisions of the
  National Executive Council which the “‘time Minister
  certifies relate
  to matters of a secret or confidential nature,
  disclosure of which would
  be contrary to the public interest.”

  In the present case, no certificate under Section 19(1) was issued
  in
  respect of any documents which the Commission sought access to and
  so the Commission was able to require the production of those
  documents.

  The investigation was conducted in private, as required by Section
  17(2)
  of the Organic Law on the Ombudsman Commission.

  * * * * * * * * * *

• Page 15 of 397

• Chapter 1

  2. BACKGROUND OF THE FREEWAY PROPOSAL

  [2.1] PORT MORESBY’S TRAFFIC PROBLEMS

  It has been recognised for many years that the peculiar
  geography of the
  city of Port Moresby has given rise to a serious traffic
  problem. Other than
  following the long and winding “back road” through Baruni, or
  the
  inconvenient route along Scratchley Road through Kila Kila,
  only the Sir
  Hubert Murray Highway can carry traffic between downtown Port
  Moresby
  and the other major traffic-generating parts of the city at
  Gerehu, Waigani,
  Hohola, Boroko and Jacksons Airport.

  The Highway, however, is not a high quality road and it is
  often congested.
  Breakdowns and accidents on some sections, particularly Three
  Mile Hill,
  can cause huge traffic jams.

  2.2] THE UNCONNECTED SECTIONS OF THE SPRING GARDEN ROAD
  NETWORK

  Construction of an alternative route, between the suburbs of
  Hohola and
  Konedobu, has long been regarded as the solution to the
  problem.
  Various proposals have been put forward over the last thirty
  years and

• Page 16 of 397

• most have favoured a road passing through the saddle of Burns
  Peak
  linking two presently unconnected sections of “Spring Garden
  Road”.
  These two unconnected sections are shown on the map at the end
  of this
  chapter. They are:

  Chapter 2

  10

  from Champion Parade Konedobu to a point close to the
  Department of Transport headquarters in Konedobu: see
  map, points “B” to “C”; and

  from Burns Peak Road Hohola to Wards Road Hohola: see
  map, points “D” to “E”.

  There are also other unconnected sections of the Spring Garden Road
  network which have, at various times, been earmarked for
  construction or
  redevelopment. These are:

  from Wards Road Hohola to a point near the Hohola
  Demonstration School: see map, points “E” to “F”; and

  from Hekakora Street Hohola to Boroko Drive: see map,
  points “G” to “I”.

  More recently, it has been proposed that the Spring Garden Road
  network
  be extended at “both ends”, to form one arterial road linking the
  seaport
  at downtown Port Moresby with Jacksons Airport: see map, points “A”
  to
  ‘. Under this proposal, the extended sections of the Spring Garden
  Road
  network would have been:

  from Stanley Parade in downtown Port Moresby, along
  Champion Parade, to Spring Garden Road, Konedobu: see
  map points “A” to “B”; and

  from the intersection of Spring Garden Road and Boroko
  Drive, Gordons, via Geauta Road, across the Sir Hubert
  Murray Highway at Erima to Jacksons Airport: see map,
  points “in to “K’. via “J”.

  Chapter 2

  11

• Page 17 of 397

• [2.3] DECISIONS OF THE NATIONAL EXECUTIVE COUNCIL DURING THE
  1980s

  In the 1980s, the Spring Garden Road issue was addressed by
  the
  National Executive Council on a number of occasions. In
  dealing with
  National Executive Council submissions and decisions in this
  report, we
  have paid special reference to the “Submissions Handbook for
  National
  Executive Council and National Parliament”. [EXHIBIT 1]

  In 1984, the National Executive Council directed the then
  Department of
  Transport and Civil Aviation to arrange a feasibility study on
  the “Burns
  Peak Road” and to ensure that funding was available under the
  National
  Road Improvement Programme for 1985-88. [EXHIBIT 2]

  In 1988, requests for assistance were made to the GoVernment
  of Japan
  for possible funding under grant aid and soft loan
  arrangements for a
  number of projects, including the Burns Peak tunnel. [EXHIBIT
  3]

  Also in 1988, Barclay Bros (PNG) Pty Ltd put a proposal to the
  National
  Government which included an open-cut road through Burns Peak,
  linking
  the Konedobu and Hohola sections of Spring Garden Road, at an
  estimated cost of K11 million. It was proposed that the
  project take place
  in conjunction with the redevelopment of Port Moresby’s port
  facilities. The
  Barclay Bros proposal was discussed by a committee which
  recommended
  that the project be tendered. This proposal also failed to
  come to fruition.
  [EXHIBITS 4 & 4A]

  In 1989, the Departments of Transport, Foreign Affairs and
  Finance and
  Planning were directed by NEC Decision No. 76/89 to approach
  the
  Government of Denmark for aid funding on this and other
  transport
  projects. [EXHIBIT 5]

  Chapter 2

• Page 18 of 397

• 12

  [2.4] THE NATIONAL EXECUTIVE COUNCIL DECISION OF 25 JANUARY
  1990

  It was against this background that the National
  Executive Council
  reconsidered the matter at its meeting on 25 January
  1990, following a
  Policy Submission by the Minister for Transport, Mr
  Anthony Temo.
  [EXHIBIT 6]

  In Decision No.14/90, the National Executive Council:

  directed the Department of Transport,
  Department of Works and
  Department of Finance and Planning to
  formulate detail plans for the
  construction of Burns Peak Road;

  2. directed that the plan should include the
  re-evaluation of the Barclay
  proposals and any other Turn-Key’
  proposals available;

  3. approved the engaging of Ove Amp and
  Partners (Pacific) Pty Ltd, to
  undertake the Port Moresby Road Needs
  Study (Arterial Roads);

  4. advised the Governor-General to enter into
  agreement on behalf of the
  State with Ove Amp and Partners (Pacific)
  Pty Ltd” [EXHIBIT 6A]

  * * * * * * * * * *

• Page 19 of 397

• Chapter 2

  MAP: THE SPRING GARDEN
  ROAD NETWORK AND THE ROUTE OF

  THE PROPOSED POREPORENA FREEWAY

  Points marked:

  A Stanley Parade/
  Champion Parade
  B Champion
  Parade,Spring Garden Road
  C End of Spring.
  Garden Road Konedobu
  D Spring Garden
  Road/Burns Peak Road
  E Spring Garden
  Road/Wards Road
  F Spring Garden Road
  (Near Hohola Demonstration School)
  G Spring Garden
  Road/Hekakora Street
  H Spring Garden
  Road/Waigani Drive
  I Spring Garden
  Road/Boroko Drive/Geauta Road (Courts’ Roundabout)
  Geauta Road/
  Kookaburra Street/Sir Hubert Murray Highway
  K Jackson
  International Airport

• Page 20 of 397

• • Burns Peak

  Chapter 2

  14

  3. STRUCTURE OF THE REPORT

  [3.1] FOCUS OF INVESTIGATION

  On 6 May 1992 the National Executive Council decided to advise
  the
  Governor-General to enter into a contract with Kinhill Kramer
  Pty Ltd and
  Curtain Bros (Old) Pty Ltd for the design, finance and
  construction of the
  Poreporena Freeway. That decision was a crucial one. However,
  in
  conducting this investigation, the Ombudsman Commission was
  not only
  interested in the circumstances immediately surrounding that
  particular
  decision. Our wider concern was to determine whether the whole
  decision-
  making process which occurred after the National Executive
  Council
  decision of 25 January 1990 was carried out lawfully in
  accordance with
  sound administrative practices.

  The Ombudsman Commission therefore considered all the events
  that
  occurred after 25 January 1990, which culminated in the
  signing of the
  contract on 27 May 1992. After examining the evidence obtained
  in the
  course of the investigation, the Commission made a number of
  findings.

  These are set out in Part II of the report, which contains a
  chronological
  account of the events which led to the signing of the
  contract. Each of
  Chapters 4 to 33 highlight a significant incident or decision
  which formed
  the chain of events up to 27 May 1992.

• Page 21 of 397

• Chapter 3

  15

  2] ALL PERSONS ADVERSELY COMMENTED ON HAVE BEEN GIVEN A

  RIGHT TO BE HEARD

  During the course of documenting these findings, the
  Ombudsman

  Commission found it necessary to be critical of the conduct
  of some

  individuals and governmental bodies. All of these persons
  and, in the case

  of governmental bodies, their representatives, were given an
  opportunity

  to be heard prior to the completion of this report, in
  accordance with the

  duties imposed on the Ombudsman Commission under Section
  17(4) of

  the Organic Law on the Ombudsman Commission.

  Section 17(4) states:

  “Nothing in this Law compels the Commission to hold any
  hearing and no
  person is entitled as of right to be heard by the
  Commission except that –

  (a) where a report of the Commission may affect a State
  Service, provincial
  government body or statutory body, the Commission
  shall provide

• Page 22 of 397

• reasonable opportunity for the Permanent Head of
  that service or the
  statutory head of that body, as the case may be, to
  comment on the
  subject of the investigation; and

  (b) the Commission shall not make any comment in its
  report that is adverse
  to or derogatory of any person without –

  (i) providing him with reasonable opportunity of
  being heard; and

  (ii) fairly setting out his defence in its report”

  3.3] RELEVANT IAM

  One of the main concerns of the Ombudsman Commission at the

  commencement of the investigation was the allegation – which
  came from

  many sources – that proper financial and contractual
  procedures had been

  bypassed.

  Chapter 3

  16

  Part II( of the report accordingly gives an account of
  some of the important
  laws regulating public works contracts in Papua New
  Guinea.

  [3.4] PART IV SUMMARISES AND FORMALISES ADVERSE FINDINGS

• Page 23 of 397

• Part IV of the report summarises the adverse findings
  made against
  individuals and governmental bodies in Part II. These
  findings are based
  on Section 219 of the Constitution and Section 22 of
  the Organic Law on
  the Ombudsman Commission, which prescribe the type of
  conduct which
  is “wrong” or otherwise requires criticism by the
  Ombudsman Commission.

  [3.5] RECOMMENDATIONS OF THE OMBUDSMAN COMMISSION

  Part V of the report contains a number of important
  recommendations
  arising from our investigation. In particular, we make
  suggestions as to the
  manner in which public works projects such as the
  Spring Garden Road
  (also known as the Poreporena Freeway) project should
  be handled in
  future.

  [3.6] SUMMING UP

  Part VI sums up the investigation and the findings of
  the Ombudsman
  Commission.

  * * * * * * * * * *

  Chapter 3

  17

  PART II

  RECORD OF EVENTS
  AND FINDINGS OF THE OMBUDSMAN COMMISSION

  18

• Page 24 of 397

• 4. DECISION TO PUBLICLY INVITE EXPRESSIONS OF INTEREST:
  MAY 1990

  [4.1] THE INTERDEPARTMENTAL MEETING OF 22 MAY 1990

  After the National Executive Council decided in January 1990
  that detailed
  plans ‘tor the construction of Burns Peak Road” be drawn up,
  very little
  happened until May 1990, when the Minister for Transport, Mr
  Anthony
  Temo, convened an interdepartmental meeting. The meeting was
  held on
  22 May 1990 and was chaired by Mr Temo. The subject was ‘the
  Burns
  Peak Road Development’. [EXHIBIT 8]

  Representatives from various departments and the Harbours
  Board were
  present, as well as a consultant employed by Ove Arup and
  Partners, the
  firm engaged to conduct the Port Moresby Road Needs Study.
  This study
  later concluded that construction of a link through Burns Peak
  would have
  a beneficial effect on the Port Moresby economy and that
  traffic flow on
  the Three Mile Hill section of the Sir Hubert Murray Highway
  would
  consequently be reduced by almost 50%.

  [42] ISSUES UNDER CONSIDERATION

  During this meeting, two crucial issues were addressed:

  Chapter 4

  19

  1. The method of construction of the Bums Peak link

  Once it had been decided that the route for the new road
  would pass through Burns Peak, the next thing to decide was
  the best way of getting through. Should a tunnel be
  constructed or would it be better to make a “cut” through the
  mountain?

• Page 25 of 397

• 2. The method of financing the project

  The other crucial issue discussed at the meeting was the
  method of financing the project. One proposal, closely linked
  with the tunnel option, was that part of Spring Garden Road
  would become a tollway.

  This later became transformed into the Build-Operate-Transfer
  (BOT) concept. Under this method of financing, it was
  envisaged that the Government would engage a contractor
  to build and operate the road as a tollway, holding the ‘title’
  to it for, say, twenty years, until the contractor made a
  reasonable return on its investment, and then returning the
  road to the State. el

  The Minister for Transport favoured this option, though he
  was also willing to consider other options, provided they
  involved no financial cost to the Government.

  Chapter 4

  20

  [4.3] NO FIRM POUCY DECISIONS MADE

  No firm decisions were made on either the method of
  construction or the
  method of financing the project at the meeting of 22 May 1990.
  The most
  important outcome was that the Minister for Transport directed
  the
  Department of Transport to advertise the project so that
  interested parties
  could express their interest.

  The Minister also announced that he intended to direct the
  Department of
  Works to commence detailed design of the project immediately
  and to
  complete the design within six months. This was confirmed in
  writing the
  following day, 23 May 1990, in a letter to the Acting
  Secretary of the
  Department of Works, Mr G Morea. [EXHIBIT 9]

• Page 26 of 397

• [4.4] MINISTER FOR TRANSPORT EXCEEDED HIS POWERS

  It should be noted that the Minister for Transport had no
  power to give this
  direction to the Department of Works.

  Section 148 of the Constitution states that Ministers only
  have such titles,
  portfolios and responsibilities as are given to them, from
  time to time, by
  the Prime Minister. During 1990, Mr Temo had no responsibility
  for the
  Department of Works and therefore it was wrong of him to
  direct the
  Department to finish the design within six months. We are not
  suggesting
  there was anything improper about getting the design phase
  underway;
  but if the Minister for Transport wanted to expedite the
  project, he should
  have gone about it the right way, by liaising with the
  Minister for Works,
  Secretary for Works and Secretary for Transport.

  Chapter 4

  21

  When we made this finding in our preliminary report, Mr Temo
  responded
  as follows:

  ‘The direction to Secretary for Works was a result of a
  suppose to be ministerial
  committee meeting. When the respective ministers did not
  turn up their
  respective secretaries or their nominees turned up.
  The Department of Works representative suggested the
  idea that it would take
  up to 6 months to have the Geo-Technical report ready
  and he wanted the
  decision to be relayed officially as a result of this
  meeting.
  This letter was drafted by my staff relaying the
  decision of the meeting.
  I was also acting as Chairman of ministerial committee
  on infrastructure_
  [10331BIT 257, page 1]

• Page 27 of 397

• Mr Temo’s response does not address the thrust of our
  criticism. His
  direction to the Department of Works was unlawful and wrong,
  in that it
  was contrary to Section 148 of the Constitution.

  .5] MINISTERS DO NOT HAVE THE POWER TO DIRECT DEPARTMENTS IN 1
  THEIR DAY-TO-DAY ACT1VMES

  There is an important aspect of Sectior 148 of the
  Constitution that muss
  be emphasised here: though Section 148 gives Ministers
  “political.
  responsibility for particular Departments, it does not give
  them any power
  to direct or control a Department in its day-to-day
  activities.

  A Minister is not the boss of a Department – the Head of the
  Department
  is the boss. The Ministers job – in conjunction with the
  National Executive
  Council – is to set the Department’s policy on important
  issues. It is not his
  job to give directions to the Departmental Head or to
  Departmental officers
  on day-to-day matters. The only exception is where a Minister
  is specifically
  empowered by an Act of Parliament to give directions or make
  certain
  decisions. 1

  Chapter 4

  22

  This important constitutional principle was explained
  by the Supreme Court
  in Supreme Court Reference No. 1 of 1982: Re Bouraga
  [1982] PNGLR
  178. We discuss it further in Chapter 39 of this
  report.

  So, even if Mr Temo had had political responsibility

• Page 28 of 397

• for the Department of
  Works, it still would have been wrong for him to direct
  the Secretary for
  Works to complete the design within six months. He
  could only request
  that that be done and ensure that there were sufficient
  funds available for
  that purpose.

  [4.6] IGNORANCE OF SECTION 148 OF THE CONSTITUTION: A MAJOR
  PROBLEM
  There is a lot of misunderstanding of Section 148 of
  the Constitution in the
  Public Service, and some Ministers appear to know
  little about it.

  The Ombudsman Commission often finds that Ministers
  believe that, simply
  because they are Ministers, they have the right to give
  directions to anyone
  in “theirs Department, or even, as shown in the present
  case, in a
  Department for which they have no responsibility. This
  is wrong. It is
  unconstitutional and it leads to chaos.

  Unfortunately, there were many occasions during the
  life of the Spring
  Garden Road/Poreporena Freeway project when the
  Minister for Transport
  exceeded his powers as a Minister. This was the first
  of them.

  * * * * * * * * * *

  Chapter 4

  23

  5. ADVERTISEMENT INVITING EXPRESSIONS OF INTEREST:
  JUNE 1990

  [5.1] ADVERTISEMENT PUBLISHED IN POST COURIER AND NATIONAL
  GAZEnE
  Advertisements inviting expressions of interests in the “Burns
  Peak/Spring

• Page 29 of 397

• Garden Road Link” were published in the Post Courier on 20 and
  22 June
  1990 and the National Gazette on 28 June 1990. [EXHIBITS 12 &
  18]

  There are three points that should be noted about the
  advertisement. They
  concern:

  the scope of the project;

  co-ordination of the project; and

  financing of the project.

  I. THE SCOPE OF THE PROJECT

  [5.2] TERMS OF THE ADVERTISEMENT

  The advertisement stated that the National Executive Council
  had decided
  that “the section of Spring Garden Road in the National
  Capital District
  between Waigani Drive and Kaevaga/Konedobu … is to be
  constructed as
  soon as possible”.

  Chapter 5

  24
  This statement was a little misleading.

  What precisely had the National Executive Council decided?

  What the National Executive Council had, in fact, decided by
  Decision No.
  14/90 was that “plans for the construction of Burns Peak Road”
  be
  formulated.

  This was a very vague decision. The only road in Port Moresby
  that is
  called “Burns Peak Road” is the dirt track running from Spring
  Garden
  Road, near Walnut Place, Hohola to the top of Burns Peak where
  the
  telecommunications transmitters are located.

  Despite the vagueness of Decision No. 14/90 it was assumed by
  everyone
  concerned that the National Executive Council was actually
  referring to

• Page 30 of 397

• Spring Garden Road. However, this interpretation still caused
  problems,
  because the National Executive Council did not specify (and
  has never at
  any stage specified) the particular parts of Spring Garden
  Road it wanted
  constructed and/or upgraded.

  [5.3] WHAT WAS MEANT BY ‘THE BURNS PEAK ROAD” OR “SPRING GARDEN
  ROAD”?

  This was not just a small side issue – it concerned the scope
  of the whole
  project. Did the National Executive Council want the upgraded
  road to
  begin at the junction of Stanley Esplanade and Cuthbertson
  Street in
  downtown Port Moresby or was the network to begin at the
  junction of
  Champion Parade and Spring Garden Road in Konedobu? Was the
  road
  to go through Burns Peak to Wards Road? Or one stage further,
  to
  Waigani Drive? Or to the end of Spring Garden Road at Boroko
  Drive? Or
  further still, to the Sir Hubert Murray Highway, at Erima? Or
  was the road
  required to go all the way to Jacksons Airport?

  Chapter 5

  25

  Any of these options could conceivably have been brought
  within the
  terms of the decision that “plans for the construction of the
  Burns Peak
  Road” be formulated.

  The Policy Submission which had generated the decision did not
  shed any
  light on this issue. It simply made reference to the scope of
  the project in
  general terms such as:

  The purpose of the Submission is to request the National
  Executive Council
  to direct Department of Works, Department of Transport and
  Department of

• Page 31 of 397

• Finance and Planning to adopt special procurement
  procedures to undertake the construction of Burns Peak Road
  (Spring Garden Road). The measures could
  construction of Burns Peak Road (Spring Garden Road). The
  measures could
  include turnkey arrangements.-
  Construction of the BUMS Peak will involve considerable
  financial commitment’ [EXHIBIT 6, page 1]
  [EXHIBIT 6, page 1]

  5.4] THE DEPARTMENT OF TRANSPORTS INTERPRETATION OF THE
  5.4] THE DEPARTMENT OF TRANSPORTS INTERPRETATION OF THE
  NATIONAL EXECUTIVE COUNCIL DECISION

  The Secretary for Transport, Mr B K Amini CBE, interpreted the
  decision
  as applying only to the section of Spring Garden Road between
  Konedobu
  and Waigani Drive. This is evident from a letter dated 7 June
  1990 he
  wrote to the Secretary for Works, Mr A Temu. Mr Amini
  described the
  scope of the project in the following terms:

  ‘I wish to restate that the scope has not change except the
  grade and the
  elimination of the design of the tunnel option. Basically
  the scope of works am-
  am-

  8% grade
  4 lanes (2 lanes in each direction)
  80 km/ph
  Establishment of a highway link between Rohola (Junction of
  Waigani Drive
  and Spring Garden Road East) and Konedobu (Junction of
  Champion Parade
  and Spring Garden Road West) by improving and extending
  Spring Garden
  Road over Burns Peak, Intersecting and crossing Wards
  Road.’
  [EXHIBIT 10, page 1]

  Chapter 5

• Page 32 of 397

• 26

  [5.5] CHANGE OF SCOPE WITHOUT EXPLANATION

  The Secretary for Transport’s interpretation of the National
  Executive
  Council decision was reflected in the advertisements inviting
  expressions
  of interest. But that interpretation did not remain constant.

  Two years after the advertisement was published, the State had
  entered
  into a contract for construction of a freeway all the way from
  downtown
  Port Moresby to Jacksons Airport. This was a considerable
  expansion in
  the original scope of the project. [EXHIBITS 231 A, 231 B,
  232]

  [5.6] WHO MADE THE DECISION TO EXPAND THE SCOPE OF THE PROJECT?

  In the course of this investigation, the Ombudsman Commission
  was never
  able to identify when the decision was made to alter the scope
  of the
  project. Nor can we say who made it. It seems to have “just
  happened’
  that way.

  Mr Amini’s explanation

  When we raised this matter in our preliminary report, the
  Secretary for
  Transport, Mr Amini, responded in the following terms:

  For every major project undertaken by the Department of
  Transport, there is
  a feasiblity study that defines the scope in general terms.
  The outcome of the
  feasibility study is a three-part report – a summary
  containing the main findings

• Page 33 of 397

• and recommendations, – a main report containing the main
  issues and – technical
  appendices or working papers. These serve as working papers
  on each project,
  including this one and there is minimum of paperwork. After
  these reports,
  follows the detailed design that pins down the last
  centimetre of the project’s
  scope – where it starts and where it ends. It should be
  noted that, for this
  project, the detailed design had not been done as it was
  part of the turn-key –
  the consortium was going to do that as part of the
  contract.

  Chapter 5

  27

  The project feasibility report prepared by the
  consultants, Ove Arup of Australia
  – entitled ‘Spring Garden Road Economic Assessment’ –
  contained the detailed
  scope of the project and it is a reference point and not a
  file. The scope was
  extended to connect the new DCA road from the airport
  (note this is normal to
  extend the scope – Department of Works almost invariably
  extend every project
  they implement). The end of the DCA project was known
  because it had been
  designed and that is where we were to end this project.
  The DCA project was
  two-lane and wisely we decided to widen it to four to
  conform with the
  Freeway. Both the start and the end of the project were
  clearly known. The
  Department followed its set procedures and this cannot be
  construed as
  defective administration.” [EXEUBIT 254, pages 2-3]

  Unsatisfactory explanation

• Page 34 of 397

• In our view, Mr Amini has not given a satisfactory explanation of
  his
  Department’s failure to make a careful and reasoned and properly
  documented decision as to the scope of the Spring Garden
  Road/Poreporena Freeway project.

  His reference to the ‘Spring Garden Road Economic Assessment’ report
  by Arup Australia is, with respect, misleading. Mr Amini suggests
  that the
  scope of the project was determined in accordance with that report.
  Even
  if that were true, we would still expect to find evidence that at
  some stage
  the Department of Transport had made a formal decision to adopt the
  recommendations of the report.

  However, the Arup report entitled ‘Spring Garden Road Economic
  Assessment’ did not provide any basis for the decision to extend the
  scope of the project to Jacksons Airport along the route envisaged
  in the
  contract with the Kinhill Kramer/Curtain Bros consortium.

  Despite Mr Amini’s claim that the start and end of the project were
  clearly
  known, the ‘Spring Garden Road Economic Assessment Report’ only
  contemplated a four-lane road from downtown Port Moresby to the
  intersection of Spring Garden Road and Waigani Drive (see Chapter 2

  Chapter 5

  28
  map, points “A” to “H”), plus other associated works. The Spring
  Garden
  Road project, according to that report, did not include the
  upgrading of
  Spring Garden Road from Waigani Drive to Boroko Drive (see map, “H”
  to
  “I”). The project also did not include a four-lane arterial road
  from the
  intersection of Spring Garden Road and Boroko Drive to Jacksons
  Airport,
  via Geauta Road, which was the route envisaged in the contract
  entered
  into with the Kinhill Kramer/Curtain Bros consortium (see map,
  points “I”
  to “K”). [EXHIBIT 9A, page 10, para 5.12; EXHIBIT 233, Part Z
  Description of Concept]

  In Arup’s Study Report, which was separate from the Spring Garden

• Page 35 of 397

• Road
  Economic Assessment Report, it was recommended that, in addition to
  the
  Spring Garden Road project, many other road construction and
  improvement projects should be undertaken in the city of Port
  Moresby.
  These included widening the section of Spring Garden Road between
  Waigani Drive and Boroko Drive to four lanes (see map, “H” to “I”).
  However, the Study Report did not recommend the widening or
  upgrading
  of Geauta Road, from Boroko Drive to the Sir Hubert Murray Highway
  (see
  map, “I” to “J”). The Study Report, in fact, recommended that the
  most
  direct route between downtown Port Moresby and Jacksons Airport
  should
  be via Sir John Guise Drive, which was proposed to be extended as a
  two-lane arterial road. [EXHIBIT 69A, para 7.0, table 1]

  Thus, neither the Spring Garden Road Economic Assessment Report nor
  the Study Report recommended a four lane arterial road along the
  route
  contained in the contract executed with the Kinhill Kramer/Curtain
  Bros
  consortium.

  Mr Hitola’s explanation

  When our criticism of the Department of Transport’s failure to
  specify the
  scope of the project was conveyed to the Secretary for Works, Mr
  Hitolo

  Chapter 5

  29
  (who was responsible for this project for a considerable time in the
  Department of Transport) he offered a different explanation.

  Mr Hitolo said that because the project was to be implemented using
  Build-Operate-Transfer financing, it was up to the private sector to
  determine the financial viability of the project before proposing
  the scope
  to the Government for approval. Mr Hitolo also said that a careful
  and
  reasoned and properly documented decision about the scope of the
  project required a feasibility study costing between K200,000.00 and
  K400,000.00, which had not been budgeted for.
  [EXHIBIT 265, page 2]

  Explanation rejected

  We find Mr Hitolo’s explanation unconvincing. Even if we accept

• Page 36 of 397

• that, in the
  case of a Build-Operate-Transfer project, the scope is determined by
  the
  developer, the fact is that no Build-Operate-Transfer proposal was
  ever
  lodged for the Spring Garden Road/Poreporena Freeway project. All of
  the
  proposals involved turnkey financing.

  This meant that inevitably – at some stage – the Government would be
  paying for the freeway. It was therefore necessary for the
  Government to
  know exactly where it wanted the freeway to go and how long the
  freeway
  would be.

  No proper comparison of competing proposals could be made unless
  everyone concerned knew the beginning and end points of the freeway
  and its route.

  It was the Department of Transport’s responsibility to make a
  careful and
  reasoned decision on this basic issue. However, it failed to do
  this.

  Chapter 5

  30

  [5.71 CHANGE OF FUNDAMENTAL DESIGN ALSO WITHOUT EXPLANATION

  We make a similar observation on the decision about the
  tunnel/cut option.
  Mr Amini’s letter to the Secretary for Works of 7 June 1990
  makes mention
  of the fact that the tunnel option had been eliminated.
  [EXHIBIT 10, third
  paragraph] But, at an interdepartmental meeting on 31 July
  1990, it was
  decided that a geotechnical investigation was required, before
  a final
  decision could be made (see Chapter 7).

  Throughout 1991, when negotiations were taking place with
  likely
  contractors, it was assumed the project would include a
  tunnel. When the
  National Executive Council made Decision No. 36/92 in favour
  of IGnhill
  Kramer Pty Ltd in February 1992, one of the key criteria (and
  one on
  which Knhill Kramer was rated “excellent”) was the “expected

• Page 37 of 397

• quality of
  tunnel”. But when the contract was signed, on 27 May 1992,
  there was
  no mention of a tunnel.

  MrAminarasmnrA

  In our preliminary report, we were critical of the Department
  of Transport
  for the haphazard manner in which the tunnel/cut issue was
  addressed.
  The Secretary for Transport, Mr Amini, replied that the
  geotechnical
  investigation undertaken by Coffey Partners International (see
  Chapter 8)
  was meant to give a conclusive answer; but he said it turned
  out to be
  inconclusive. As to the eventual decision to opt for the cut,
  rather than the
  tunnel, Mr Amini said it was made by the Department of Works.
  [EXHIBIT
  254, page 3]

  Chapter 5

  31

  Mr Hitolo’s response

  Mr Hitolo’s explanation of the confusion over the tunnel/cut issue
  was that
  it was an investment decision, to be made by the consortium selected
  to
  undertake the project. [EXHIBIT 254, page 2]

  Neither response was satisfactory

  Having considered the responses of Messrs Amini and Hitolo, we
  conclude
  that neither offered a satisfactory explanation for the Department
  of
  Transport’s failure to make a careful, reasoned and properly
  documented
  decision on the tunnel/cut issue.

  Mr Hitolo’s claim that it was an “investment decision” could only
  possibly
  make sense if the project were based on Build-Operate-Transfer
  financing.

• Page 38 of 397

• But, as pointed out earlier, no such proposal was ever put to the
  Department of Transport. The Government of Papua New Guinea was
  always going to pay for this project and therefore it should have
  decided
  whether a tunnel or a cut through Burns Peak was preferable.

  We accept Mr Amini’s description of the geotechnical report as
  inconclusive. But that report was made available in May 1991 – the
  Department of Transport had ample time after that to make a
  determination
  on this basic technical issue. Though the Department of Works was
  eventually consulted, this should have been done on a formal and
  methodical basis – not by means of casual conversation between
  officers
  of the two Departments.

  We simply do not regard it as an acceptable administrative practice
  for the
  Department of Transport to have prepared a Policy Submission which
  assumed the project would include a tunnel and then – without any
  record

  Chapter 5

  32
  of consultation or any record of any different decision – to
  allow a situation
  to develop in which the project included a cut through Burns
  Peak, rather
  than the tunnel.

  [5.8] ADMINISTRATIVE INCOMPETENCE BY THE DEPARTMENT OF
  TRANSPORT

  It is stating the obvious to say that decisions concerning
  Papua New
  Guinea’s transport infrastructure should not be made as they
  were in the
  case of the Spring Garden Road/Poreporena Freeway project.

  Decisions such as the length of a freeway and its fundamental
  design
  should not be made haphazardly. These decisions involve the
  expenditure
  of large amounts of public money. They must be made carefully
  and
  methodically and they must be properly documented. If
  Government
  departments make important policy decisions haphazardly, it is
  virtually
  impossible to keep a check on the expenditure of public money.
  And it

• Page 39 of 397

• creates an environment ripe for corruption.

  When an investigatory agency such as the Ombudsman Commission
  does
  a check on a decision-making process which led to the
  commitment of
  millions of kina of public money, it should be able to find
  evidence of a
  series of reasoned and methodical steps and the careful
  evaluation of
  alternatives. But the evidence we have gathered shows the
  exact
  opposite: it was as if decisions – like the route of the
  freeway – were falling
  out of the sky.

  The Ombudsman Commission has concluded that this situation
  arose
  because of the administrative incompetence of the Department
  of
  Transport.

  Chapter 5

  33

  IL CO-ORDINATION OF THE PROJECT

  [5.9] EXPRESSIONS OF INTEREST CO-ORDINATED BY DEPARTMENT OF
  WORKS
  ■

  Despite the Minister for Transport’s direction at the
  meeting of 22 May
  1990 that the project be advertised by the Department of
  Transport, the
  advertisements were actually organised by, and the
  responses had to be
  made to, the Department of Works.

  Apparently, this turnaround occurred because the First
  Assistant Secretary
  (Planning and Research) in the Department of Transport, Mr
  Amoako, •
  asked the Department of Works for assistance in drafting
  the
  advertisement. The Principal Engineer (Roads), Mr
  Newberry, prepared a
  draft which was forwarded to the Department of Transport

• Page 40 of 397

• for review and
  issue. However, Mr Amoako returned the document to Mr
  Newberry,
  advised him that it was satisfactory and requested that it
  be published by
  the Department of Works. [EXHIBIT 51, page 2 and EXHIBIT
  52, page 2]

  [5.10] A SIGNIFICANT LACK OF CO-ORDINATION

  Though there was nothing improper in what was done by Mr
  Amoako, this
  incident is significant because it typified what was, and
  continued to be,
  a confusing state of affairs regarding the implementation
  of the whole
  project: there was a great deal of confusion as to the
  respective roles of
  the Department of Transport and the Department of Works,
  which we
  consider was ultimately detrimental to the overall
  interests of the State.

  Chapter 5

  34

  III. FINANCING OF THE PROJECT

  [5.11] TERMS OF THE ADVERTISEMENT

  The advertisement of June 1990 alluded to the issue of
  financing the
  project, in the following terms:

  “The work may be financed by a combination of
  any or all of the following:

  a toll on the new road link
  commercial leases on reclaimed

• Page 41 of 397

• land
  grant funding by external agencies

  Other means of funding will be considered but
  it is not intended that the
  Government will contribute to any major
  extent.”

  [EXHIBITS 12 & 18]

  The advertisement did not stipulate that the
  successful contractor would
  have to itself finance the project.

  This is significant, because, as the Commission was to
  discover in the
  course of the investigation, there were a number of
  interested parties that
  were later summarily rejected because of the
  inadequacy of their financing
  proposals.

  We consider this to have been quite unfair, because,
  though the
  advertisement stated that the Government would
  probably not finance the
  project, it did not stipulate that any company which
  failed to submit a
  “financial package” would be automatically excluded
  from consideration.

  * * * * * * * * * *

  Chapter 5

  35

  RESPONSES TO THE ADVERTISEMENT: JULY 1990

• Page 42 of 397

• 6.1] RESPONSES SENT TO DIFFERENT PLACES

  The Ombudsman Commission discovered that some of the
  expressions of
  interest were sent to the Department of Works, whereas others
  went to the Department of Transport.
  Department of Transport.

  [6.2] EXPRESSIONS OF INTEREST SENT TO THE DEPARTMENT OF WORKS

  We have been able to confirm, by examining the files of the
  Department
  of Works, that ten expressions of interest were registered
  with it, on or before 31 July 1990, as required by the
  advertisement:
  before 31 July 1990, as required by the advertisement:

  Coecon Pty Ltd [EXHIBITS 13, 21]

  Barclay Bros (PNG) Pty Ltd [EXHIBIT 14]

  Connell Wagner (Old) Pty Ltd [EXHIBIT 17]

  Willing and Partners Pty Ltd [EXHIBIT 20]

  Robert Laurie Company Pty Ltd [EXHIBIT 20AA]

  Maunsell Consultants PNG/Hornibrook
  Constructions Pty Ltd [EXHIBIT 22]

  Chapter 6

  36

  Curtain Bros (PNG) Pty Ltd [EXHIBIT 23]

  LKN Construction Pte Ltd [EXHIBIT 25]

  Cardno & Davies PNG Pty Ltd [EXHIBIT 26]

  Juara Ltd [EXHIBIT 29]

  (A number of documents we obtained referred to an expression
  of interest
  being received from Frame Harvey West (e.g. EXHIBITS 24, 38,
  50, 148).
  However, we could find no evidence of this. The consulting
  firm of Frame
  Harvey West & Maso later joined with Periquan International
  Resources
  and submitted a proposal to the Minister for Transport in July

• Page 43 of 397

• 1991, but
  it appears not to have formally expressed any interest before
  that.)

  [6.3] EXPRESSIONS OF INTEREST SENT TO THE DEPARTMENT OF
  TRANSPORT

  Despite the clear statement in the advertisement that
  expressions of
  interest be registered with the Department of Works, five
  groups wrote to
  the Department of Transport. These were:

  Executive Decisions Inc Pty Ltd [EXHIBIT 1 OA]

  Kumagai Gumi Co Ltd/Kinhill Kramer Pty Ltd
  [EXHIBITS 15, 16]

  Pan Asia Management Consultants Center [EXHIBIT 27]

  Chapter 6

  37

  Ove Arup & Partners (Pacific) Pty Ltd [EXHIBIT
  21A]

  Sabina Ltd/Peter Chen & Partners Pty Ltd
  [EXHIBIT 35]

  [6.4] MOST EXPRESSIONS OF INTEREST HELD BY DEPARTMENT OF WORKS

  The Department of Works was made aware of all but one of
  these
  expressions of interest (from the Singapore-based
  Executive Decisions Inc
  Pty Ltd) when the Department of Transport faxed copies to
  them on 1 and
  2 August 1990. [EXHIBITS 34, 35] Mil

  In light of the above, we are satisfied that as at 2
  August 1990, the II
  Department of Works had at least fourteen expressions of
  interest in its
  possession and that they were held by the Principal
  Engineer (Roads), Mr IN
  E Newberry, who was the Department of Works co-ordinator
  of the project.

• Page 44 of 397

• IR
  [6.5] NO ACKNOWLEDGEMENT OF THE EXPRESSIONS OF INTEREST

  During the first week of August 1990, Mr Newberry
  prepared a summary
  of the expressions of interest and delivered it to the
  Department of
  Transport. No attempt was made at this stage to rank them
  in any way.
  We are not critical of this, because the advertisement
  had not called for
  firm proposals – all that was required were expressions
  of interest.

  We consider, however, that the Department of Works should
  have at least
  sent an acknowledgment to each of the interested groups,
  indicating when
  a more detailed information package would be available,
  which could be
  used to formulate firm proposals for the project.

  Chapter 6

  38

  When we expressed this opinion in our preliminary report, the
  Department
  of Works advised that, in fact, several of the expressions of
  interest were
  acknowledged. We were referred to letters sent to Connell Wagner and
  Ove Arup and Partners Pacific and to a telephone call made to the
  Robert
  Laurie Company. [EXHIBIT 261, page 1]

  We accept that acknowledgements were given to each of these
  companies
  in the manner described. [EXHIBITS 17A, 19A AND 20AA]

  However, acknowledgements were not given to the other twelve
  interested
  parties. In his response to the Ombudsman Commission, the Secretary
  for Works, Mr Hitolo, gave an explanation for this:

  ‘It seems that the major reason that E0Is were not acknowledged
  was the rush
  that things were done in. This meant that a proper terms of

• Page 45 of 397

• reference (TOR)
  was not sent out, so most EOI’s came in, not so much as
  expressions of interest,
  but as queries about the project. Concurrently, Mr Newberry was
  singlehandedly writing a further TOR (which would have involved a
  full team
  of !specialists for a project of this scope and magnitude) and
  handling all of
  the other National Road Design Projects. For a period Mr Newberry
  was (or
  very nearly was) the only Road Engineer in the Roads & Bridges
  Branch, where
  the work load is more than 10 engineers ems could handle. He
  probably ran out of
  time to perform everything. This staff shortage still plagues the
  branch…

  One further complication was that Department of Transport
  contacted some of
  the parties independently, asking for different information and
  receiving their
  expressions of interest. These were then passed on to Department
  of Works two
  weeks after the dosing of expressions of interest.

  These factors all contributed to the overlooking of the
  acknowledgement of
  most of the Expressions of Interest. There is no indication that
  the failure to
  acknowledge them was purposeful.’ [EXHIBIT 263, page 1]

  While we appreciate the difficulties faced by any Department
  suffering
  from shortages of staff or other resources, the Ombudsman Commission
  remains critical of the Department of Works for not sending
  acknowledgements to all the companies which had expressed interest
  in
  the project. It was a simple administrative task to perform. It was
  wrong
  of the Department of Works not to carry it out.

  Chapter 6

  39

  [6.6] BREAKDOWN IN COMMUNICATION BETWEEN DEPARTMENT OF WORKS
  AND DEPARTMENT OF TRANSPORT

  We noted earlier that despite the Minister for Transport’s
  direction that the project be handled by his Department, the

• Page 46 of 397

• advertisements calling for
  project be handled by his Department, the advertisements
  calling for
  expressions of interest were actually organised by the
  Department of
  Works.

  This was very surprising because it is clear that the Minister
  for Transport, Mr Temo, and the Secretary for Transport, Mr
  Amini, both genuinely
  Mr Temo, and the Secretary for Transport, Mr Amini, both
  genuinely
  believed that the project “belonged” to the Department of
  Transport.

  The Ombudsman Commission formed this view after interviewing
  both Mr
  Temo and Mr Amini in the course of the investigation. It was
  also apparent
  from correspondence between the Minister and the Secretary for
  Transport, that the project was regarded as belonging to the
  Department
  of Transport. We refer, for example, to a letter from Mr Amini
  to Mr Temo
  on 28 June 1990 in which, only a few days after publication of
  the
  advertisement, Mr Amini gave Mr Temo an update on the
  expressions of
  interest for his “advice and directive”. [EXHIBIT 1 9]

  [6.7] DEPARTMENT OF TRANSPORT SUDDENLY INVITES DETAILED
  PROPOSALS

  The closing date given by the advertisements for registration
  of
  expressions of interest was 31 July 1990. The Ombudsman
  Commission
  was surprised to find that before that date, the Department of
  Transport
  decided – without consulting the Department of Works -to
  contact a
  selected group of companies and invite detailed proposals for
  the project.

  Chapter 6

  40

  [6.8] ONLY A SELECT GROUP OF COMPANIES WERE INVITED TO SUBMIT
  PROPOSALS IN JULY 1990

• Page 47 of 397

• This surprising turn of events occurred around the period
  17-20 July 1990.
  A pro-forma letter headed “HEARING FOR DEVELOPMENT OF THE
  SPRING GARDEN ROAD” was drafted within the Department of
  Transport
  [EXHIBIT 20A]. It was apparently meant to be sent to all the
  companies
  which had lodged expressions of interest. We infer this from
  the “List of
  Interested Companies” attached to the pro-forma letter in the
  Department
  of Transport file. [EXHIBIT 20A, page 3]

  However, the Ombudsman Commission is not satisfied that the
  letter was
  in fact sent to all of those companies. There is no evidence
  on file
  verifying the postage or facsimile transmission of the letter
  to all of the
  companies that had lodged expressions of interest.

  Furthermore, the list in the Department of Transport file
  excludes four
  groups that had registered interest with the Department of
  Works:

  Curtain Bros (PNG) Pty Ltd;

  Cardno & Davies (PNG) Pty Ltd;

  Maunsell Consultants/Hornibrook
  Constructions Pty Ltd; and

  Juara Ltd.

  Chapter 6

  41

  [6.9] WHY WERE SOME COMPANIES DROPPED FROM THE UST?
  [6.9] WHY WERE SOME COMPANIES DROPPED FROM THE UST?

  Perhaps the reason for these companies not being on the
  Department of
  Transport’s list was that their expressions of interest were
  received later
  than the others (the four referred to above were received by
  the
  Department of Works during the period 27 July 1990 to 1

• Page 48 of 397

• August 1990).
  But other than the expression of interest from Maunsell/
  Hornibrook (which
  was one day late) all were received within the period
  specified in the
  advertisement.

  There was therefore no justification for these companies
  being dropped
  from the list and deprived the opportunity to submit a formal
  proposal.

  During the course of the Commission’s investigation,
  representatives of
  both Cardno & Davies and the Maunsell/Hornibrook consortium
  were
  questioned and they confirmed that they had never received
  any formal
  acknowledgement of their expressions of interest, or been
  invited to submit
  a formal proposal.

  It is surprising that these particular companies were omitted
  from the short- list, even though they all have permanent
  bases in Papua New Guinea and
  list, even though they all have permanent bases in Papua New
  Guinea and
  their expressions of interest were among the most detailed of
  those
  received by the Department of Works.

  Indeed, it is ironic that the company which provided the
  least amount of
  information in its expression of interest – Curtain Bros
  (PNG) Pty Ltd – was ultimately selected to be closely
  involved in construction of the freeway.
  ultimately selected to be closely involved in construction of
  the freeway.
  [EXHIBIT 23]

  Chapter 6

  42

  [6.1 0] RESPONSE BY THE SECRETARY FOR TRANSPORT

  When we made these findings in our preliminary report, the

• Page 49 of 397

• Secretary for
  Transport, Mr Amini, responded in the following terms:

  ‘The Department did not receive any complaint from any
  developer. I will urge
  the Ombudsman Commission to be cautious in promoting any
  particular
  developer. If it was unreasonable, at least one or two of
  the developers would
  have made suggestions as they always do. No developer was
  ever stopped or
  prevented from submitting a proposal. They were actively
  encouraged. In any
  case, the submission date was extended twice to
  accommodate late bids. This
  is not defective administration.’ [EXHIBIT 254, page 31

  The Ombudsman Commission does not regard Mr Amini’s response
  as
  satisfactory. His assertion that no developer was ever
  prevented from
  submitting a proposal is not borne out by the facts.

  We are not suggesting the Department rejected or refused to
  accept any
  proposal. What the Department did wrong was to invite
  proposals from
  only a select group of companies, thus excluding a number of
  companies
  from consideration.

  [6.11] OTHER MATTERS OF CONCERN

  The Ombudsman Commission is not only concerned about the
  Department
  of Transport letter being sent to only a select group of
  companies. What
  is also disconcerting is the timing of the letter and the
  demands placed
  upon the companies chosen to receive it.

  The Ombudsman Commission has been able to confirm that the
  letter
  inviting proposals was sent, during the second half of July
  1990, to at least
  five of the companies and consortiums referred to on the

• Page 50 of 397

• Department of
  Transport list:

  Chapter 6

  43

  Coecon Pty Ltd [EXHIBIT 20B]

  Willing and Partners Pty Ltd [EXHIBIT 22A]

  Ove Arup & Partners Pacific Pty Ltd [EXHIBIT 28]

  Sabina Ltd/Peter Chen & Partners Pty Ltd [EXHIBIT 30]

  Kumagai Gumi Co Ltd/Kinhill Kramer Pty Ltd. [EXHIBIT
  31]

  [6.12] THE DEPARTMENT’S REQUIREMENTS COULD NOT BE MET

  Unreasonable and unrealistic demands were imposed by the
  Department
  of Transport. The letter stated:

  “Dear Sir

  HEARING FOR DEVELOPMENT OF THE SPRING GARDEN ROAD
  This is to inform you of the fact that the Steering
  Committee administering
  the above-mentioned project will be meeting to consider
  your proposals and
  you are advised to send the details to this Department
  before the 25/7/90.

  The following planning information is required from you to
  assist the
  Government in selecting the developer.

• Page 51 of 397

• I. Technical Feasibility Report

  2. Preliminary Design or Plans.

  3. Financial Viability for a Toll System.
  4. Details of Financial Arrangements.

  5. Involvement of Landowners in the Development

  Chapter 6

  44

  Since the Government is anxious to complete this project
  by September next
  year in preparation for the South Pacific Games, it is
  important that you state
  very clearly whether you can achieve this time frame.

  Yours faithfully
  [Signed]
  BRIAN K AMINI CBE
  Secretary’. [EXHIBIT 20A]

  The Ombudsman Commission is at a loss to see how the
  Department of
  Transport could reasonably have expected these requirements
  to be met
  within one week. The only specifications available to the
  companies were
  those in the June 1990 advertisements. How could they be
  expected to
  submit meaningful technical feasibility reports, preliminary
  designs and
  financial arrangements, as well as give a proper assessment
  of the financial
  viability of a toll system and the involvement of landowners,
  in the space
  of a few days?

• Page 52 of 397

• As one consultant explained to the Ombudsman Commission, a
  detailed
  feasibility study of the type being sought by the Department
  of Transport
  would cost thousands of kina and it would take considerably
  longer to do
  than the few days suggested in the letter.

  In sending this letter, the Department of Transport gave the
  impression it
  had no idea at all of what was involved in a project of this
  magnitude.

  [6.13] MR HETOLO’S EXPLANATION

  In his response to our preliminary report, the former head of
  the Policy
  Secretariat in the Department of Transport, Mr Hitolo, made
  these
  comments:

  Chapter 6

  45

  ‘The unreasonable and unrealistic demands were placed on
  the plight&
  developers because the department was under pressure to
  meet the September
  1991 Games as mentioned in the letter. This letter was
  sent to a selected few
  which was a normal practice and usually is called
  selective tendering. As long
  as three or more proposals are tendered a selection can be
  convened. The
  whole purpose was for interested and so-called reputable
  companies to propose
  a plan of execution of the tasks mentioned in the letter
  and propose an
  alternative if they cannot meet the deadline of September
  Games stated in the

• Page 53 of 397

• letter. It was not mandatory to include all those that
  showed interest because
  some of the companies saw me personally or phoned to find
  out whether
  funding was available and when it was explained otherwise
  they indicated
  disinterest as most of them are not financiers. They only
  offer their engineering expertise and were unable to
  finance such a big project.•
  expertise and were unable to finance such a big project.•
  [EXHIBIT 265, page 3]

  Mr Hitolo’s explanation that representatives of some companies
  had seen
  him personally or telephoned to find out whether funding was
  available is
  not considered satisfactory. There were no file notes kept of
  the occasions
  on which these companies signalled their loss of interest in
  the project. We
  are also unimpressed by the suggestion that, provided at least
  three
  proposals were received, a proper selection could be made.

  The private and undocumented “selective tendering” evident in
  the limited
  dispatch of the letters of July 1990 is very, very dangerous,
  because it can
  easily lead to corruption. It is vitally important that the
  public tendering
  procedures in the Public Finances (Management) Act are
  strictly adhered
  to, especially in projects which involve millions of kina of
  public money (see
  Chapter 35).

  6.14] LETTERS WERE SENT LATE

  The unreasonableness of the demands contained in the letters
  of July 1990
  was exacerbated by the fact that the letters were sent late.

• Page 54 of 397

• Chapter 6

  46

  Of the five companies we verified as receiving the letter,
  only one received
  it before the deadline for submission of proposals. [See the
  reference in
  each of EXHIBITS 28, 30 and 31 to the letter having arrived
  late and the
  date-received stamp of 26 July 1990 on EXHIBIT 22k]

  An example of the confusion caused by the Department of
  Transport

  Coecon Pty Ltd received its letter by facsimile transmission
  at 9.32 am on
  20 July 1990, but the company was obviously (and
  understandably)
  confused as to what was required of it. At 2.25 pm on the
  same day, the
  General Manager, Mr P J Neville, sent a facsimile message to
  the Principal
  Engineer (Roads), Mr Newberry, at the Department of Works:

  ‘Please advise us of present stage of development for
  Burns Peak. For instance:
  any technical reports such as preliminary design plans
  etc.’ [EXHIBIT 711

  There is a handwritten note at the foot of that document
  (though it is not
  clear who its author is, it was probably made by an officer
  of the
  Department of Works) that typifies the general state of
  confusion:

  ‘The information requested of Department of Works by
  Coecon is what is
  requested of Coecon by Department of Transport. We seem to
  be going around
  in circles? [EXHIBIT nj

• Page 55 of 397

• [6.15] ADMINISTRATIVE INCOMPETENCE BY THE DEPARTMENT OF
  TRANSPORT

  To sum up, the Ombudsman Commission is of the view that the
  conduct
  of the Department of Transport in dispatching the pro-forma
  letter dated
  17 July 1990, advising companies that they had to send
  details of their
  proposals by 25 July 1990, was unfair, unrealistic and
  incompetent
  administratively for the following reasons:

  Chapter 6

  47

  (a) the letter was sent to only a select group of
  companies and,
  furthermore, excluded the two PNG-based companies
  which
  had submitted detailed expressions of interest;

  (b) the Department of Transport failed to advise the
  Department
  of Works (which was co-ordinating the expressions
  of interest)
  that it was sending the letter;

  (c) the letter placed unrealistic demands on the
  companies,
  which made it impractical for them to respond by
  the
  deadline;

  (d) the deadline for submission of proposals was on a
  date It
  before the closing date given in the
  advertisements for
  registration of expressions of interest; and

  (e) the letter was sent late, which resulted in most
  of the
  companies not receiving it until after the
  deadline set for
  submission of proposals.

• Page 56 of 397

• [6.16] SOME COMPANIES WERE NEVER GIVEN ANOTHER OPPORTUNITY TO
  SUBMIT PROPOSALS

  The conduct of the Department of Transport during July 1990
  cannot be
  dismissed as a mere administrative hiccup. It would have
  been possible
  to *forgive” the Department for its unfairness and
  incompetence if, at some
  later time, a proper opportunity to submit detailed
  proposals was given to
  a companies which had expressed genuine interest in the
  project. But this
  never happened.

  f’hRpter 6

  48

  As we show later in the report, a number of companies
  were never
  considered or even contacted by the Department of
  Transport again. This
  was a disgraceful state of affairs.

  When this sort of thing goes on, how can honest and
  responsible
  companies have confidence in the Department of
  Transport, or any other
  Department for that matter? How can anybody have
  confidence in the
  integrity of government in Papua New Guinea? The
  selective picking-
  and-choosing of companies to submit proposals must be
  avoided at all
  costs, since it is unfair and not in the best interests
  of the State and such
  practices breed corruption.

  [6.17] LITTLE RESPONSE TO THE REQUEST FOR PROPOSALS

  The Department of Transport’s attempt, in July 1990, to
  get the “selected”
  companies to submit proposals, was so badly
  implemented, that hardly
  any of those companies responded. This meant that in
  1991, the

• Page 57 of 397

• shortlisting process had to begin again.

  But as we show in Chapter 9, the shortlisting process
  in 1991 was also
  carried out in an arbitrary, unfair and unsatisfactory
  way.

  * * * * * * * * * *

  Chapter 6

  49

  SIGNIFICANT INTERDEPARTMENTAL MEETING:
  31 JULY 1990

  7.1] ORIGINAL PURPOSE OF MEETING

  An interdepartmental meeting, involving representatives of
  the Departments
  of Transport, Works, Finance and Planning and Attorney-
  General, was held
  on 31 July 1990. It was jointly chaired by the Secretary
  for Transport, Mr
  Amini, and the Secretary for Works, Mr Temu.

  It was originally intended that the meeting would consider
  proposals invited
  by the Department of Transport’s letters of 17-20 July
  1990. [See the
  minute from the Director of the Department of Transport’s
  Policy
  Secretariat, Mr Hitolo, to Mr Amini dated 27 July 1990 at
  paragraph 2 and
  the handwritten notes which refer to the “selection
  criteria”: EXHIBIT 24.]

• Page 58 of 397

• However, because the letters were sent late, the companies
  could not
  respond in time. Rather than being a forum for assessment
  of proposals
  the meeting therefore focused on other important issues
  concerning the
  project.

  2] ISSUES DISCUSSED AT THE MEETING OF 31 JULY 1990

  The minutes of the meeting record discussion of the
  following issues:

  Chapter 7

  50

  The name of the project – the Secretary for Transport
  favoured the name “Spring Garden Road (Burns Peak) Link”.

  Funding of the project – Mr Hitolo advised that the World
  Bank had been approached.

  The Port Moresby Roads Needs Study – the First Assistant
  Secretary of the Department of Transport’s Planning and
  Research Division, Mr Parakei, advised that the Burns Peak
  project was part of the Study.

  Engineering details – the Department of Works’ Principal
  Engineer (Roads), Mr Newberry, addressed the tunnel/cut
  option, particularly the problems associated with disposal of
  the cut.

  Landowner issues – Mr Hitolo advised that preliminary
  discussions had been held with landowners, some of whom
  were claiming lump sum payments prior to commencement
  of the project.

  Scope of the project – some consideration was given to
  upgrading other sections of the Spring Garden Road network,
  particularly Wards Road to Waigani Drive.

• Page 59 of 397

• Target date for completion – it was generally agreed the
  project could not be completed by the original target of
  September 1991, coinciding with the South Pacific Games.
  [EXHIBIT 33]

  Chapter 7

  51

  [7.3] FUTURE ACTION
  [7.3] FUTURE ACTION

  As to the next action to be taken, two things were decided:

  1. The National Executive Council was to be informed that the
  project
  could not be completed for the South Pacific Games.

  2. Further geological investigations would have to be
  undertaken, so
  that a decision could be made on the tunnel/cut option.
  [EXHIBIT
  33, paragraph 5 and EXHIBIT 51, page 4, para 3]

  [7.4] PROPOSALS WERE NOT CONSIDERED AT MEETING ON 31 JULY 1990
  [7.4] PROPOSALS WERE NOT CONSIDERED AT MEETING ON 31 JULY 1990
  MAIAITLOILEBIEIEIIING
  We note there is a reference to this meeting of 31 July 1990
  in the Policy Submission presented to the National Executive
  Council in February 1992,
  Submission presented to the National Executive Council in
  February 1992,
  which led to the decision to award the project to Kinhill
  Kramer Pty Ltd
  (see Chapter 21).

  It was suggested in the Policy Submission that the various
  expressions of interest and proposals had been presented at
  the meeting of 31 July 1990.
  interest and proposals had been presented at the meeting of 31
  July 1990.

  However, it is quite dear, from the minutes of the meeting and
  other
  documents considered by the Ombudsman Commission, that the
  proposals were Dot presented at that meeting. There were no
  proposals,
  as at 31 July 1990, that could be considered.

• Page 60 of 397

• Moreover there was never, in the life of the Spring Garden
  Road/Poreporena Freeway project, any interdepartmental meeting
  at which
  all the proposals were considered. Neither was there a meeting
  within the

  Chapter 7

  52

  Department of Transport at which all the proposals were
  considered. There
  was not even a meeting at which all the expressions of
  interest were
  considered.

  The Department of Transport’s failure to methodically consider
  all options
  available to the Government was one of the worst aspects of
  the decision-
  making process that led to the National Executive Council
  decision in
  favour of IGnhill Kramer Pty Ltd in February 1992.

  It was very unfair of the Department of Transport to
  arbitrarily reject
  expressions of interest from other companies that had put
  considerable
  time and effort into responding to the June 1990
  advertisement.

  [7.51 SECRETARY FOR TRANSPORT CLAIMS THAT ALL OPTIONS WERE
  CONSIDERED

  When we put these allegations to the Secretary for Transport,
  he claimed
  that all options were considered:

  “As I have said, all options were considered, including the
  Barclay proposals.
  Mr Lohia Hitolo with his immense breath of experience and
  qualifications, did
  the assessment. Although he did not use the preferred
  approach, nevertheless,
  the approach he used has been used quite often by the

• Page 61 of 397

• Department of Works
  Design Branch. In addition, an NEC sub-committee reviewed
  his assessment
  This is not defective administration.”[EXHIBIT 254, page 4]

  [7.6] MR HITOLO CONCEDES THAT SOME COMPANIES WERE REJECTED ON
  THE BASIS OF THEIR EXPRESSION OF INTEREST

  In contrast to Mr Amini’s response, the former head of the
  Department of
  Transport Policy Secretariat, Mr Hitolo, conceded some
  companies had ngt
  been seriously considered. The reason, he said, was that their
  expressions

  Chapter 7

  53
  of interest did not state that they were willing to
  finance the project.
  [EXHIBIT 265, page 3, para 5]

  .7] FAILURE TO CONSIDER ALL OPTIONS
  In our view, Mr Hitolo’s response is testimony to the
  lack of effective
  communication which pervaded the whole project.

  As we pointed out in Chapter 5, the June 1990
  advertisement did rat state
  that the successful contractor had to itself finance the
  project. Nor had
  such a requirement been imposed by the National Executive
  Council.

  It was therefore unfair and wrong of the Department of
  Transport to
  summarily reject companies, simply because they had not
  indicated an
  ability to provide finance.

  In the opinion of the Ombudsman Commission, by failing to
  convene a
  meeting at which all expressions of interest could be
  formally considered,
  the Department of Transport failed to consider all of the

• Page 62 of 397

• options available
  to the Government. This was wrong and defective
  administration.

  * * * * * * * * * *

  Chapter 7

  54

  8. PROGRESS DURING SECOND HALF OF 1990

  [8.1] A PERIOD OF INACTION 1

  The period between the meeting of 31 July 1990 and the
  beginning of
  1991 was significant in three respects:

  1. There was little action taken to follow-up the
  expressions of
  interest.

  2. The geotechnical survey was initiated by the
  Department of
  Works, but not completed.

  3. A draft information paper was prepared for the
  National
  Executive Council, but not presented.

  LACK OF ACTION FOLLOWING INVITATION FOR EXPRESSIONS OF INTEREST

  [8.2] DEPARTMENT OF WORKS GUILTY OF DEFECTIVE ADMINISTRATION

  Other than the unsuccessful attempt by the Department of
  Transport in
  July 1990 to obtain firm proposals from some companies, no
  further action

• Page 63 of 397

• was taken by either the Department of Transport or the
  Department of
  Works during the second half of 1990 to follow-up the
  expressions of
  interest.

  Chapter 8

  55

  It is apparent that Mr Newberry, of the Department of Works,
  drafted a
  letter of acknowledgment around the end of October 1990, which
  was
  intended to be sent to all companies which had expressed
  interest.
  [EXHIBIT 50]. But this was not done. The letter was drafted
  very late and
  shows incompetence by the Department of Works. In a minute to
  the
  Secretary of the Department of Works, Mr Temu, on 11 January
  1991, Mr
  Newberry conceded “an acknowledgement should have been sent’,
  and
  added “… but I wished to advise them what was happening or
  going to
  happen. There was/is considerable confusion over the
  acceptability of a
  tunnel proposal.” [EXHIBIT 51, page 5, paragraph 3]

  In our view, this was not an acceptable reason for not sending
  the
  acknowledgments. A number of companies had invested time and
  expense in formulating their expressions of interest and the
  very least they deserved was an acknowledgment. Mr Newberry’s
  draft letter of 31
  deserved was an acknowledgment. Mr Newberry’s draft letter of
  31
  October 1990 correctly and succinctly stated the position as
  at that date
  and we can see no good reason for it not being dispatched,
  although it
  was very late.

  Since the Department of Works was at that time co-ordinating
  the
  expressions of interest, it should be held responsible for
  this bad
  administrative error.

  THE GEOTECHNICAL INVESTIGATION
  THE GEOTECHNICAL INVESTIGATION

• Page 64 of 397

• [8.3] PROS AND CONS OF TUNNEL AND CUT
  [8.3] PROS AND CONS OF TUNNEL AND CUT

  The most important outcome of the interdepartmental meeting of
  31 July
  1990 had been the decision to conduct a comprehensive
  geotechnical
  investigation of the Burns Peak Saddle.

  Chapter 8

  56

  The rationale for this decision was explained in a minute
  from Mr Newberry
  to the Secretary for Works on 11 January 1991:

  ‘Confusion was increased by the letter/fax sent by DOT to
  some of the
  registrants on 20 July. The DOW/DOT meeting on 31 July did
  clarify some of
  the issues.
  Since that time Works has proceeded on the basis that no
  requests can be made
  for detailed proposals until the additional geotechnical
  investigation provides
  data sufficient to allow a developer to make a reasoned
  choice between a tunnel
  and a cut.

  The concept of the project if a tunnel is chosen is
  entirely different from that
  if a cut is to be constructed. A tunnel provides very
  little material for filling
  or for use in other parts of the construction. If any
  reclamation is to be carried
  out it would have to be from imported materiaL The road
  pavement and fill
  materials would also have to be imported. The tunnel also
  has a continuing
  high operation and maintenance cost. The tunnel option
  also carries a higher
  risk of damage, closure or operational loss as a result of
  an accident or
  vandalism particularly with only a single two lane tunnel
  for the initial period.
  The presently proposed tunnel cross section may be
  inadequate for safe use by

• Page 65 of 397

• trucks carrying containers. Trucks with dangerous
  materials would not be
  allowed to use the tunnel but would have to use an
  alternate route.

  It has been claimed that the tunnel would allow a grade of
  only 3% for the
  road connection. This is possible but would require a
  tunnel of much greater
  length and cost than that presently proposed. The present
  proposal has grades
  of over 8% on the western approach road.

  The cut provides considerable, possibly excessive,
  material for use in the
  construction of the project and connecting roads
  embankments and pavements
  and also for port and other reclamation. The cut would
  provide an immediate
  four lane road connection. The provision of four-lanes
  reduces the risk of
  accident, damage and operational loss. However the risk of
  loss from collapse
  of part of the cut wall still exists with the level of
  risk increasing as the cut
  slopes are steepened and the volume and cost of the cut
  decrease. There is
  however increased opportunity for early financial return
  from port and harbour
  reclamation works which may reduce the financial risks in
  the project.

  The developer has a difficult choice to make between the
  tunnel and cut options
  and the government also has to make an assessment of the
  risks it is prepared
  to take and the charges (eg. toll) it is prepared to allow
  the developer to make
  for provision of facilities.’ (Emphasis added) [EXHIBIT
  511

  [8.4] WHY WAS A FURTHER GEOTECHNICAL INVESTIGATION NECESSARY?

  A preliminary study in 1977 by consultants Dames and Moore
  had found
  it was geologically feasible to build a tunnel, but the
  Department of Works

• Page 66 of 397

• Chapter 8

  57

  obviously felt that a more detailed investigation should be
  carried out. This
  point was explained in a press statement drafted by Mr
  Newberry on 18
  January 1991 (which apparently was not released):

  The last time a detailed investigation was made of the
  underground conditions
  along the Spring Garden Road Link from Hohola to Konedobu
  was in 1977.
  Then holes were drilled in the rock and samples of the
  rock taken for
  examination. These holes were generally along the line of
  a proposed deep cut
  It was then decided that the sides of the cut may fall
  down unless flatter side slopes were used so a tunnel was
  proposed. However tunnels are expensive as
  slopes were used so a tunnel was proposed. However tunnels
  are expensive as
  the rock in the tunnel roof must be supported so that it
  does not fall into the tunnel Ventilation also becomes
  important as air can only enter and leave at
  tunnel Ventilation also becomes important as air can only
  enter and leave at
  the ends of the tunnel and fans may be necessary.

  Since 1977 there have been other geological investigations
  around Port Moresby
  and it is now believed that the underground rock
  conditions may be more
  complicated than was thought in 1977. It is now considered
  too risky to decide
  on building either a tunnel or a rock cut without further
  investigation of the
  underground conditions. This is particularly important
  since the estimated cost of the rock cut for a 4-lane mad
  is about 1(20 million, 2-lane tunnel would cost about 1(20
  million and a 4-lane tunnel would cost about IC40 million with about
  another KS million for improvements to Champion Parade, Wards Road,
  Waigani
  of the rock cut for a 4-lane mad is about 1(20 million, 2-
  lane tunnel would cost about 1(20 million and a 4-lane
  tunnel would cost about IC40 million with about another KS
  million for improvements to Champion Parade, Wards Road, Waigani
  about 1(20 million and a 4-lane tunnel would cost about
  IC40 million with about another KS million for
  improvements to Champion Parade, Wards Road, Waigani
  another KS million for improvements to Champion Parade,

• Page 67 of 397

• Wards Road, Waigani
  Drive and the existing sections of Spring Garden
  Road.’ [EXHIBIT 52A]

  [8.5] CO-ORDIANATION OF THE GEOTECHNICAL INVESTIGATION
  [8.5] CO-ORDIANATION OF THE GEOTECHNICAL INVESTIGATION

  The geotechnical investigation was co-ordinated by Mr
  Newberry and also
  involved the Senior Engineering Geologist from the Geological
  Survey of
  PNG in the Department of Minerals and Energy. It was decided
  the project
  would be offered to a private consultant, so the first step
  was to formulate
  terms of reference for the project. This was done during
  August 1990 by
  Mr Newberry. [EXHIBIT 51, page 4]

  [8.6] THE PROCEDURE USED TO SELECT THE CONTRACTOR
  [8.6] THE PROCEDURE USED TO SELECT THE CONTRACTOR

  Terms of Reference

  The terms of reference was sent to the Department of
  Transport for
  ratification during August 1990. The Secretary for Transport
  replied that

  Chapter 8

  58
  his Department agreed with the course of action proposed by the
  Department of Works.
  [EXHIBIT 42A]

  Invitations, accompanied by a document entitled “Sub Surface
  Exploration
  and Assessment for Spring Garden Road Link between Hohola and
  Konedobu Via Burns Peak Saddle: Terms of Reference for Consultants
  Brief’, were sent in September 1990 to the following companies:

• Page 68 of 397

• Engineering Geology Ltd, of Lae.

  Coffey Partners International Pty Ltd, of Australia.

  Cardno & Davies Pty Ltd, of Port Moresby.

  Kinhill Kramer Pty Ltd, of Port Moresby

  Maunsell Consultants PNG Pty Ltd, of Port Moresby.

  Ove Arup & Partners Pacific Pty Ltd, of Port Moresby.

  Snowy Mountains Engineering Corporation, of Australia.

  Hollingsworth, Dames & Moore (PNG) Pty Ltd, of Port
  Moresby. [EXHIBITS 44A, 44B1

  Failure to publicly invite tenders

  We note that there was no public advertisement inviting tenders for
  the
  geotechnical project. Nor was a “certificate of inexpediency” –
  which could
  have authorised the selective tendering procedure – issued under
  Section

  Chapter 8

  59
  40(3)(b) of the Public Finances (Management) Act. This meant that,
  though the matter was ultimately referred to a Supply and Tenders
  Board,
  there had been a breach of the Public Finances (Management) Act.

  Section 40(1) of the Act requires that tenders be publicly invited
  for the
  supply of works and services expected to cost more than the
  prescribed
  amount (which at the relevant time was K5,000.00). The public tender
  procedures of the Public Finances (Management) Act are discussed in
  detail in Chapter 35 of this report.

  We are satisfied that none of the exceptions to the general rule
  imposed
  by Section 40(1) applied in the case of the geotechnical project.

  The Department of Works therefore acted wrongly, by engaging in the
  process of selective tendering without obtaining a certificate of
  inexpediency in accordance with the Public Finances (Management)
  Act.

  Evaluation of proposals

• Page 69 of 397

• The closing date for submission of proposals was 25 October 1990
  and,
  according to Mr Newberry’s minute to the Secretary for Works of
  January
  1991, this was when the task of evaluating the proposals began.
  [EXHIBIT
  51, page 4] However, because of ambiguity in the wording of the
  terms
  of reference, due to the incompetence of the Department of Works, it
  was
  necessary to obtain supplementary proposals from a number of
  respondents. This delayed the selection process by at least a month.
  [EXHIBITS 48A, 50A, 50B]

  Submission to Design Priorities Committee and Tender Board

  On 5 December 1990, Mr Newberry presented a detailed submission to
  the Design Priorities Committee and Tender Board, recommending the

  Chapter 8

  60
  contract for the geotechnical investigation be awarded to
  Coffey Partners
  International of Sydney, Australia, at a cost of K184,000.00.
  [EXHIBIT 500].
  The recommendation was endorsed by the Board at its meeting on
  11
  December 1990. [EXHIBIT 50F] Coffey Partners International was
  subsequently advised it had won the contract and arrangements
  were
  made to commence the seismic field work during January 1991
  [EXHIBITS
  50G, 51A]

  [8-7] GEOTECHNICAL INVESTIGATION DURING JANUARY – MAY 1991
  The investigation took approximately four months to complete.
  A “Burns
  Peak Geotechnical Steering Committee” was established to
  monitor the
  project and progress reports were provided during the course
  of the
  investigation [EXHIBITS 55A, 64A, 66A, 79A, 80A, 84A]. The
  final report
  was presented to the Department of Works at the end of May
  1991.
  [EXHIBITS 87A, 87B]

  It was recommended that “the deep open cut option through
  Burns Peak
  Saddle will involve greater financial uncertainty than the

• Page 70 of 397

• tunnelling option”.
  [EXHIBIT 87B, page 29, paragraph 8]

  The time it took to organise the geotechnical investigation
  was a cause of
  frustration to some people, including the Minister for
  Transport, Mr Temo.
  On the EM TV news bulletin of 8 January 1991 he was reported
  to be
  highly critical of the Department of Works and apparently
  blamed the
  Department for delaying the project. This prompted a detailed
  response
  from the Secretary for Works, Mr Temu, which was forwarded to
  the
  Secretary for Transport in a letter dated 11 January 1991
  [EXHIBIT 52]

  Chapter 8

  61

  .8] THE GEOTECHNICAL INVESTIGATION CAUSED A DELAY OF NINE
  MONTHS

  In retrospect, it can be seen that the decision to undertake the
  geotechnical investigation delayed the planned commencement of
  the
  project by about nine months. After the interdepartmental
  meeting on 31
  July 1990:

  It took five weeks for the terms of reference for the
  consultancy brief to be finalised and invitations for
  proposals
  to be dispatched.

  The consultants were given six weeks to lodge their
  proposals.

  Six weeks were spent on clarifying and evaluating the
  proposals.

  The recommendation favouring Coffey Partners International
  was before the Design Priorities Committee and Tenders
  Board for about a week before a decision was made and
  announced.

  It took Coffey Partners International about five weeks to
  mobilise its equipment and personnel and commence the

• Page 71 of 397

• seismic field work.

  The actual investigation, including laboratory testing of
  core
  samples, took four months to complete (from late January
  1991 to late May 1991).

  Chapter 8

  11

  62

  [8.9] FINDINGS IN RELATION TO THE GEOTECHNICAL INVESTIGATION

  1. The need for the investigation

  We do not question the need for the investigation.
  Irrespective of whether
  a tunnel or a cut is built through Burns Peak, safety
  considerations
  obviously must be paramount.

  2. IMaltinSIII .cgAngthatthQinvgggigatcKLI8MINKMEM:Y.
  investigation
  However, we are critical of the Department of Works for the
  delay in
  making the decision that a geotechnical investigation was
  necessary.

  The decision to go ahead with the Spring Garden Road project
  was
  conveyed to the Department of Works in late January 1990. The
  Department of Works, amongst others, was directed to
  “formulate detailed
  plans for the construction of the Burns Peak Road”. [EXHIBIT
  61■] We
  have already noted the impreciseness of that decision and
  criticised the
  National Executive Council for not being more explicit in its
  requirements.
  However that does not excuse the Department of Works for its
  failure to
  expeditiously implement the decision.

  Nor is it an excuse to say that the Department of Works was
  waiting for
  an indication from the Department of Transport as to the route
  of the road.
  The geotechnical investigation was a matter that was clearly
  within the
  jurisdiction of the Department of Works.

• Page 72 of 397

• When we raised these matters in our preliminary report, the
  Secretary for
  Works responded in the following terms:

  Chapter 8

  63

  ‘What caused the delay in deciding to perform the Geotechnical
  Investigation?
  Initially it was not projected to perform a further Geotechnical
  Investigation.
  However, Department of Transport wanted to jump in and build the
  project
  without any significant planning, while Works was pushing for as
  much
  planning and advise from specialists as possible. Several times
  Mr Newberry
  (then Principal Engineer Roads) met with the Geological Survey
  Section of
  DME to discuss the project. Of specific concern was the “ICold
  Fault’ which
  was known to run right through the ‘saddle’. It appears that the
  requirement
  for further investigation was not seriously considered until
  advised accordingly
  by a Senior Engineering Geologist at an inter-departmental
  working group on
  19 July 1990 [see Exhibit 51]—This seems to be the conception of
  the requirement
  for further geotechnical investigation to give a degree of
  confidence to any
  decision regarding ‘Open Cut” or ‘Tunnel”‘ [OCKIBIT 263, page 1]

  Having considered this response, the Ombudsman Commission retains
  the
  view that the Department of Works should have, by itself, raised the
  issue
  of the need for a geotechnical investigation sooner than it did,
  since it is
  the appropriate Department responsible for such matters in the
  interests
  of the State.

  The excavation of the Burns Peak Saddle was clearly going to be a
  complex engineering task. It was up to the Department of Works to

• Page 73 of 397

• find
  out whether any further geotechnical investigation was necessary as
  soon
  as possible and take follow-up action. The need for this should have
  been
  raised at least as early as the interdepartmental meeting on 22 May
  1990
  (see Chapter 4).
  N

  The Ombudsman Commission considers that the six month delay in
  making the decision to undertake the geotechnical investigation was
  unjustifiable. Furthermore, in the absence of a certificate of
  inexpediency,
  invitations to submit tenders for this work should have been
  publicly
  advertised – not selectively issued.

  Once the decision was made, on 31 July 1990, to undertake the
  investigation, there were some further delays but – with the
  exception of
  the failure to publicly invite tenders – the Department of Works
  handled the
  matter well from then on.

  Chapter 8

  64

  We note that various proposals were carefully and
  methodically evaluated.
  The proposal made by Coffey Partners International was
  detailed and well
  presented [EXHIBIT 48A]. There was a sharp contrast between
  the quality
  of that document and some of the atrocious documents [eg
  EXHIBIT 115]
  that were later to be paraded as serious proposals for
  construction of the
  freeway.

  Indeed, the professional way in which the geotechnical
  investigation
  proposals were evaluated was in stark contrast to the events
  which later
  led to the execution of the contract for the design, finance
  and
  construction of the Poreporena Freeway.

• Page 74 of 397

• THE MINISTER FOR TRANSPORTS DRAFT POLICY SUBMISSION OF AUGUST 1990

  [8.10] DECISION TO ADVISE NATIONAL EXECUTIVE COUNCIL OF PROGRESS

  Besides the decision to undertake the geotechnical
  investigation, the other
  important outcome of the interdepartmental meeting of 31 July
  1990 was
  the decision to advise the National Executive Council of
  progress on the
  project, in particular to clarify the fact that it would be
  impossible to finish
  the Burns Peak link in time for the South Pacific Games in
  September
  1991. To this end, a document headed “Policy Submission For
  Members
  of the National Executive Council” was drafted within the
  Department of
  Transport in August 1990. [EXHIBIT 36]

  Chapter 8

  65
  1

  8.11] CONTENT OF THE DRAFT POLICY SUBMISSION

  This document gave an update of the status of the project
  as at August

  1990, and referred to the decision to undertake a further
  geotechnical

  investigation of the Burns Peak Saddle. The bulk of the
  document,

  however, was devoted to explaining the need for public
  participation in the

  planning process and the preparation of an environmental
  impact

• Page 75 of 397

• statement.

  The document concluded as follows:

  It is recommended that the Spring Garden Road
  project scope includes
  the commencement point (Cuthbertson and
  Stanley Esp. Junction) at the
  Port Moresby main overseas wharf and
  termination at the Jackson’s
  AirPort-

  2. It is recommended that an Environmental
  Impact Statement be made
  of the whole route using the N.S.W. manuals
  including soil erosion
  guide for the assessment.

  3. It is recommended that the upgrading to the
  Waigani Road and any
  other spot improvements along the main
  arterial network be done as
  a matter of urgency in preparation for the
  South Pacific Games in 1991.

  4. It is recommended that the savings be
  immediately identified in the
  current capital works and studies votes in
  order to implement these
  projects.

  5. It is recommended that the Council note that
  advice of the experts for
  delay in the opening of the Burns Peak link
  and approve the new scope
  to be implemented in three stages.

  6. It is recommended that this project be
  developed through involvement
  of the private sector and the landowners
  using toll for financing.”

• Page 76 of 397

• .12] WIDE CIRCULATION OF THE DRAFT POLICY SUBMISSION

  This document was widely circulated and comments were
  received from

  a number of Government departments. [EXHIBITS 39, 40, 41,
  42, 43, 44,

  48]

  Chapter 8

  66

  Some departments expressed serious reservations about its
  recommendations. The Secretary for Finance, Mr Morea Vele,
  for example,
  was particularly concerned about the economic viability and
  the security
  risk of the tunnel/toll road proposal. [EXHIBIT 42]

  The Secretary of the Department of Environment and
  Conservation, Mr
  Barney Rongap, pointed out that Papua New Guinea had its own
  environmental impact legislation – the Environmental Planning
  Act (Chapter
  No. 370) – and therefore it was inappropriate to rely on the
  New South
  Wales model for this purpose.

  The draft policy submission was also sharply criticised
  within the
  Department of Transport itself. [EXHIBITS 46, 47] The First
  Assistant
  Secretary (Land Transport Division), Mr M Ume, went so far as
  to say:

  ‘It is very difficult to follow what the Submission is
  about and perhaps if it is
  on Burns Peak then more discussion should be on Burns Peak
  Road itself.*

• Page 77 of 397

• [8.13] RE-DRAFTING OF THE JULY 1990 DOCUMENT

  In January 1991, after receiving the views and comments from
  various
  departments, the Department of Transport redrafted the
  National Executive
  Council submission. This time, the document was entitled
  “Information
  Paper For Members of the NEC: Burns Peak Link of Spring
  Garden Road”.
  [EXHIBIT 54]

  This document also emphasised the need for an environmental
  impact
  statement. But it was different to the earlier document in a
  significant
  respect: whereas the July 1990 document contained very little
  discussion
  of the method of financing the project, the January 1991
  document was
  dogmatic in its assertion that “this project will be
  constructed under Build,
  Operate and Take-over (BOT) system”. [EXHIBIT 54, page 5,
  para 2.12]

  Chapter 8

  67

  [8.14] POUCY SUBMISSION AND INFORMATION PAPER NOT PRESENTED TO
  NATIONAL EXECUTIVE COUNCIL

  The Ombudsman Commission was surprised to discover that,
  despite the
  time and effort put into the drafting and redrafting of the
  National Executive
  Council submission and the wide circulation of the first
  draft, neither the
  first nor the second draft submission was actually filed with
  the National
  Executive Council.

  That is, despite the fact that draft submissions had been
  circulated for
  more than six months, the National Executive Council was not
  fully
  informed – as it should have been – of progress on the
  project and the
  reasons for delay in its commencement.

• Page 78 of 397

• We note that the Department of Transport complied with the
  normal
  administrative requirement to give status reports to the
  Secretary of the
  Department of Prime Minister and National Executive Council.
  [EXHIBITS 6C, 25A, 63A, 77A, 87C & 124A]

  However, the Ombudsman Commission considers that, because of
  the
  magnitude of the project, the Minister for Transport had an
  administrative
  obligation to ensure the National Executive Council was fully
  and formally
  advised of the important developments that were taking place.
  In our view,
  this duty was not discharged.

  [8.15] MINISTER FOR TRANSPORT FAILED TO PROPERLY ADVISE NATIONAL,
  EXECUTIVE COUNCIL OF PROGRESS

  There were some aspects of the August 1990 document which
  should
  have been brought to the attention of the National Executive
  Council as a

  Chapter 8

  68
  matter of priority, particularly the recommendation that the
  scope of the
  project be expanded. But this important policy matter was
  very poorly
  documented and was eventually put before the National
  Executive Council,
  in February 1992, without explanation or justification. The
  scope of the
  project, being essentially important, should have been
  explained and
  defined in detail for the benefit of the members of the
  National Executive
  Council.

  The August 1990 document was widely circulated for views and
  comments.
  The failure to present it reveals a lack of regard for proper
  administrative
  procedures by the Minister for Transport, Mr Temo. He did not
  appreciate
  the importance of keeping his colleagues, at the National
  Executive Council
  level, fully informed of progress of the project and
  explaining significant

• Page 79 of 397

• changes in policy.

  [8.16] THE NEED TO KEEP THE NATIONAL EXECUT1VE_COUNCIL FULLY
  INFORMED

  There is a lesson to be learned here by all departments and
  ministries: if
  delays are experienced in the implementation of Government
  policies, the
  National Executive Council must be advised of the delay and
  the reasons
  for it.

  Often there are justifiable reasons for projects not being
  implemented as
  soon as originally planned. But if the National Executive
  Council is not
  advised why there has been a delay, it will naturally be
  assumed that there
  are no good reasons for further delay. The National Executive
  Council will
  become frustrated and impatient and the environment will be
  ripe for the
  making of rash and ill-considered decisions in the end.

  Chapter 8

  69

  All of these things happened in the case of the Spring Garden
  Road/Poreporena Freeway project.

  3.17] SCOPE OF THE PROJECT

  The first recommendation of the August 1990 “Policy
  Submission” was that
  the scope of the project should be expanded, so as to create a
  direct link,
  via Spring Garden Road, between downtown Port Moresby and
  Jacksons
  Airport. [EXHIBIT 36, page 5, para 11.1]

  However, there was no discussion or analysis – in fact, hardly
  a mention –
  of this crucial policy decision in the text of the Submission.

  As we emphasised in Chapter 5, the Ombudsman Commission found
  ft
  extraordinary that in the course of this investigation we were
  not able to

• Page 80 of 397

• pinpoint when the decision was made to expand the scope of the
  project,
  from the original proposal to link the two unconnected
  sections of Spring
  Garden Road between Konedobu and Hohola.

  The way in which this recommendation was added to the document
  –
  giving the appearance that it was an afterthought – simply
  adds to the
  mystery surrounding that decision.

  18] THE BUILD-OPERATE-TRANSFER CONCEPT

  Another feature of the January 1991 draft “Information Paper’
  is that it is
  the first Department of Transport document which referred to
  the Build-
  Operate-Transfer method of financing the project.

  Chapter 8

  70

  However, just as the August 1990 document failed to explain
  or discuss
  the pros and cons of expanding the scope of the project, the
  January
  1991 document failed to weigh the pros and cons of different
  methods of
  financing the project. [EXHIBIT 54, page 5, paragraphs 2.12 –
  2.13]

  These failures clearly indicate lack of consultation
  resulting in the poor
  drafting of the documents for the National Executive Council.

  [8.19] DEFICIENT POUCY MAKING BY THE DEPARTMENT AND MINISTRY OF
  TRANSPORT

  The fact that both the August 1990 Policy Submission and the
  1991
  Information Paper documents were only in draft form and never
  actually
  filed with the National Executive Council means that the
  Ombudsman
  Commission cannot be overly critical of their contents.

  But, in the absence of evidence to the contrary, these
  documents support

• Page 81 of 397

• our conclusion that important policy decisions such as the
  length of the
  freeway and the method of financing were being made by the
  Department
  and Ministry of Transport without proper analysis or
  documentation.

  SUMMARY OF DEVELOPMENTS DURING 1990

  [8.20] PROGRESS DURING 1990

  Progress on the project during 1990 can be summarised as
  follows:

  Chapter 8

  71

  In late January 1990 the National Executive Council directed
  the Department of Transport, the Department of Works and
  the Department of Finance & Planning to formulate detailed
  plans for the project.

  Nothing was done until 22 May 1990, when the Minister for
  Transport chaired an interdepartmental meeting and directed
  that design of the project be finalised within six months and
  expressions of interest be publicly invited.

  An advertisement inviting expressions of interest was
  published in June 1990 by the Department of Works.

  Around 17 – 20 July 1990, the Department of Transport invited
  a select group of companies to lodge proposals for the
  project, but this exercise was incompetently handled, hence
  there was little response.

  On 31 July 1990, it was decided that the Department of
  Works would arrange a further geotechnical investigation of
  the Burns Peak Saddle.

  A draft policy submission, intended to provide an update on
  progress, was circulated for comment during August and
  September 1990. The submission was subsequently revised
  but never presented to the National Executive Council.

  The first version of the submission proposed that the scope
  of the project be considerably expanded, but there was no
  documented discussion or analysis of this proposal.

• Page 82 of 397

• Chapter 8

  72

  On 11 December 1990, the contract for the
  geotechnical
  investigation was awarded to Coffey
  Partners International Pty
  Ltd of Australia after invitations were
  sent to selected
  companies by the Department of Works.

  [8.21] STATUS OF THE SPRING GARDEN ROAD PROJECT AT THE END OF
  1990

  By the end of 1990:

  The National Executive Council had not
  been fully and
  formally advised of the delay in
  commencement of the project
  or the apparent proposal to expand its
  scope.

  The geotechnical investigation had not
  begun, so no decision
  had been made on the tunnel/cut option.

  No decision had been made on the exact
  route or length of
  the road.

  No decision had been made on the method
  of financing the
  project.

  * * * * * * * * * *

  Chapter 8

  73

  9. PREPARATION OF SHORTLIST: FEBRUARY 1991

• Page 83 of 397

• 9. PREPARATION OF SHORTLIST: FEBRUARY 1991

  [9.1] FIFTEEN GROUPS HAD EXPRESSED INTEREST
  [9.1] FIFTEEN GROUPS HAD EXPRESSED INTEREST

  The advertisements in June 1990 inviting expressions of
  interest in the
  “Burns Peak/Spring Garden Road Link” had attracted fifteen
  interested
  parties. In July 1990, the Department of Transport made an
  abortive
  attempt to get some of them to submit firm proposals.

  It was later decided that the Department of Works would
  organise a
  detailed geotechnical investigation of Burns Peak, so a firm
  decision could
  be made on the tunnel/cut option. This investigation began in
  January
  1991 and continued until May 1991. While that investigation
  was still in
  progress, a shortlist of prospective developers was prepared.

  In this chapter we record our findings as to the preparation
  of the shortlist.
  .

  MINISTER FOR TRANSPORT PREPARES SHORTLIST
  MINISTER FOR TRANSPORT PREPARES SHORTLIST

  [9.2] WHEN WAS THE SHORTLIST PREPARED AND WHO PREPARED IT?
  [9.2] WHEN WAS THE SHORTLIST PREPARED AND WHO PREPARED IT?

  The Ombudsman Commission has concluded that the shortlist was
  prepared in February 1991 by the Minister for Transport, Mr
  Anthony
  Temo.

  Chapter 9

  74

  On 27 February 1991, Mr Temo wrote to the Secretary of the
  Department
  of Transport in the following terms:

• Page 84 of 397

• “My Dear Secretary

  A total of 15 (Fifteen) companies have shown or
  registered expressions
  of interest to design and construct the Burns Peak
  Road..

  This is under Turnkey arrangement meaning financing
  will be done
  by them.

  The following Companies have been selected for short
  list-

  1. Outlet Year Limited

  2. Sietco

  3. Barclay Bros and Maunsell Joint

  4. Curtain Bros

  5. L.K.N. Construction

  6. Kumagai Gumi

  7. Sabina Group Consortium

  Please inform them respectively by way of fax and
  organise a bid walk
  in 3 weeks from 27/2/91.” [EXHIBIT 631

  [9.3] A LATE ADDITION TO THE SHORTLIST

  On 28 March 1991, the Minister for Transport wrote another
  letter to the
  Secretary for Transport:

  ‘My dear Secretary

  I refer to my letter dated 27 February, 1991 in which I
  short listed a number of
  companies for the Burns Peak Project.

• Page 85 of 397

• Chapter 9

  75

  I now wish to include the following on the short list-

  Tasman Pacific International

  Please inform the Company accordingly” [F3CIBB1T 69]

  [9.4] THE MINISTER PREPARED THE SHORTLIST WITHOUT ADVICE OR
  CONSULTATION

  In his response to our preliminary report Mr Temo
  emphatically denied
  that he had prepared the shortlist. He said the letter to the
  Secretary for
  Transport of 27 February 1991 was simply a list of companies
  which had
  sent written expressions of interest to his office. He said
  his staff in the
  Ministry did not understand the term “shortlist”:

  ‘The various expressions of interest in the Burns Peak
  Road project by different
  companies was sent by way of letter or verbal to 3
  different place:

  (a) Department of Works
  (b) Department of Transport
  (c) Chairman of Ministerial Committee and Minister for
  Transport.

  Some companies about 15 contacted my office. About half of
  them verbally and
  the other half by way of letter or fax.

  It was the Department of Transport in consultation with
  Department of Works
  that prepared the short list not me or my office.

• Page 86 of 397

• Department of Works and the Department of Transport did
  their short list and
  Chairman of the Ministerial Committee did their own short
  list”
  [EXHIBIT 257, page 1]

  With due respect to Mr Temo, the Ombudsman Commission cannot
  accept
  what he says about the preparation of the shortlist. The
  terms of his letter
  to the Secretary for Transport on 27 February 1991 were quite
  clear: he
  advised that seven companies “have been selected for
  shortlist”. There is
  no evidence the companies on the Minister’s list had written
  directly to him,
  rather than the Department of Transport.

  Chapter 9

  76

  The Ombudsman Commission is satisfied that neither the
  Department of
  Transport nor the Department of Works had any involvement in
  the
  preparation of the shortlist. The Minister prepared the
  shortlist without
  consulting either Department.

  [a5] MINISTERS SHOULD NOT BE INVOLVED IN IMPLEMENTATION MATTERS

  The Minister for Transport’s preparation of the shortlist in
  February 1991
  was defective administration in a number of respects.

  First, there was no need for a shortlist to be prepared. The
  interested
  parties had only submitted expressions of interest in the
  project and had
  not been given the opportunity to submit firm proposals, so
  preparation
  of a shortlist was premature.

  Even if it had been an appropriate time to prepare a
  shortlist, this job
  should have been done by officers of the Department of

• Page 87 of 397

• Transport and/or
  the Department of Works. It is not the function of a Minister
  to prepare a
  shortlist for a public works project.

  Too often in Papua New Guinea, Ministers make unilateral
  decisions without
  calling on their qualified and experienced Departmental
  officers for advice.
  This is very bad. If Ministers cut themselves off from their
  Departments –
  by always giving directions, rather than asking for advice –
  it is inevitable
  they won’t always have the best information before them on
  which to make
  decisions.

  It was very naive of the Minister for Transport to believe he
  had the
  necessary technical knowledge to prepare a shortlist of
  developers without
  the advice of his Department.

  Chapter 9

  77 O

  Whenever a Minister makes an important decision in this way,
  it inevitably
  leads to suspicion about his motives. People start to ask
  questions. Why
  were some companies selected for the shortlist and others left
  out? Did
  some companies make the shortlist because the people running
  them
  were friends or wantoks of the Minister? Was anyone bribed? Et
  cetera.

  The only way the People can have confidence in their
  Government
  departments and Ministers is if normal, established procedures
  are
  followed.

  The decision-making process must be above suspicion.

  [9.6] SOME COMPANIES WERE SHORTLISTED WITHOUT JUSTIFICATION

  The Ombudsman Commission makes the following findings in
  relation to
  the eight groups shortlisted by the Minister for Transport:

• Page 88 of 397

• 1. Outlet Year Ltd
  This Hong Kong-based company had not lodged an expression of
  interest.
  It first became interested in the project in February 1991,
  when the Minister
  for Transport travelled to Taiwan and Hong Kong and was
  entertained by
  the company’s officers and its associates (see Chapter 12).

  As a result of the Minister’s visit, the company’s Managing
  Director, Mr
  Leung Keung, wrote a letter dated 12 February 1991 to Prime
  Minister
  Namaliu. Outlet Year Ltd offered to “design and build Southern
  Highlands
  Kikori Road and Burns Peak Road in Port Moresby’ and “invest
  up to US
  dollars 5 billion in Papua New Guinea.” [EXHIBIT 57]

  Chapter 9

  78

  On 13 February 1991, Outlet Year Ltd wrote similar letters addressed
  to:
  “Hon. Anthony Temo, Minister for Transport or Hon. Ted Diro, Deputy
  Prime Minister, Acting Transport Minister”. [EXHIBITS 59 & 60]

  Soon after that, on 19 February 1992, Mr Diro wrote to the Secretary
  for
  Transport, advising that he had received advice from Mr Temo that
  Outlet
  Year Ltd be “included in the pre-qualification for all tenders in
  Erave-Kikori
  and Burns Peak roads in Port Moresby”. Mr Diro directed the
  Secretary
  to take “necessary actions” in relation to the “pre-qualification”
  of Outlet
  Year Ltd. [EXHIBIT 61]

  The Ombudsman Commission was to discover in the course of this
  investigation that the Minister for Transport’s trip to Hong Kong,
  where he
  held discussions with Outlet Year Ltd, was paid for by associates of
  that
  company. This is wrong.

  The shortlisting of this particular company was therefore improper.

  It should also be noted that the Deputy Prime Minister does not have
  power to give directions to a Departmental Head, unless such a power

• Page 89 of 397

• is
  expressly given by an Act of the Parliament or some other law. The
  office
  of Deputy Prime Minister is created by Section 2 of the Prime
  Minister Act
  (Chapter No. 27 of the Revised Laws). However it does not carry with
  it
  any greater power of direction and control than those held by other
  Ministers. The purpose of the office of Deputy Prime Minister is to
  enable
  a Minister to step into the shoes of the Prime Minister whenever the
  Prime
  Minister is unable to perform the duties of his office or any of the
  other
  situations in Section 143 of the Constitution exist.

  Chapter 9

  79

  That is, the person holding the office of Deputy Prime Minister
  is not the
  “second-in-charge” of the Ministry and does not have any powers
  of
  direction and control by virtue of holding that office. His
  powers and
  responsibilities are at all times constrained in accordance with
  Section 148
  of the Constitution (see Chapter 39).

  2. Sietco
  The company known as Sietco (PNG) Pty Ltd is a PNG off-shoot of a
  government agency in the People’s Republic of China, known as the
  “China Sichuan Corporation for International Techno-Economic Co-
  operation”. Neither of these groups had lodged an expression of
  interest.

  Sietco is interested in road construction projects in the
  Southern Highlands
  Province and, during 1991, the company had a very close business
  connection with the Minister for Transport, Mr Temo. In fact,
  just a few
  weeks before directing that Sietco be included on the shortlist,
  the
  Minister’s family company, Outskirts Construction Pty Ltd, had
  entered into
  a “partnership agreement” with Sietco, whereby the two companies
  agreed
  to jointly invest in Papua New Guinea and set up a “partnership
  enterprise”

• Page 90 of 397

• to undertake “construction and maintenance of roads and some
  other civil
  engineering projects as contractor or sub – contractor’. This
  agreement
  was signed by the Minister, on behalf of Outskirts Construction
  Pty Ltd.
  [EXHIBIT 55B]

  The closeness of the relationship between the Minister and Sietco
  is further
  demonstrated by the fact that only five days before including the
  company
  on the shortlist, the Minister had visited China and signed an
  agreement
  with Sietco’s Chinese parent company, which was intended to
  clarify the
  partnership contract signed just a couple of weeks before in
  Papua New
  Guinea. [EXHIBITS 62k 62B]

  Chapter 9

  80

  When the Minister was interviewed by the Ombudsman Commission, he
  was asked whether he thought it improper a company he was so
  closely
  involved with, was asked by him to lodge a proposal for
  construction of
  the freeway. He did not deny his close relationship with Sietco
  but stressed
  that, as soon as the company had expressed an interest, he had
  instructed
  that it not be further considered because it might not look
  right.

  But, if that is the case, why did the Minister put the company on
  the
  shortlist?

  The Ombudsman Commission cannot accept Mr Temo’s explanation and
  is forced to conclude that his decision to shortlist this company
  was
  improper.

  3. Barclay Bros and Maunsell Joint
  Both of these groups had lodged expressions of interest -but not
  as joint
  venturers. Maunsell Consultants were linked with Barclay Bros in
  1988
  (see Chapter 2), but had actually lodged a joint expression of
  interest with

• Page 91 of 397

• Baulderstone Hornibrook in response to the June 1990
  advertisement.

  The Minister’s decision to link Maunsell with Barclay Brothers
  therefore did
  not make sense.

  4. Curtain Bros
  This company – though it ultimately became closely involved with
  the
  consortium selected to undertake the project – had submitted the
  expression of interest with the least amount of detail.

  Chapter 9

  81 ■

  While it is an established construction company, with experience
  in Papua
  New Guinea, we query its inclusion at the expense of other
  companies
  which had expressed their interest in the project in a more
  active and
  detailed manner.

  5. LKN Construction
  This Singapore-based company, represented by LKN (PNG) Pty Ltd,
  had
  lodged a two page expression of interest in July 1990.

  6. Kumagai Gumi
  This Japanese company had lodged a joint expression of interest
  with
  Kinhill Kramer Pty Ltd in 1990. The company had shown interest
  in the
  project for some time.

  7. Sabina Group Consortium
  Peter Chen and Partners, of Brisbane Australia, had lodged an
  expression
  of interest on behalf of the Sabina Group Consortium, in July
  1990. A
  brochure, giving details of the consortium’s previous
  activities, was
  enclosed, but otherwise no details concerning the Spring Garden
  Road
  project were provided.

  8.. TagitaL.PagifiCalea

• Page 92 of 397

• This PNG company is essentially a K2.00 shelf company, which
  operates
  a small consultancy business in Port Moresby. It was added to
  the
  shortlist one month late. At the relevant time, its 100%
  shareholder was
  Mr Sam Pepena.

  The Ombudsman Commission also became aware that the Deputy Clerk
  of the National Parliament, Mr Ano Pala, had a close association
  with the
  company.

  Chapter 9

  82

  Tasman Pacific International has few assets and no employees.
  It has no
  experience in road construction or design. It had not lodged
  an
  expression of interest.

  The company later joined with the Australian company Cooks
  Mitchell
  Peacock Stewart Pty Ltd to lodge a formal proposal for the
  project.

  However, in March 1991, there was little justification for
  Tasman Pacific
  International being on the shortlist at the expense of other
  established
  PNG companies.

  [9-7] PREPARATION OF THE SHORTLIST WAS IRRESPONSIBLE AND
  QUESTIONABLE

  Three of the groups on the shortlist had not submitted an
  expression of
  interest. Of these, the Ombudsman Commission discovered that
  the
  Minister for Transport, Mr Temo, had direct negotiations with
  two of them
  (Outlet Year and Sietco) outside Papua New Guinea, just a
  couple of
  weeks before he gave the shortlist to the Secretary for
  Transport. The
  other one – a Port Moresby shelf company with no experience in
  road
  construction or design, Tasman Pacific International – was
  added to the

• Page 93 of 397

• shortlist one month later.

  Question-marks also surround the decision to put companies
  such as
  Curtain Bros and Sabina on the shortlist, because their
  expressions of
  interest were flimsy compared with the carefully documented
  expressions
  of interest submitted in July 1990 by established PNG
  consulting firms
  such as Cardno & Davies and Maunsell Consultants.

  Chapter 9

  83

  In the opinion of the Ombudsman Commission the most favourable
  view
  that can be taken of the Minister for Transport’s shortlist is
  that it was
  unfair and arbitrary. But unfortunately the way in which it was
  prepared
  leaves room for suspicion that the Minister for Transport was
  compromised.
  Whether this was, in fact, the case, the Ombudsman Commission
  cannot
  say, because we found no hard evidence of bribery.

  However, the evidence shows that, if the Minister was not
  compromised,
  he was at least naive and irresponsible in believing that he
  alone – and not the officers of the Department of Transport or
  the Department of Works –
  the officers of the Department of Transport or the Department
  of Works –
  had the necessary technical expertise to decide which companies
  were
  to be shortlisted.

  VENTS AFTER PREPARATION OF SHORTLIST

  ).8] WHAT ACTION WAS TAKEN FOLLOWING PREPARATION OF THE
  MINISTER’S SHORTLIST?

  Shortly after preparation of the shortlist, a standard letter
  was drafted
  within the Department of Transport, over the signature of the

• Page 94 of 397

• Secretary for
  Transport, Mr Amini.

  Copies of this letter – dated 8 March 1991 – were apparently
  intended to
  be dispatched to each of the shortlisted companies, explaining
  the
  information to be contained in their proposals.

  Chapter 9

  84

  The letter read, in part:

  Your company has been short-listed for the above-
  mentioned project and you
  are hereby requested to send K40.00 … for cost of
  reproducing the Terms of
  Reference and preliminary “Economic’ and “Financial
  Assessment’ reports plus
  air mail to your address if you do not have an
  Office here in Port Moresby —

  Your proposal should contain the following
  information:-

  Financial Plan

  1.1 Traffic Forecasts

  Traffic throughout estimates and
  anticipated growth of Pori
  Moresby with your estimate of timing for
  maximum capacity,

  1.2 Design, construction and other
  associated costs for suggested
  alternative schemes must be on a fixed
  prize [sic] basis.

  These conceptual designs should
  estimated Bills of Quantifies
  for our guide only.
  The estimate of total project cost must
  include the engineering

• Page 95 of 397

• elements of the work as well as costs
  payable to Government,
  including a land premium for area
  occupied if and when needed,
  An estimate cost of setting up the
  project company for this
  project and training the operatives
  prior to opening _11
  [EXHIBIT 64, page 1]

  The letter concluded by stating:

  It must be pointed out very clearly that all
  financing will be your
  responsibility.” [EXHIBIT 64, page 3]

  [9.9] MISSING DOCUMENTS

  There are some perplexing things to note about the
  standard letter drafted
  by the Department of Transport. In particular, there are
  no copies of it on
  any Department of Transport files that the Ombudsman
  Commission
  inspected: there is simply no Departmental record that
  these letters were
  sent, or even that they were drafted.

  Chapter 9

  85

  We only became aware of their existence when the former Minister for
  Transport, Mr Temo, was summoned to appear before the Commission
  and produce relevant documents. Mr Temo had fourteen copies of the
  letter in his possession, addressed to the following companies:

  1. Barclay Bros (PNG) Pty Ltd 1
  2. Cardno & Davies PNG Pty Ltd
  3. Coecon Pty Ltd

• Page 96 of 397

• 4. Connell Wagner (Old) Pty Ltd
  5. Curtain Bros (PNG) Pty Ltd
  6. Frame, Harvey and West
  7. Juara Ltd
  8. Kumagai Gumi/Kinhill Kramer
  9. LKN (PNG) Pty Ltd – •
  10. Maunsell Consultants PNG
  11. Ove Arup & Partners Pacific Pty Ltd ■
  12. Robert Laurie Pty Ltd
  13. Sabina Group Consortium
  14. Sietco (PNG) Pty Ltd
  [EXHIBITS 64, 64B – 64N] •

  I

  We also became aware that a copy of the same letter – dated 28 March
  1991 – was sent to Tasman Pacific International, the company that
  was a
  late addition to the Minister’s shortlist. There was also no copy of
  this
  letter in the Department of Transport’s files. [EXHIBIT 68B]

  Chapter 9

  86

  [9.10] FURTHER MYSTERY SURROUNDING THE LETTERS OF MARCH 1991

  Each of the letters dated 8 March 1991 began by stating:
  “Your company
  has been short-listed for the above-mentioned project” (but
  the letters in
  fact had no title). This was very strange. The Minister had
  short-listed
  seven companies for the project on 27 February 1991. Why were
  fourteen
  companies being advised by a letter dated 8 March 1991 that
  they had
  been short-listed? This simply did not make sense.

  Upon discovering the existence of the fourteen letters dated
  8 March
  1991, each of which bore the signature of the Secretary for
  Transport, the
  Ombudsman Commission conducted interviews with

• Page 97 of 397

• representatives of
  four Port Moresby-based companies, among the list of
  fourteen:

  Barclay Bros (PNG) Pty Ltd

  Maunsell Consultants PNG

  Cardno & Davies (PNG) Pty Ltd

  Frame Harvey and West.

  Some companies did not receive the Secretary’s letter

  Each of the persons interviewed had knowledge of the Spring
  Garden
  Road project and their company’s interest in it. They each
  stated that they
  had never seen the letter of 8 March 1991 before. Not only
  that, they had
  never received acknowledgment of their company’s expression
  of interest
  in the project, let alone been advised that their company had
  been short-
  listed.

  Chapter 9

  87

  9.11] OTHER COMPANIES DID RECEIVE THE LETTER

  Some companies did receive a copy of the letter of 8 March
  1991. A
  representative of LKN Construction (PNG) Pty Ltd, for
  example, was able
  to confirm, by checking the company’s files, that the letter
  had been
  received. [EXHIBITS 66B, 70]

  It is also likely that Sabina Ltd, of Brisbane Australia,
  received a copy of
  the letter. [See the letter from Sabina to Mr Amini of 8
  April 1991, which
  refers to a letter dated 18 March 1991: EXHIBIT 71]

  9.12] THE SECRETARY FOR TRANSPORTS EXPLANATION

• Page 98 of 397

• Mr Amini’s explanation of the confusion over the letters of
  March 1991 was
  as follows:

  ‘Normally for a common letter meant for more than one
  addressee, the original
  is signed and then photocopied for the different
  addressees to be typed on. In
  so doing, the clerks were missing out mating additional
  copies for files. In the
  end, only one copy was left for filing. This practice was
  discovered and
  corrected. As far as I am aware, all those short-listed
  were sent an invitation.
  Some were by facsimile. To suggest that such a simple
  mistake could not occur
  is just being unrealistic. This is not defective
  administration.’ [EXHIBIT 254,
  para 71

  (9.13] DEPARTMENT OF TRANSPORT GUILTY OF DEFECTIVE ADMINISTRATION

  We accept Mr Amini’s point that simple mistakes can occur in
  any
  organisation. But we find it difficult to understand why the
  Department of
  Transport files contain no record at all of the existence of
  these letters.
  And why were fourteen letters drafted, when only seven
  companies had
  been shortlisted? Why did some companies not receive the
  letter? Why is
  there no record of the existence of the Tasman Pacific
  International letter
  in the Department’s files?

  Chapter 9

  88

  If no proper records are maintained, especially in projects
  such as this,
  how can the decision-making process be properly put in place
  and
  justified?

• Page 99 of 397

• One of the themes of this report is that unequal treatment
  was given to
  companies which had expressed interest in the project. Some
  were treated
  very favourably, whereas others did not even have their
  expressions of
  interest acknowledged.

  There are too many unanswered questions surrounding the
  letters of
  March 1991 to dismiss the above matters as a minor
  administrative bungle.
  We are surprised that the Minister for Transport had copies
  of the letters
  and not the Department of Transport – though they were signed
  by the
  Secretary for Transport.

  We can only conclude that the Department of Transport’s
  failure to retain
  any record of these letters and the failure to ensure that
  all the letters
  were sent was a serious case of defective administration,
  which had the
  effect of denying a number of companies the opportunity of
  making a bid
  for the project.

  [9.14] THE STATE OF THE SHORTLIST IN MARCH 1991

  In light of the above evidence, the situation with the
  Minister’s shortlist, as
  at March 1991, can be summarised as follows:

  In February 1991 the Minister short-listed seven
  companies,
  two of which had not lodged expressions of interest,
  without
  the advice of his Department.

  Chapter 9

  89

  One month later, the Minister added another company to
  the
  shortlist, even though it also had not lodged an
  expression
  of interest. This company had no experience in road
  design

• Page 100 of 397

• or construction. It was advised in writing it had been
  shortlisted, but there is no copy of the letter in the
  Department’s files.

  In the meantime, standard letters advising fourteen
  companies they had been short-listed, were signed by
  the
  Secretary for Transport.

  However, there is no record of the existence of these
  letters
  in the Department’s files.

  At least four of the fourteen letters were not
  received.

  At least one of the companies on the Minister’s
  shortlist –
  Barclay Bros (PNG) Pty Ltd – did not receive the
  letter.

  This was all quite bizarre. However, even stranger things
  were to
  happen in the months ahead. •

  [9.15] THE FATE OF THE SHORTLISTED COMPANIES

  As at the end of March 1991, the Minister had shortlisted
  eight
  consortiums for the project. However, when the Ministerial
  Committee on
  Spring Garden Road met on 18 July 1991, it had a shortlist of
  five:

  Chapter 9

  90

  Topbay Investment Limited & China Ample
  Development Ltd, the Second Surveying & Designing
  Institute, Ministry of Railways, People’s Republic of
  China, together with Moore’s Investment Group.

  Kumagai Gumi-Kinhill Kramer consortium.

  Periquan’s International Resources Pty Ltd and Pty Ltd
  Asia Management Consultants Centre.

  Tasman Pacific International and Crooks Mitchell
  Peacock Stewart Pty Limited.

• Page 101 of 397

• McConnell Dowell.

  Only two of these were on the original shortlist of eight.
  So, what
  happened to the six groups that disappeared from the list?
  And
  where did the three new ones come from?

  [9.16] THE COMPANIES WHICH LEFT THE SHORTLIST

  The Ombudsman Commission makes the following observations
  in
  relation to the six companies which disappeared from the
  shortlist:

  1. Outlet Year Ltd – in June 1991 it was “substituted” by
  Topbay
  Investment Ltd, another Hong Kong-based company (see
  Chapter 12).

  Chapter 9

  91
  III

  2. Sietco (PNG) Pty Ltd – there is no evidence that
  this U
  company was advised it was on the shortlist. In
  fact, there
  is no evidence on the Department of Transport
  files of any
  correspondence from or to this company.

  III
  3. Barclay Bros (PNG) Pty Ltd/Maunsell Consultants
  PNG Pty
  Ltd – neither of these companies were advised
  they had la
  been shortlisted.

  FE
  4. Curtain Bros – there is no evidence that either
  Curtain Bros
  (PNG) Pty Ltd or Curtain Bros (Old) Pty Ltd were
  advised II
  they had been shortlisted.
  5. LKN Construction – on 8 April 1991 LKN (PNG) Pty
  Ltd wrote II

• Page 102 of 397

• to the Department of Transport and advised that
  it was
  withdrawing its expression of interest. [EXHIBIT
  70]

  6. Sabina Group Consortium – this group was
  definitely aware
  it had been shortlisted, but was unable to meet
  the deadline
  for submission of proposals. [EXHIBITS 76, 82,
  83]

  [9.17] THE THREE NEW GROUPS “ADDED ” TO THE SHORTLIST

  The Ombudsman Commission makes the following
  observations in
  relation to the three groups included in the July
  1991 shortlist, but
  not in the March 1991 shortlist:

  1. Topbay Investment Ltd – this company replaced
  Outlet Year
  Ltd, but essentially the same group of Asian
  businessmen
  was involved (see Chapter 12).

  Chapter 9

  92

  2. Periquan’s International Resources Pty Ltd – this
  company
  joined with the Port Moresby consulting firm, Frame
  Harvey
  West & Maso, and submitted a late proposal. But no
  formal
  expression of interest had been lodged before this.

  3. McConnell Dowell – this Brisbane-based company only
  heard
  about the project in April 1991. On the basis of a
  half-page
  fax to the Department of Transport and two telephone
  conversations with the Director of the Policy
  Secretariat, Mr
  Hitolo, a letter was dispatched to the company,
  advising it
  had been shortlisted. [EXHIBITS 74, 75, 77]

• Page 103 of 397

• SUMMARY OF PREPARATION OF SHORTLIST

  [9.18] UNEQUAL TREATMENT WAS GIVEN TO COMPANIES WHICH HAD
  EXPRESSED INTEREST IN THE PROJECT

  There was a great disparity in the treatment given to the
  various
  companies that had expressed interest in the Spring Garden
  Road project
  since July 1990:

  Some companies were shortlisted, even though they had
  not
  lodged an expression of interest (e.g. Outlet Year Ltd,
  Topbay Investment Ltd, Tasman Pacific International and
  McConnell Dowell) whereas others which had lodged
  detailed expressions of interest in July 1990 were
  excluded
  and never received acknowledgement of their interest
  (e.g.
  Cardno & Davies and Maunsell Consultants).

  Chapter 9

  93

  Some shortlisted companies were allowed extensions of
  time
  to submit proposals [see EXHIBITS 67, 72, 76, 78, 79,
  81,
  83, 93, 94] whereas others (e.g. Barclay Bros) were
  not even
  advised they had been shortlisted.

  The result of this arbitrary and unsatisfactory process was that, by
  July
  1991, a shortlist of five had been prepared for the consideration of
  the
  Ministerial Committee on Spring Garden Road.

  * * * * * * * * * *

• Page 104 of 397

• Chapter 9

  94

  10. TERMS OF REFERENCE FOR THE PROJECT: EARLY 1991

  [10.1] PURPOSE OF THE TERMS OF REFERENCE

  In early 1991, a document was drafted within the Department
  of Transport,
  entitled ‘Terms of Reference-Spring Garden Road”. The purpose
  of this
  document was to describe the requirements of the Department
  of
  Transport and assist potential developers in the formulation
  of proposals.
  [EXHIBIT 55]

  In the Ombudsman Commission’s view, the document was
  seriously
  flawed and very confusing. It failed to specify the scope of
  the project
  and its technical parameters. The timing of the document’s
  release, its
  limited circulation and. its stipulation concerning Build-
  Operate-Transfer
  financing are also matters for concern.

  [10.2] THE SCOPE OF THE PROJECT

  We reported in Chapter 5 that, despite extensive
  investigations, we were
  never able to pinpoint who made the decision to extend the
  scope of the
  Spring Garden Road/Poreporena Freeway project from the
  original plan to
  link Konedobu, through Burns Peak, with Hohola.

• Page 105 of 397

• Nor could we determine when the decision was made that a
  freeway
  should be built all the way from downtown Port Moresby to
  Jacksons
  Airport.

  Chapter 10

  95

  The problem of defining the scope of the project was
  exacerbated by the
  Terms of Reference document. Whereas the advertisements
  published by
  the Department of Works in June 1990 had specified
  (arbitrarily) that the
  new road would link Konedobu and Waigani Drive, the
  Department of
  Transport’s Terms of Reference simply spoke in vague terms
  such as “the
  Spring Garden Road Link near the Burns Peak”.

  [10.3] WHAT DOES THE “SPRING GARDEN ROAD UNK” MEAN?

  This term can mean at least three things:

  a link between Champion Parade Konedobu and Wards
  Road Hohola; or

  a link between Champion Parade Konedobu and Waigani
  Drive; or

  a link between Champion Parade Konedobu and Boroko
  Drive. [See the map at the end of Chapter 2]

  All of the above alternatives would “link” various
  unconnected sections of
  Spring Garden Road, which runs from Champion Parade Konedobu
  to
  Boroko Drive, Gordons.

  The Terms of Reference document was seriously deficient in
  its failure to
  specify exactly what was required of prospective developers.
  The
  qualifying words which appear in the document – “near the
  Bums Peak” –
  suggest the scope of the project was intended only to be the
  link between
  Champion Parade and Wards Road.

• Page 106 of 397

• Chapter 10

  96

  But if that was the case, why did the State eventually enter
  into a contract
  for the construction of a freeway going all the way from
  downtown Port
  Moresby to Jacksons Airport?

  [10.4] THE TERMS OF REFERENCE DEFIED COMMON SENSE

  It seems common sense that when the Government commissions
  the
  building of a road, one of the first things to decide is
  where the road is
  going to go and how long it should be. How can a company
  lodging a
  proposal to build a road estimate the total project cost
  (inclusive of design
  and construction) when it doesn’t know where the road is
  supposed to
  go or how long it is supposed to be?

  In his response to our preliminary report, the Secretary for
  Works, Mr
  Hitolo, who was responsible for the project for a
  considerable time in the
  Department of Transport, stated that the scope of the project
  was
  deliberately not specified in the Terms of Reference
  document, because
  this was to be a Build-Operate-Transfer project:

  “Government’s role is purely to create the business
  atmosphere conducive to
  the private company to become interested in investing on a
  scale and scope it
  believes it can get a profitable return.” [EXHIBIT 265,
  page 3]

  Mr Hitolo said it would have been premature to specify the
  scope of the
  project in the Terms of Reference. He also suggested that the
  Ombudsman Commission did not understand the Build-Operate-
  Transfer

• Page 107 of 397

• concept.

  By contrast, when the Secretary for Transport, Mr Amini,
  responded to our
  preliminary report, he maintained that the detailed scope of
  the project
  was contained in the Terms of Reference document. However,
  when
  asked to point to the section of the document which specified
  the scope,
  Mr Amini was unable to do so. [EXHIBIT 254, page 4]

  Chapter 10

  97

  Quite dearly, the Terms of Reference did nol specify the
  scope of the
  Spring Garden Road project. It did not state where the road
  was
  supposed to begin and end. We reject Mr Amini’s claim that it
  did. We
  also reject Mr Hitolo’s claim that it was unnecessary for the
  scope of the
  project to be specified.

  The Ombudsman Commission concludes that the Terms of
  Reference
  document was vague and confusing, especially because of its
  failure to
  specify what was required of prospective developers.

  The inadequacy of the document is borne out by the fact that,
  despite its
  insistence that proposals be based on Build-Operate-Transfer
  financing,
  no such proposal was ever lodged with the Department of
  Transport.

  [10.5] THE TERMS OF REFERENCE ALSO FAILED TO SPECIFY THE
  TECHNICAL PARAMETERS OF THE PROJECT

  Another serious defect in the Terms of Reference document was
  its failure
  to specify the fundamental technical parameters of the

• Page 108 of 397

• project. This point
  was made by the World Bank Mission which visited Port Moresby
  in
  September 1991 to monitor the Spring Garden Road project:

  Mu technical parameters are left =claw as to whether Papua
  New Guinea
  was seeking a two or four lane road, one or two tube
  tunnels, and whether the road surface would be of
  compacted gravel or asphalt concrete, and whether an open
  cut or tunnel was desired.’
  road surface would be of compacted gravel or asphalt
  concrete, and whether an open cut or tunnel was desired.’
  open cut or tunnel was desired.’
  [EXHIBIT 111, at page 1 and see generally Chapter 15J

  [10.6] TIMING OF THE RELEASE OF THE TERMS OF REFERENCE

  The Terms of Reference document was first released in March
  1991. This
  was before the results of the geotechnical investigation
  undertaken by

  Chapter 10

  98
  Coffey Partners International was completed. However, the
  interdepartmental meeting on 31 July 1990 had decided that
  firm
  proposals would not be called for, until after that
  investigation was
  complete (see Chapter 7).

  The Ombudsman Commission therefore seriously questions the
  timing of
  the release of the document

  0.7] LAVED CIRCULATION OF THE TERMS OF REFERENCE

  An even more serious concern is the fact that the Terms of
  Reference
  document was only circulated to a limited number of
  developers. It was
  only those companies shortlisted by the Minister for
  Transport, Mr Temo,
  in February/March 1991, that were eligible to receive a

• Page 109 of 397

• copy.

  We have already commented on the unsatisfactory and
  arbitrary way in
  which that shortlist was prepared (see Chapter 9). It would
  have been far
  better to publicly advertise the availability of the Terms
  of Reference,
  rather than selectively offer it to only a few companies.

  Whenever investment opportunities are offered to companies
  “selected” by
  a Minister, there are bound to be suspicions of corruption.
  The best way
  to avoid this is to give all interested companies an equal
  opportunity to
  submit proposals through public advertisements.

  .8] BUILD-OPERATE-TRANSFER FINANCING

  A feature of the Terms of Reference document. is that it
  dictated that the
  project be undertaken using the Build-Operate-Transfer (BOT)
  method of
  financing.

  Chapter 10

  99

  The Ombudsman Commission has been unable to establish how or, even,
  when this important policy decision was made, because the Terms of
  Reference document is undated and the Department of Transport files
  did
  not disclose this information. It was certainly never the stated
  policy of the
  National Executive Council that the project be financed in this way.

  In the absence of such a policy directive, the Ombudsman Commission
  expected to find some evidence that, before stipulating the project
  would
  be financed in this way, the Department of Transport had carefully
  and
  methodically considered all the policy options available and
  formally made
  a decision to invite proposals on the basis of Build-Operate-
  Transfer
  financing. However, our examination of their files revealed that
  Build-
  Operate-Transfer financing was addressed only in the following
  documents:

• Page 110 of 397

• the Information Paper that was supposed to be presented to
  the National Executive Council, but which never was (see the
  final part of Chapter 8); and

  the Terms of Reference document. [Exhibits 36 & 55]

  Neither document could satisfy us that the decision concerning
  Build-
  Operate-Transfer financing for the Spring Garden Road project had
  been
  made carefully or competently.

  In our preliminary report we suggested that the Department of
  Transport
  had failed to make a careful, reasoned and properly documented
  decision
  on financing the Spring Garden Road project. The Secretary for
  Transport,
  Mr Amini, responded by stating:

  Chapter 10

  100

  ‘The concept of BOT was debated at length at our Executive
  Meetings. It was
  introduced by Mr Hitolo. I do not encourage new concepts which
  are not fully
  assessed for implications and impacts to be put before the NEC.’
  [EXHIBIT 254, page 31

  However, when Mr Amini was pressed on this issue, the only evidence
  he
  could provide was the minutes of a Department of Transport Executive
  Staff Meeting on 14 September 1990. The minutes stated:

  “Director (Policy Secretariat) said he will prepare a submission
  to NEC for
  discussion when considering plans for the project on the BOT
  system. HOT
  stands for Build, Operate and Takeover.

  The system simply means that the company awarded the contact will
  build the
  mad (project) and operate it in a bid to recover costs and

• Page 111 of 397

• expenses. Then hands
  the mad back to National Government.” [EXHIBIT 45A, page 4]

  Mr Amini also provided copies of two papers presented at a Transport
  Sector Seminar held in Port Moresby in 1991, which addressed the
  issue
  of Build-Operate-Transfer financing. One of them was prepared by Mr
  Hitolo, then Director of the Policy Secretariat in the Department of
  Transport, entitled “Spring Garden Road BOT Concept’. Mr Hitolo
  stated:

  ‘The main reason to get Spring Garden Road to be proposed for
  financing
  through private sector was the fact that the Government’s
  intention for this
  project to attract aid was not successful despite its good
  economic justifications.
  Hence the Government, decided to get private funding by directing
  the
  Department of Transport to assess the turn-key concept as the
  basis for
  implementing the project. This simply meant that a particular
  company be
  selected on a competitive basis and get it to arrange a private
  loan on behalf
  of the Government. As the general policy and understanding was to
  use the
  private sector for the total financing, construction and
  operation so that
  efficiency in the private sector may be tapped in the provision
  of infrastructure
  services.

  In actual fact the BOT (Build, Operate and Transfer) or the
  alternative BOO
  (Build, Own and Operate) systems were implied in the above-
  mentioned policy.
  Hence the concept of BOT system came into consideration followed
  by an
  invitation for interests in this sort of scheme. Unfortunately,
  the concept was
  not very well known in this country and therefore the responses
  were not
  satisfactory.’ [EXHIBIT MA, page 303]

  Chapter 10

• Page 112 of 397

• 101

  The Ombudsman Commission does not dispute Mr Hitolo’s
  expertise. Nor
  do we take issue with the Build-Operate-Transfer concept, as
  such. As an
  innovative method of financing it deserved to be closely and
  widely
  considered.

  What we are critical of is the Department of Transport’s
  failure to carefully consider all the financing options
  available and its failure to formulate a
  consider all the financing options available and its failure
  to formulate a
  policy and advise the Minister for Transport to table it
  before the National
  Executive Council so that a formal Cabinet policy decision
  could be made
  on this important issue.

  10.9] SUMMARY OF THE TERMS OF REFERENCE: INCOMPETENT
  ADMINISTRATION BY THE DEPARTMENT OF TRANSPORT

  There were many unsatisfactory aspects of the Terms of
  Reference
  document prepared by the Department of Transport in early
  1991:

  As a document which was supposed to indicate to developers
  what
  was required in their proposals, it was very vague. It did
  not
  mention where the road would go, or how long it would be.

  It also failed to specify basic engineering aspects of the
  project.

  It was prematurely released.

  It dictated that the proposals incorporate Build-Operate-
  Transfer
  financing, however no formal decision in favour of this
  method of
  financing had been made by the Department of Transport, the
  Minister for Transport or the National Executive Council

  Chapter 10

  102

• Page 113 of 397

• It was made available – unfairly – to only a selected group of
  companies.
  In the opinion of the Ombudsman Commission the preparation and
  distribution of this important – but defective – document was
  another
  example of incompetent administration by the Department of
  Transport.

  * * * * * * * * *

  Chapter 10

  11. THE MINISTERIAL COMMITTEE MEETING
  OF 18 JULY 1991

  [11.1] PERSONS PRESENT AT THE MEETING

  The Minister for Transport Mr Anthony Temo convened a meeting
  of “the
  Ministerial Committee on Spring Garden Road” in his
  Parliamentary office
  on 18 July 1991. Present at the meeting were:

  Mr Temo, MP;

  the Minister for Lands and Physical Planning, Sir Hugo
  Berghuser MP;

• Page 114 of 397

• the Minister for Works, Lukas Waka OBE, MP;

  the Parliamentary Secretary for Finance and Planning,
  Thomas
  Negints MP;

  the Head of the Policy Secretariat in the Department of
  Transport, Lohia Hitolo; and

  the First Assistant Secretary (Planning & Research) in
  the
  Department of Transport, Henry Paraket.

  Chapter 11

  104
  [11.2] WHAT WAS THE PURPOSE OF THE MINISTERIAL COMMITTEE
  MEETING?

  The purpose of the meeting was to select a developer to
  undertake the
  Spring Garden Road project. As a result of the arbitrary and
  unsatisfactory
  shortlisting process between February and July 1991
  (considered in
  Chapter 9) five consortiums were to be considered.

  THE MINISTERIAL COMMITTEE ON SPRING GARDEN ROAD

  [11.3] STATUS OF THE MINISTERIAL COMMITTEE

  Before we address the deliberations of the Ministerial
  Committee, there is
  one important point to note: in the course of its
  investigation the
  Ombudsman Commission was unable to find any document showing
  how
  or when this Committee was established or who its members
  were.

  The Secretary to the National Executive Council testified
  there was no
  record of the establishment of such a committee and the
  Secretary for
  Transport said his Department had also tried in vain to find
  some record
  of the Committee’s existence.

• Page 115 of 397

• When we put the issue to Mr Temo, he was adamant that the
  Committee
  had been duly authorised by the National Executive Council to
  report back
  to it on the preferred method of implementing the project. He
  could not,
  however, provide any details of the Committee’s
  establishment.

  Chapter 11

  105

  Mr Temo stated:

  “My mind is quite clear that there was a NEC
  decision which authorised the
  Minister for Transport to be Chairman of the
  Ministerial Committee on
  infrastructure. Also the same Ministerial Committee
  used NEC decision to
  bypass normal tender procedures to construct Enga
  Highway Stage 2 or 3. If
  NEC did not make this decision), Porgera mine would
  not have started
  production on time because normal department tender
  procedures normally
  takes a very long time even the normal political
  will does not work.

  One should understand that if there was no such
  Ministerial Committee
  established why was NEC recognising and expecting
  Ministerial Committees
  recommendations?

  Therefore obviously I acted with some lawful
  authority even if we are unable
  to get the records. See letter from NEC Secretary
  dated 19 November 1992′
  [EXHIBIT 257 para 2]

• Page 116 of 397

• When we questioned Sir Hugo Berghuser on this point, he
  stated that the

  Committee had been established at his initiative. But Sir
  Hugo, also, could

  not point to any formal record of its existence.

  [11.4] THE MINISTERIAL COMMITTEE ACTED WITHOUT AUTHORITY

  The Ombudsman Commission concludes that the “Ministerial
  Committee

  on Spring Garden Road” was never formally established by
  the National

  Executive Council and had no authority to make decisions
  binding or

  purporting to bind the National Executive Council.

  At this juncture, we note that Section 149(4) of the
  Constitution provides:

  ‘Except where the contrary intention appears,
  nothing in this
  Constitution prevents the powers, functions, duties
  or responsibilities
  of ti e [National Executive Council] from being
  exercised, as determined
  by t, through a Minister.”

• Page 117 of 397

• Thus, the Constitution does allow the powers of the
  National Executive

  Council to be delegated to Ministers.

  Chapter 11

  106

  But this does not mean that any group of Ministers can
  appoint
  themselves to “committees” of the National Executive Council
  and clothe
  that “committee” with powers or status.

  A Ministerial Committee – even one which only intends to make
  recommendations to the National Executive Council – must have
  its powers
  and responsibilities properly delegated and controlled by the
  National
  Executive Council under Section 149(4) of the Constitution
  before it makes
  any decisions or holds itself out as having any powers or
  responsibilities.

  This did not occur in relation to “the Ministerial Committee
  on Spring
  Garden Road”. It therefore had no lawful status or power or
  authority.

  [11.5] WHAT DOCUMENTS WERE CONSIDERED AT THE “MINISTERIAL
  COMMITTEE” MEETING?

  The Head of the Policy Secretariat in the Department of

• Page 118 of 397

• Transport, Mr
  Hitolo, brought the following documents to the meeting on 18
  July 1991,
  for the consideration of the Ministerial Committee:

  the proposals of the five shortlisted consortiums; and

  a document dated 17 July 1991 entitled “Financing the
  Construction of the Spring Garden Freeway”.

  Chapter 11

  107

  LOSS OF DOCUMENTS

  [11.6] MOST OF THE FIVE PROPOSALS HAVE BEEN LOST

  It has been very difficult for the Ombudsman Commission to
  ascertain
  exactly which proposals the Ministerial Committee had before
  it. By the
  time we conducted our investigation, most of the proposals
  had been lost.

  The investigation was also hampered by the fact that the
  meeting is poorly
  documented in the files of the Department of Transport. In
  fact, the only
  evidence of the meeting taking place is a letter from the
  Minister for
  Transport to the Secretary for Transport asking him to attend
  the meeting
  and a one-page memorandum of the decisions made at the
  meeting.
  [EXHIBITS 97,102]

  [11.7] HOW WERE THE PROPOSALS LOST?

  Mr Hitolo testified that at the end of the meeting he had
  left all five
  proposals in the Minister for Transport’s office at the
  request of Sir Hugo
  Berghuser, who said that he wanted to study them further
  before making
  a decision.

• Page 119 of 397

• When Sir Hugo was questioned on this point, he agreed the
  proposals
  had been left, at his request, in the office. But he said he
  only asked that
  copies be made for him. He was dissatisfied with the
  proposals before
  the Committee and he said as much to the other members of the
  Ministerial Committee. ‘When I left the office, the proposals
  were still there
  and I have never seen them since’, Sir Hugo said.

  Chapter 11

  108

  Correspondence between Mr Hitolo (who became Secretary for
  Works in
  early 1992) and Mr Amini in March 1992 confirmed that this
  incident took
  place [EXHIBIT 160, final paragraph]. But the Ombudsman
  Commission
  has not been able to trace the whereabouts of the proposals
  left in the
  Minister’s office.

  The Ombudsman Commission concluded that the proposals were
  lost by
  the Minister for Transport, Mr Temo.

  When we made this allegation in our preliminary report, Mr
  Temo claimed
  that, in fact, the proposals had been lost by Sir Hugo
  Berghuser.
  However, even if this were, in fact, the case, Mr Temo was
  the Minister of
  the State entrusted with custody of these important and
  confidential
  documents. It was his responsibility to take adequate steps
  to ensure the
  documents were in safe hands.

  [11.8] THE DEPARTMENT OF TRANSPORT FAILED TO KEEP COPIES OF THE
  PROPOSALS

  Surprisingly, the Department of Transport had not kept copies
  of the
  proposals, except the one made by the Chinese consortium –
  which was
  the group selected by the Ministerial Committee to undertake
  the project.

• Page 120 of 397

• This meant, therefore, that most of the proposals had been
  lostTM.

  This particular administrative mistake was to have far-
  reaching
  consequences several months later, when pressure was put on
  the
  Department to expedite the project and the Department had
  second-
  thoughts about supporting the Chinese proposal (see Chapter
  18).

  Chapter 11

  109

  It meant that when the Department was required to prepare a
  National
  Executive Council Policy Submission in February 1992,
  recommending a
  consortium to undertake the project, it only had one proposal
  in its
  possession.

  [11.9] DEPARTMENTAL RECORDS SHOULD NOT BE GIVEN TO MINISTERS

  As a general rule the Ombudsman Commission believes that
  official
  Government records and files should not be left in the
  possession of
  Ministers. An official Government file is the property of the
  State – it does
  not belong to a Minister. A Minister has the right to be
  fully and objectively
  briefed by his or her Departmental Head. But he does not have
  the right
  to keep possession of official files.

  If this principle of sound public administration had been
  followed in the
  present case, the proposals probably would not have been
  lost.

  EVALUATION OF PROPOSALS

  [11.10]la
  SPRING GARDEN FREEWAY

• Page 121 of 397

• This document was the focus of discussion ac the Ministerial
  Committee
  meeting of 18 July 1991. It is dated 17 July 1991, i.e. one
  day before the
  Ministerial Committee meeting. were in fact two versions of
  it:

  Chapter 11

  110

  One version was addressed to “the Members of the
  Resource Management Committee”. It was drafted as a
  submission by the Department of Transport and shows the
  submitter as “B K Amini CBE Secretary”; however, it was
  unsigned. [EXHIBIT 100]

  The other version of the document was drafted as a Policy
  Submission to the National Executive Council by the Minister
  for Transport; it was signed by Mr Temo. [IXHIBIT 99]

  Although there are some minor variations, both versions of the
  document
  are essentially the same:

  They outline the background of the Spring Garden Road
  project.

  The scope of the project is described as being from
  downtown Port Moresby to Jacksons Airport.

  The five short-listed proposals are evaluated, according to
  ten criteria.

  The conclusion is reached that the Second Surveying and
  Designing Institute of the Peoples’ Republic of China (which
  lodged a proposal in conjunction with Topbay Investment
  of Hong Kong) be “appointed” to commence negotiations
  with the Department of Transport for the development of the
  Spring Garden Road.

  Chapter 11

  111

  [11.11] THE METHOD USED TO EVALUATE THE SHORTLISTED PROPOSALS

• Page 122 of 397

• The “Financing the Construction of the Spring Garden
  Freeway” document
  evaluated the five proposals according to ten criteria:

  1. Interpretation of the Terms of Reference.
  2. Logical Phasing of Tasks in the Methodology.
  3. Environment Impact Statement.
  4. Financier’s Credibility.
  5. Main Contractor’s Relevant Experience.
  6. Local Partner Participation.
  7. Proposed Equity Distribution.
  8. Personnel Proposed in General.
  9. Team’s Experience in B.O.T. System.
  10. Funding Proposal for the Project.

  The proposals were given a rating of “Excellent”, “Very
  Good”, “Good”,
  “Fair” or “Satisfactory” on each criteria.

  The proposals were then given an overall ranking, as
  follows:

  1st: Topbay Investment Ltd/Second Surveying & Designing
  Institute, People’s Republic of China.

  2nd: Periquan’s International Resources.

  3rd: Kumagai Gumi/Kinhill Kramer.

  4th: Tasman Pacific International.

  5th: McConnell Dowell.

  Chapter 11

  112

  In light of these rankings, the document concluded that the
  project be
  awarded to the Chinese consortium.

  (11.12] FURTHER UNSATISFACTORY ADMINISTRATION BY THE DEPARTMENT
  OF TRANSPORT

  We have noted elsewhere in this report that the standard of
  documentation of important policy decisions by the
  Department of
  Transport was extremely poor. We made that finding in
  relation to a
  number of issues, e.g. the decision to extend the freeway to
  Jacksons

• Page 123 of 397

• Airport, the tunnel/cut issue and the Build-Operate-Transfer
  method of
  financing (see Chapters 5 & 10).

  We make a similar finding in relation to the evaluation of
  the five proposals
  shortlisted for consideration by the Ministerial Committee.
  The
  Ombudsman Commission considers that a much more detailed and
  methodical comparison of the alternative proposals was
  required than the
  one page table attached as an appendix to the “Financing the
  Construction of the Spring Garden Freeway” document.

  The subjective rankings on the basis of the ten selected
  criteria were
  vague and meaningless.

  This situation occurred because the Department of Transport
  did not have
  any established procedures for evaluating proposals for
  construction of
  roads or other transport infrastructure. The Department of
  Transport, on
  the instructions of the Minister for Transport, had wrongly
  assumed
  responsibility for a task that should have been carried out
  by a Supply
  and Tenders Board, in accordance with the Public Finances
  (Management)
  AM

  Chapter 11

  113

  [11.13] OTHER DEPARTMENTS NOT INVOLVED IN THE RANKING OF
  PROPOSALS

  A feature of the decision-making process which led to the
  selection of the
  consortium to build the Spring Garden Road/Poreporena
  Freeway, is the
  flagrant disregard of normal tender procedures (see Chapter
  35).

  If the project had been properly put to public tender in the
  first place, the
  Ministerial Committee would not have had to deliberate on
  the matter and
  the Department of Transport would not have been required to
  rank the
  proposals shortlisted by the Minister.

• Page 124 of 397

• Though these mistakes were made, the maladministration would
  not have
  been so serious, if the Minister for Transport and the
  Department of
  Transport had been willing to consult other Departments when
  ranking
  the shortlisted proposals. However, no consultation took
  place.

  We are particularly concerned that the Department of Works
  was not
  consulted. This Department has far more experience in
  selection of
  contractors to undertake road projects than the Department
  of Transport.

  It was also wrong for the Department of Transport not to
  consult the
  Department of Finance and Planning. There is no evidence
  that any proper
  checks were made by the Department of Transport on criteria
  such as
  “Financier’s Credibility” and “Funding Proposal for the
  Project”. We note the
  Chinese proposal was rated “excellent” on both these
  criteria. Yet six
  months later the Department of Transport found it necessary
  to seriously
  question the bona fides of the proponents (see Chapter 15).

  Chapter 11

  114

  [11.14] DID THE PROJECT “BELONG” TO THE DEPARTMENT OF TRANSPORT?

  We have no doubt many mistakes were made because the
  Minister for
  Transport and the Secretary for Transport believed that the
  Spring Garden
  Road/Poreporena Freeway project was “a Department of
  Transport project”
  – not “a Department of Works project”.

  However, the terms of National Executive Council Decision
  No. 14/90 were
  that “the Department of Transport, the Department of Works
  and the
  Department of Finance and Planning formulate detail plans

• Page 125 of 397

• for the
  construction of Burns Peak Road”. [EXHIBIT 6A]

  We could therefore see no justification for the Minister for
  Transport or the
  Department of Transport shutting out these two other
  departments from
  the decision-making process.

  Though it was within the policy prerogative of the
  Department of Transport
  to determine where the freeway would go, whether there would
  be a
  tunnel or cut through Burns Peak and whether the project
  would be
  undertaken using Build-Operate-Transfer financing, it was
  wrong for the
  Minister for Transport and the Department of Transport to
  exclude the
  other key Departments from the decision on who was going to
  design,
  finance and build the freeway.

  [11.15] THE FORMAL RECORD OF THE MINISTERIAL COMMITTEE’S DECISION

  In his oral testimony to the Ombudsman Commission, Sir Hugo
  Berghuser
  stated that the Ministerial Committee meeting lasted not
  much longer than
  30 minutes and that the discussion had been confined to the
  contents
  the “Financing the Construction of the Spring Garden
  Freeway” document.

  Chapter 11

  115

  No minutes of the meeting were kept and the only record
  of the
  Committee’s decision is a document, under Ministry of
  Transport
  letterhead, that was signed by Mr Temo, Mr Waka and Mr
  Negints. It
  stated:

  ‘On the 18th day of July 1991, the Ministerial
  Committee On The Spring Garden

• Page 126 of 397

• Road Development met at the Transport Minister’s
  office in the National
  Parliament House and authorized and approved the
  following recommendation:

  That the Chairman of this Committee seek
  National Executive Council
  (NEC) endorsement for the appointment of
  The Second Surveying and
  Designing Institute, Ministry of Railways
  of Peoples Republic China to
  commence negotiation for the development
  of the Spring Garden Road.

  2. That the Chairman of the Committee seek
  National Executive Council
  endorsement to authorize the Attorney-
  General’s Department and the
  Department of Finance and Planning to
  negotiate and execute the
  principle terms and conditions of the
  contract emerging from their
  proposals.

  3. That the Chairman of this Committee seek
  National Executive Council
  endorsement to negotiate and use B.O.T. or
  turnkey as the basis of
  funding the Spring Garden Road
  Development.

  4. That the Chairman of the Ministerial
  Committee seek National
  Executive Council endorsement in order to
  authorize Department of
  Finance and Planning to negotiate and
  execute the Franchise agreement
  and any other necessary and desirable
  documents relating thereto on
  behalf of the State? [EXHIBIT 102]

  Sir Hugo testified that this document was not signed at
  the meeting of 18
  July 1991 and we accept that that was in fact the case.

  [11.16] WHAT HAPPENED AFTER THE MEETING?

• Page 127 of 397

• The document recording the decisions of the Ministerial
  Committee
  appears to have been signed a day or two after the
  meeting took place.

  Chapter 11

  116

  Sir Hugo stated that, though he had seen this document, he
  had
  deliberately not signed it because he did not agree with its
  contents. He
  was very suspicious about the negotiations that had already
  taken place
  with the Chinese. In fact, Sir Hugo alleged that he had been
  invited to a
  Chinese restaurant in Port Moresby, and asked to sign the
  document in
  the presence of other members of the Ministerial Committee
  and
  representatives of the Chinese consortium. He said that he
  refused to sign
  the document and walked out of the restaurant.

  The Ombudsman Commission has been unable to obtain any
  corroborating evidence of this particular incident. However,
  we share Sir
  Hugo’s concern about the propriety of the decision to favour
  the Chinese
  consortium.

  WAS THERE AN OBJECTIVE EVALUATION?

  [11.17] HAD THERE BEEN A GENUINE ATTEMPT TO EVALUATE THE
  ALTERNATIVES?

  On the face of it, the selection of the Chinese consortium
  was yet another
  example of the type of haphazard and careless decision

• Page 128 of 397

• making that had
  come to characterise the Ministry and Department of
  Transport’s handling
  of the Spring Garden Road/Poreporena Freeway project. But
  our
  investigations revealed that there was more to the selection
  of the Chinese
  than just slipshod administration.

  Chapter 11

  117
  [11.18] THE DECISION HAD ALREADY BEEN MADE

  In the opinion of the Ombudsman Commission, the Ministerial
  Committee
  meeting of 18 July 1991 was really just a rubber-stamping
  exercise for a
  decision already made by the Minister for Transport, Mr
  Temo, to award
  the project to the Chinese consortium.

  Both versions of the “Financing the Construction of the
  Spring Garden
  Freeway” document actually referred to “the Ministerial
  Committee’s
  decision to appoint the SSDI to commence negotiations …for
  the
  development of the Spring Garden Road”. But the document was
  dated
  17 July 1991 – one day before the Ministerial Committee made
  that
  decision!

  The Ombudsman Commission discovered that, in fact, the
  Minister for
  Transport had formed a close association with members of the
  Chinese
  consortium well before the meeting. He had entertained a
  delegation from
  the consortium, in Port Moresby, only one week before the
  Committee’s
  decision to favour them (see Chapter 12). 1

  In light of that evidence, the Ombudsman Commission was
  forced to
  conclude that the deliberations of the Ministerial Committee
  were not a
  genuine attempt to objectively evaluate the five short-
  listed proposals.

• Page 129 of 397

• [11.19] MR TEMO’S RESPONSE

  When we suggested in our preliminary report that Mr Temo had
  improperly arranged the selection of the Chinese consortium,
  he
  responded in the following terms:

  Chapter 11

  118

  “Most of the companies that showed or expressed interest either did
  not
  understand the terms of reference of the project or did not bother
  to re-check
  with the Committee or Departments of Transport or Works.

  As you can see in NEC decision or purpose of the NEC submission No.
  14/90
  it was the wish of the NEC to speed up the project. That is why the
  NEC
  submission’s purpose was to bypass normal tender procedures in order
  to speed
  up the project to be completed in time for the SP Games. Also there
  was a
  criticism against me in NEC or Parliament every time there was a
  traffic
  problem along Sir Hubert Murray Highway even by public what are you
  doing
  Mr Chairman or Mr Minister for Transport.

  While I was being pressured by the public NEC and Parliament I had
  to
  negotiate with any of these companies that showed interest as a
  Chairman of
  Committees I was left to look like a fool if I did not report back
  to NEC with
  a positive report I would have failed my duty and I was scared I
  could loose
  my job.

  No companies complained because it was a new concept proposed by
  Barclay
  Bros. before my time. I had to carry on from that initiative. It has
  been a very

• Page 130 of 397

• tough job trying to get the best companies to do the job.

  Some companies responded again when it was convenient to them. We
  had to
  follow them because PNG does not have the resources in monetary and
  manpower.

  The companies that came up with fancy proposals and sort of got in
  touch with
  my office or the Secretary’s office kept getting our attention.

  At least I was given a responsibility to present to NEC. I did not
  discriminate
  other companies against that showed interest It was a mere who comes
  first
  with the best proposal for PNG.

  I have a feeling that the Chinese companies were not consortium but
  they were
  selling their information from one company to another.

  The Department was very uncooperative to me or NEC.

  I, Mr Temo was not hiding any transactions from the Department. I
  always
  notified of the progress that is why I have them all information. I
  therefore
  regardless whether I had meeting or not prior to not really relevant
  in the
  situation of this new confused situation as there was no better
  proposals and
  interest shown other than that of the Chinese.

  All the time the Department was aware I did not organise any secret
  de–11c an
  my mine was dear all the time.” [EXHIBIT 257, page 2]

  Chapter 11

  119

  [11.20] CONCLUSION AS TO THE DELIBERATIONS OF THE MINISTERIAL
  COMMITTEE

• Page 131 of 397

• With due respect to Mr Temo, he has not satisfactorily
  answered our
  criticism of the way in which the Chinese consortium
  was favoured by the
  Ministerial Committee. We conclude that he convened the
  meeting of the
  Ministerial Committee for the purpose of facilitating
  the Chinese consortium
  selected by himself to undertake the project.

  The closeness of the relationship between Mr Temo and
  the Chinese
  consortium is explored further in the next chapter.

  * * * * * * * * * *

  Chapter 11

  120

  12. THE RELATIONSHIP BETWEEN THE CHINESE
  CONSORTIUM AND THE MINISTER FOR TRANSPORT

• Page 132 of 397

• [12.1] A MATTER OF CONCERN

  The manner in which the Chinese consortium was chosen by the
  Ministerial Committee was a matter of concern to the
  Ombudsman
  Commission.

  We therefore wanted to find out who was actually behind the
  proposal of
  the “Second Surveying and Designing Institute, Ministry of
  Railways,
  People’s Republic of China”. We were also interested to know
  whether the
  Minister for Transport had any particular association with
  those negotiating
  on behalf of the Chinese.

  WHO WAS IN THE CHINESE CONSORTIUM?

  [12.2] KEY PARTIES IN THE PROPOSAL INVOLVING THE SECOND SURVEYING
  AND DESIGNING INSTITUTE

  Mr Leo Moore of Taiwan

  Our investigations revealed that a key person was Mr Leo
  Moore, a citizen
  of the Republic of China (Taiwan). Mr Moore is a businessman,
  with
  interests in the Taiwanese fishing industry, who had made a
  number of
  visits to Papua New Guinea during 1991 and 1992.

  Chapter 12

  121

  Mr Moore was called to give evidence under oath on several occasions
  in
  the course of this investigation. We formed the view that he was a
  co-
  operative and reliable witness. His evidence shed considerable light
  on
  the events leading to the selection of the Chinese consortium.

  Outlet Year Ltd and Mr Leung Keung of Hong Kong

  Mr Moore stated that he had first become interested in Papua New
  Guinea
  in September 1990, after a meeting in Taiwan with another

• Page 133 of 397

• businessman,
  Mr Leung Keuno (hereafter referred to as Mr Leung).. Mr Leung is the
  head of a Hong Kong-based company known as Outlet Year Ltd, which
  was supposedly considering making large investments in Papua New
  Guinea. The meeting between Mr Moore and Mr Leung was arranged by
  Mr To Ken Chung (Mr Moore’s godfather and Mr Leung’s close friend)
  and Mr Stephen Zohr (one of Mr Moore’s business advisers).

  At that meeting it was agreed that an invitation would be extended
  to a
  group of government officials from Papua New Guinea to come to
  Taiwan
  to discuss business opportunities in Papua New Guinea.

  Business relationship between Outlet Year Ltd and the SSDI

  Mr Moore explained that Outlet Year Ltd had business connections
  with
  a number of government authorities in the Peoples’ Republic of China
  (ie
  mainland China); one of them being the Second Surveying and
  Designing
  Institute (SSDI).

  The SSDI is a civil engineering agency involved in design and
  construction
  of railways and highways. Mr Moore supplied the Ombudsman
  Commission with a brochure describing its activities. [EXHIBIT 102A]

  Cnapter 12

  122

  Mr Moore explained that, as a result of overtures made by Mr
  Leung, the
  SSDI had contacted Mr Moore on 27 January 1991. In a one page
  facsimile transmission, a representative of the SSDI
  indicated that they
  were a very strong and influential government company in
  China and that
  they were keen to go into business with Mr Leung and Mr Moore
  for the
  purpose of building a freeway in Port Moresby, which they had
  been
  informed about by Mr Leung. [EXHIBIT 53]

  OVERSEAS TRIP PAID FOR BY CHINESE CONSORTIUM

  [12.3] VISIT TO TAIWAN AND HONG KONG BY PAPUA NEW GUINEA

• Page 134 of 397

• PARLIAMENTARIANS IN FEBRUARY 1991: A MATTER OF CONCERN

  Mr Moore testified that on 6 February 1991 he purchased four
  return
  tickets from Port Moresby to Hong Kong, which were later
  picked up at
  the Cathay Pacific office in Port Moresby.

  After being invited to Taiwan and Hong Kong, a “delegation”
  from Papua
  New Guinea arrived in Taipei on 8 February 1991. The
  delegation
  comprised:

  the Minister for Transport, Mr Anthony Temo;

  the Member for Gulf Province, Mr Aaron Noaio;

  the Member for Sohe Open, Mr David Beu; and

  Chapter 12

  a member of the Official Personal Staff of the
  Minister for
  Fisheries & Marine Resources (who at that time was the
  Deputy Prime Minister Mr Akoka Doi) Mr Chris Maravis.

  The Ombudsman Commission interviewed Mr David Beu in
  connection
  with this trip and the evidence he gave corroborated that
  given by Mr
  Moore.

  [12.4] STATUS OF THE PNG DELEGATION

  Before we address the events that transpired during and after
  the trip,
  there is one important matter to emphasise: the Papua New
  Guinea
  “delegation” had no official status. Although the members of
  the group
  were, in a sense, representing the Government of Papua New
  Guinea, the
  delegation was privately sponsored. All the expenses,
  including airfares,
  accommodation and meals, were paid for either by Mr Leo Moore
  or
  Outlet Year Ltd.

• Page 135 of 397

• [12.5] PRIVATELY SPONSORED OVERSEAS TRIPS CAN BE UNLAWFUL

  It is important for all leaders of Papua New Guinea who
  contemplate
  privately sponsored trips to bear in mind that it is a
  requirement of the
  Leadership Code that permission from the Ombudsman Commission
  be
  obtained before accepting the benefits of such a trip.

  This is a principle of Papua New Guinea law that should also
  be
  considered by any person or company thinking about offering
  such a trip
  to a leader.

  Chapter 12

  124

  [12.6] THE MINISTER ALLOWED HIMSELF TO BE ENTERTAINED BY ONE OF
  THE COMPANIES BIDDING FOR THE PROJECT AT THE SAME TIME HE
  WAS PREPARING THE SHORTLIST

  The Ombudsman Commission is concerned that the Minister for
  Transport,
  Mr Temo, made his trip to Taiwan and Hong Kong and involved
  himself
  in negotiations for the Spring Garden Road/Poreporena Freeway
  project
  at the same time be was preparing the shortlist of
  prospective developers
  (see Chapter 9).

  The Ombudsman Commission emphasised earlier in this report
  that
  Ministers should not be preparing shortlists for public works
  projects. In
  this case, the Minister for Transport was not only preparing
  the shortlist,
  he was, at the same time, allowing himself to be wined and
  dined
  overseas, at the expense of one of the companies interested
  in getting the
  contract for construction of the freeway.

  When this sort of thing happens, it is very difficult to
  conclude that the
  decision-making process was legitimate, fair and proper.

  It is also difficult to say there was no bribery or
  corruption.

• Page 136 of 397

• [127] THE MINISTER FOR TRANSPORTS DEFENCE

  When we suggested in our preliminary report that it was wrong
  of Mr
  Temo to make an overseas trip, paid for by one of the
  companies bidding
  for the project, at the same time he was preparing a
  shortlist of
  prospective developers, he denied any impropriety. He said he
  did not
  realise it was a privately sponsored trip until after he
  accepted the
  invitation to go to Hong Kong:

  Chapter 12

  125

  “The trip to Taiwan and Hong Kong was organised by a Chris
  Maravis in Mr
  Akoka Dors office. Mr Doi was the Deputy Prime Minister so I took
  it that
  I was going on an official trip. later I realised that it was a
  PAP fishing trip
  paid by Mr Leo Moore and some fishing people.

  While in Taiwan and Hong Kong as I was not Minister for Fisheries
  so I was
  asked about Transport Projects and I said we have a 10 year plan
  that need to
  be completed. However, we did not have finance and manpower it
  was paid
  by Mr Leo Moore not short listed company.

  I did not prepare the final short list.

  While in Hong Kong I told the company representative to let the
  Prime
  Minister, Minister for Finance and the other senior ministers
  know of their
  investment proposal in PNG.

  According to me I did not hide anything and I told them, if you
  want to invest
  for the trip and accommodation while in Taiwan and Hong Kong. I
  did this
  after learning that it was a PAP fishing trip. Therefore, I

• Page 137 of 397

• notified the
  Ombudsman in writing about who was paying for the trip and
  accommodation
  while in Taiwan and Hong Kong. I did this after learning it was a
  PAP fishing
  trip.” [F.XHIBIT 257, page 3]

  The Ombudsman Commission, with respect, does not consider Mr Temo’s
  explanation to be satisfactory. We find it difficult to believe that
  a Minister

  of the State would legitimately travel overseas without knowing what
  the
  purpose of the trip was.

  As to the claim that he advised the Ombudsman Commission of the trip
  and who was paying for it, we refer to a letter dated 28 March 1991
  received by the Commission from Mr Temo:

  Mr Temo stated:

  ‘Thank you for your very helpful Leadership Manual received
  today. I note
  that I must declare to the Commission every time I leave for
  overseas be it
  official or unofficiaL

  I therefore wish to inform the Commission that from the 22
  February, 1991 until
  4 March, I was on an official visit paid for by M.T.L
  Organisation. This trip
  was approved by the National Government to lead a delegation to
  Taiwan.’
  [EXHIBIT 68B]

  Chapter 12

  126
  [12.8] POOR ADMINISTRATION BY THE MINISTER FOR TRANSPORT

  One thing is certain: irrespective of whether Ministers and
  other
  Government officials breach the Leadership Code when they

• Page 138 of 397

• accept
  benefits such as free travel, free accommodation and gifts
  from foreign
  enterprises, it is a very bad administrative practice.

  It undermines the integrity of the decision-making processes
  of
  Government. It creates the impression that to get Government
  approval for
  a project in Papua New Guinea, it is necessary to be on
  friendly terms
  with the right Minister. It attracts the wrong sort of
  foreign investors to
  Papua New Guinea. It creates a bad image of Papua New Guinea.

  If this sort of administrative practice continues, instead of
  honest and
  genuine investors coming to our country, we will be overrun
  by fly-by-
  night operators, only too willing to bypass normal procedures
  in the quest
  for easy money for themselves and not for the People of Papua
  New
  Guinea. Papua New Guinea has had enough of them already.

  Since it is not in the best interests of the People of Papua
  New Guinea
  and our country, such practices must be stopped at all costs.

  [12.9] WHAT HAPPENED DURING THE TRIP TO TAIWAN AND HONG KONG?

  Mr Moore testified that Messrs Temo, Noaio, Beu and Maravis
  spent three
  days in Taipei, followed by four days in Hong Kong.

  Three days in Taipei

  In Taipei, the members of the PNG “delegation” were
  entertained by Mr
  Moore.

  Chapter 12

  127
  Mr Moore testified that during this visit there was a lot
  of talk about road
  projects, particularly “the 8.8 km road in Port Moresby”,
  as well as other
  investment opportunities in Papua New Guinea. The Papua
  New Guinea
  people described their country as a good place to invest –
  particularly in

• Page 139 of 397

• mining, oil, fishery and forestry projects – but they said
  the road network
  was not very good and that is why Papua New Guinea is a
  poor country.

  Mr Moore told the Minister for Transport he would like to
  come to Papua
  New Guinea and see the country for himself.
  Four days in Hong Kong

  After spending three days in Taiwan the group from Papua
  New Guinea
  travelled to Hong Kong, leaving Mr Moore behind. Mr Moore
  stated that
  throughout their stay in Hong Kong, the group from Papua
  New Guinea
  was looked after by Mr Leung of Outlet Year Ltd. He said
  that, as it was
  Chinese New Year, much of the time was taken up in social
  activities and
  the group from Papua New Guinea was housed at the Sheraton
  Hotel.

  It was during this visit to Hong Kong that Mr Temo, in his
  capacity as
  Minister for Transport, signed a quite extraordinary
  document: a
  “memorandum of agreement” for the construction of the
  Southern
  Highlands-Kikori Road. [EXHIBIT 58]

  [12.10] THE MEMORANDUM OF AGREEMENT FOR THE CONSTRUCTION OF
  THE SOUTHERN HIGHLANDS – GULF ROAD

  The Minister for Transport, Mr Temo, signed this agreement
  in Hong Kong
  on 12 February 1991, on behalf of “the Ministry of
  Transport, National
  Government of Papua New Guinea”. The other signatory was
  Mr Leung
  Keung, who entered into the agreement on behalf of Outlet
  Year Ltd of

  Chapter 12

  128

  Hong Kong. The document was witnessed by Mr Aaron Noaio, the
  Member for Gulf Province and Mr To Ken Chung (Mr Leo Moore’s
  godfather).

• Page 140 of 397

• Terms of the agreement for the construction of the Southern
  Highlands
  Gulf Road

  The terms of this agreement, which appeared under the letterhead of
  Outlet Year Ltd, were as follows:

  ‘MEMORANDUM OF AGREEMENT

  ‘KNOW ALL MEN BY THESE PRESENTS:

  This Memorandum of Agreement is entered into and executed this
  12th day of
  February, 1991, by and between:

  Ministry of Transport, National Government of Papua New Guinea
  with
  principal offices of P.O. Box 457 Konedobu, National Capital
  District, Papua
  New Guinea represented by Hon. Anthony Temo, Minister for
  Transport
  (hereinafter referred to as NPG).

  and

  Outlet Year Limited, a duly registered Hong Kong Corporation
  with principal
  offices at No. 20, HOK Yuen Street, Block FL 3/F Hunghom,
  Kowloon, Hong
  Kong, herein represented by Mr Leung Keung, Managing Director
  (hereinafter
  referred to as HK).

  1NITNESSETH:

  WHEREAS, the National Government of Papua New Guinea has fully
  authorized NPG to implement an Infrastructure Development Plan

  WHEREAS, NPG is willing to undertake this job per engineering
  details and
  specifications, contained in the NPG’s Cost Study (Gulf-Southern
  Highlands
  Province – ERAVE to KEREMA [sic]).

  WHEREAS, NPG has found the credentials of HICG to be financially
  qualified
  and technically capable to execute this project in a manner
  consistent with the
  technical standards set forth by engineering standards.

• Page 141 of 397

• WHEREAS, HEW has offered to undertake construction of this
  project.

  NOW, THEREFORE, for and in consideration of the above premises
  and of the
  mutual covenants heretofor set forth, the parties have agreed,
  as they hereby
  agree, on the following terms and conditions:

  Chapter 12

  129

  1. PROJECT

  NAME Southern Highlands Kikori Road

  LOCATION From ERAVE to KIKORI

  SPECIFICATION AND INSPECTION
  Per Cost Study (Gulf-Southern
  Highlands Province – ERAVE to KEREMA)

  DURATIONFrom May 1st, 1991 to May 1st, 1993.
  BONUS AND PENALTY.

  2. CONTRACT PRICE : HKG shall submit within 60 days after
  signing of this Memorandum a price, to
  be forwarded to and acceptable to PNG.

  3. PAYMENT Payment plan to be negotiated between
  PNG and HKG on an equitable and
  acceptable basis to both parties

  4. PERFORMANCE Upon signing of Contract by both parties
  BOND MG shall provide to PNG a
  Performance Bond in the form of cash,
  bank guarantee or other form of
  guarantee acceptable to PNG, for an
  amount not less than 10% of the Contract
  value, to warrant the performance of
  EKG’s obligation under the Contract
  (Gulf-Southern Highland Province –
  ERAVE TO KEREMA). This

• Page 142 of 397

• Performance Bond shall be returned
  HKG without interest, when HKG shall
  have fulfilled its obligations under the
  Contract.

  5. FORCE MAJEURE HKG is not responsible for delay or non-
  performance of its contractual obligation
  to construct, caused by war, blockade,
  revolution, insurrection, civil commotion,
  riots, mobilization, strikes, Act of God,
  plague, or other epidemic, fire, flood,
  action or acts of government or public
  enemy.

  Chapter 12

  130

  6_ CANCELLATION & : PNG may cancel the Contract, and
  ALTERATION OF confiscate the Performance Bond,
  if
  CONTRACT IIKG is unable to deliver in
  accordance
  with the stipulated time schedule
  or
  breath of Contract.

  Postponement or alteration of the
  Contract if required, should be
  agreed
  by both parties in writing.

  IN WITNESS WHEREOF, the parties hereto have hereunto
  affixed their
  signatures at Hong Kong this 12th day of February
  1991.

  MINISTRY OF TRANSPORT

  [signed]

• Page 143 of 397

• HON. ANTHONY TEMO
  MINISTER FOR TRANSPORT

  WITNESS: MEMBER OF PARLIAMENT

  [signed]

  HON. AARON NOAIO
  MP For Gulf Province

  For and on behalf of

  OUTLET YEAR LIMITED

  [signed]

  Authorized Signature

  LEUNG KEUNG
  MANAGING DIRECTOR

  WITNESS:

  [signed]
  TO KEN CHUNG” [EXHIBIT 58]

  [12.11] THE AGREEMENT OF 12 FEBRUARY 1991 DID NOT MAKE SENSE

  Any person with a basic knowledge of contracts and the
  English language
  would realise that this document is very poorly drafted. The
  grammar is
  atrocious and, in places, the document just does not make
  sense. For

  Chapter 12

  131
  instanLe though the subject of the agreement is described
  in Clause 1 as
  “Southern Highlands Kikori Road from Erave to Kikori”,
  there are three sai
  other references in the document to the “Erave to Kerema”
  Cost Study or
  Contract.

• Page 144 of 397

• 1111

  The Ombudsman Commission is left wondering whether the
  parties to this
  agreement actually knew what they were agreeing to. In
  view of this, it is
  very doubtful whether the agreement could have ever been
  regarded as
  valid or enforceable.

  But that does not, in our view, excuse the Minister for
  Transport for his
  actions in signing this agreement.

  [12.12] THE PROPRIETY OF THE MINISTER FOR TRANSPORTS ACTIONS

  In the opinion of the Ombudsman Commission, it is very
  embarrassing for
  our country when persons holding official positions sign
  documents as
  amateurish as the agreement for the construction of the
  Southern
  Highlands-Kikori Road. It is terrible administration for
  any office-holder,
  particularly a Minister of the State, to unilaterally
  decide to enter into such
  agreements.

  The Ombudsman Commission believes that whenever any
  Minister goes
  overseas to engage in negotiations on behalf of Papua New
  Guinea, he
  should be accompanied by at least one senior Departmental
  adviser. If
  that had happened in this case, we have no doubt the
  Minister for
  Transport would have been advised not to sign the
  agreement for the
  construction of the Southern Highlands-Guff Road.

  Having said that, the Ombudsman Commission still finds it
  remarkable
  that, during the course of being entertained by foreign
  businessmen, and

  Chapter 12

  132

  while outside Papua New Guinea, the Minister for Transport

• Page 145 of 397

• would have
  signed an agreement for the carrying out of an extremely
  important
  national road project without the advice or knowledge of the
  Department
  of Transport or the Government he was supposed to be
  representing.

  This sort of thing simply should not happen. It raises
  questions of legal
  authority and breeds the atmosphere and environment ripe for
  bribery
  and corruption.

  [12.13j COULD THE MINISTER’S ACTIONS BE JUSTIFIED?

  During the course of this investigation, the Ombudsman
  Commission
  questioned the former Minister for Transport on his actions.
  He agreed he

  had been to Hong Kong and signed the Memorandum of
  Agreement. In
  his view, however, he had done nothing improper. His
  explanation was

  that it was not intended to be a binding document:

  “While in Hong Kong I signed a couple of pages
  documents as memorandum
  of understanding. This a Chinese Government policy that
  before they leave
  to go out of R.O. China it is a mandatory that they
  must have some form of
  agreement of some sort so they be allowed to leave
  their country. They had
  no choice but to show their Government information why
  they were leaving
  for PNG. I was authorised by NEC to negotiate on Burns
  Peak Road.

  Therefore, I had some authority to negotiate not make a
  decision. The
  Department was made known as usual.”
  [EXHIBIT 257, pages 3-4]

• Page 146 of 397

• In the opinion of the Ombudsman Commission, that is not a
  satisfactory
  explanation.

  A Minister should not sign any document which purports to
  bind himself
  or his Department or the Government of Papua New Guinea to
  any course
  of action unless he has been expressly and lawfully
  authorised to do so.
  L

  Chapter 12

  133

  There is no evidence, as Mr Temo claims, that he was
  authorised by the

  National Executive Council to conduct any negotiations.
  Nor is there any

  evidence he advised the Department of Transport what he
  was doing.

  The Secretary for Transport’s evidence was to the
  contrary. 11

  The Minister for Transport had no authorisation to conduct
  negotiations 11

  concerning the Southern Highlands-Gulf Road or the Spring
  Garden

  Road/Poreporena Freeway project. He had no right to sign
  this

• Page 147 of 397

• document He signed it without the advice or knowledge of
  his

  Department or the National Executive Council. tt was very
  wrong of him to

  sign it.

  [12.14] OTHER EVIDENCE OF OUTLET YEAR LTD’S INTEREST IN PAPUA NEW

  GUINEA

  a

  Mr Leo Moore’s oral evidence of Outlet Year Ltd’s interest
  in Papua New

  Guinea is corroborated by three documents that the
  Ombudsman

  111
  Commission has obtained:

  a
  (i) A letter from Outlet Year Ltd. dated 12 February
  1991, to the then

  Prime Minister. Mr Rabbie Namaliu. The letter states:

  ‘Your Excellency:

• Page 148 of 397

• A delegation from your Government headed by
  Hon. Anthony Temo,
  Minister for Transport, approached our Company
  seeking funds and
  technical assistance to develop – an
  infrastructure Development Plan –
  in your country Papua New Guinea. We are
  interested to invest up to
  US Dollars 5 billion in Papua N. G.

  As per our meetings, [with Mr Terns)] we wish
  to design and build
  Southern Highlands ICikori Road and Burns Peak
  Road in Port Moresby.
  We shall build these roads under a Turnkey
  arrangement, which means
  we shall supply manpower as well as financing.
  111

  Should your Government endorse this idea,
  please send me an
  invitation so our delegation consisting of the
  undersigned and Mr
  Steven Zohr and Mr Leo Moore, could assist your
  Country in the
  nearest future.

  Chapter 12

  1111

  134

  We are taking this as a matter of urgency and priority,
  and hope to
  meet you personally.

  Respectfully yours,
  [signed]
  LEUNG ICEUNG
  MANAGING DIRECTOR”

• Page 149 of 397

• This letter was marked:

  “c.c. His Excl. Ted Biro [sic], Deputy Prime Minister
  His Excl. Sir Michael T. Samare, [sic], Foreign Minister
  His Excl. Hon. Paul Bora [sic], Finance Minister
  His Excl. Hon Anthony Temo, Minister for Transport’.
  [EXHIBIT 57]

  (ii) A letter from Outlet Year Ltd dated 13 February 1991 to Mr
  Temo
  (also addressed to Deputy Prime Minister Mr Ted Diro, who was
  described as the Acting Transport Minister).

  This letter was headed “Application for pre-qualification of
  Southern
  Highlands Kikori Road’ and states:

  “We wish to design and construct Southern Highlands/
  Kikori Road in
  Port Moresby [sic] under a Turnkey arrangements which
  means we will
  supply manpower and finance’. [EXHIBIT 59]

  (iii) Another letter from Outlet Year Ltd dated 13 February 1991 to
  Mr
  Temo (also addressed to Mr Diro).

  This letter was headed “Application for Pre-qualification of
  Bums
  Peak Road” and states:

  ‘We wish to design and construct Burns Peak Road in Port
  Moresby
  under a Turnkey arrangements which means we will supply
  manpower
  and finance”. [EXHIBIT 60]

  Chapter 12

• Page 150 of 397

• 135

  [1215] THE TRIP TO TAIWAN AND HONG KONG WAS A VERY BAD PIECE OF
  ADMINISTRATION

  The three letters from Outlet Year Ltd were written at the
  time of the
  Minister for Transport’s visit to Hong Kong. When the
  letters are
  considered, together with the signing of the “Memorandum
  of Agreement”
  for the Southern Highlands-Gulf road, they show that, by
  shortlisting Outlet
  Year Ltd, the Minister had given that company favoured
  treatment.

  It would not be unreasonable for any person knowing these
  facts to
  wonder whether the Minister’s actions were a result of his
  trip to Hong
  Kong and Taiwan.

  The Minister had compromised his own impartiality by
  allowing his airfares
  and accommodation to be paid by foreign enterprises at a
  crucial time in
  the decision-making process.

  By taking it upon himself to become actively involved in
  the selection of a
  contractor for the Spring Garden Road/Poreporena Freeway
  project the
  Minister had a duty, as a matter of administration, to be
  totally impartial in
  his evaluation of the competing proposals. Not only that,
  he had to be
  seen to be totally impartial and objective.

  The Minister for Transport failed, in our view, to fulfil
  this basic
  administrative duty. The trip to Taiwan and Hong Kong and
  the signing a
  of the agreement on 12 February 1991 was a very bad piece
  of
  administration.

• Page 151 of 397

• Chapter 12

  [12.16] THE FINANCIAL STATUS OF OUTLET YEAR LTD136

  The three Outlet Year Ltd letters referred to
  earlier give the impression
  that the company is large and influential, with
  huge financial resources at
  its disposal. Mr Leo Moore’s evidence, however,
  suggests that this was far
  from being the case.

  Mr Moore testified that Outlet Year Ltd was quite
  a small company which
  simply did not have the sort of money to invest in
  Papua New Guinea it
  made out it had. He said this had first been
  brought to his attention in a
  facsimile message received on 27 March 1991 from a
  business adviser, Mr
  Stephen Zohr. [EXHIBIT 68]

  Mr Zohr was concerned about the uncertain
  financial background of Outlet
  Year Ltd and advised Mr Moore to be cautious in
  making any decisions
  about investing in Papua New Guinea.

  [12.17] OUTLET YEAR LTD HAD NO EXPERTISE IN ROAD PROJECTS
  AND NO
  EXPERIENCE IN PAPUA NEW GUINEA

  Mr Moore further testified that Mr Leung, of
  Outlet Year Ltd, had realised,
  soon after he wrote those letters, that his
  company would find it very
  difficult to raise the finances necessary to
  undertake projects such as
  Spring Garden Road and the Southern Highlands-Gulf
  Road. Mr Moore
  stated that the Minister for Transport, in all of
  his negotiations, had insisted
  on a 10% performance bond being given to the
  Government of Papua

• Page 152 of 397

• New Guinea.

  Nevertheless, Outlet Year Ltd continued to be
  involved in the negotiations,
  at least until July 1991. And it was not until
  September 1991 that the
  company formally dropped out of the negotiations
  (see Chapter 13).

  Chapter 12

  137

  The Ombudsman Commission was unable to question Mr Leung in
  the
  course of this investigation. However, on the basis of
  evidence available,
  we are satisfied that Outlet Year Ltd was quite a small
  company with no
  expertise in road construction or design and no prior
  experience in Papua
  New Guinea.

  THE MINISTER FO9 TRANSPORT AND MR LEO MOORE

  [12.18] MR LEO MOORE’S FIRST VISIT TO PAPUA NEW GUINEA

  Mr Moore first came to Papua New Guinea in May 1991. He was
  accompanied by his wife, Ida Moore, and Mr Leung of Outlet
  Year Ltd.
  They were met at Jacksons Airport by the four men who formed
  the
  delegation to Taiwan and Hong Kong in February 1991. Mr
  Moore said
  that on the second day of their visit, they had a meeting
  with the Minister
  for Transport to discuss the Spring Garden Road project. The
  cost was
  estimated to be US$50 million.

  The Minister wanted the Outlet Year consortium to build the
  road first and
  to pay them 5 to 10 years later. But Mr Leung was not very
  interested.
  In fact, he went home early, while Mr and Mrs Moore stayed
  behind for
  another week. During this time, the Minister introduced Mr
  Moore to the
  then Deputy Prime Minister and Minister for Fisheries and
  Marine

• Page 153 of 397

• Resources, Mr Akoka Doi, and various other investment
  projects were
  discussed.

  Chapter 12

  138

  [12.19] MINISTER FOR TRANSPORT APPEALS FOR LOAN FUNDS ON BEHALF
  OF PAPUA NEW GUINEA

  Before he returned to Hong Kong, Mr Moore was handed a
  letter from the
  Minister, under Ministry of Transport letterhead, in
  which he asked Mr
  Moore to arrange a loan to develop Papua New Guinea’s
  “ten year
  development plan”. The Ombudsman Commission obtained a
  copy of this
  letter. It is dated 24 May 1991 and reads as follows:

  “Mr Leo Moore,

  Papua New Guinea is a Country, full of all Natural
  Resources renewable and
  non renewable.

  At this stage Papua New Guinea requires Financial
  assistance badly.

  Our Economy will pick up in 1993 onwards.

  Until then Papua New Guinea requires at least US$50
  million dollars in
  infrastructure development in the next five (5)
  years from 1992 or sooner the
  better.

  Should you require my department’s ten (10) year
  development plan I will bring
  it with me.

  By this letter I am appealing on behalf of PNG
  Government that you arrange
  for a loan in kind or cash to develop and implement
  our ten (10) year

• Page 154 of 397

• development plan.

  Should you arrange for same, please try to make the
  loan finance cheaper than
  Asian Development bank and World Bank.

  I thank you and your group in advance, with kind
  regards.

  [Signed)
  ANTHONY TEMO
  Minister for Transport” [EXHIBIT 871

  The purpose of this letter was to enable Mr Moore to go
  back to Taiwan
  with some proof he had negotiations with a Minister of
  the State in Papua
  New Guinea.

  chapter 12

  139 II

  [12.20] MR MOORE RETURNS TO TAIWAN AND NEGOTIATES DIRECTLY WITH
  THE SSDI

  Mr Moore testified that, on his return to Taiwan in May
  1991, he contacted
  Mr Leung in Hong Kong and told him that, despite Mr Leung’s
  reservations, he was still very keen to see the Port Moresby
  road project
  go ahead, with the assistance of the SSDI.

  Mr Moore then started (with Mr Leung’s knowledge) to
  negotiate directly
  with Mr Lee Chong Chan, who was the link-man between the
  SSDI and
  the Government in Bejing. These negotiations resulted in the
  Bejing
  Government approving a visit to Port Moresby by
  representatives of the
  SSDI in July 1991.

  [12.21] ANOTHER VISIT TO HONG KONG BY THE MINISTER FOR TRANSPORT

• Page 155 of 397

• Prior to the visit to Port Moresby by the SSDI observation
  group, the
  Minister for Transport made another unofficial trip to Hong
  Kong, at Mr
  Leo Moore’s expense.

  This visit took place between 7 and 14 June 1991. The
  Minister was
  accompanied by his wife, whose airfare was paid for by Mr
  Leo Moore;
  the Minister for Transport had his own airfare on this
  occasion. The
  Minister and his wife again stayed at the Sheraton Hotel and
  all their
  expenses in Hong Kong, including meals and accommodation,
  were paid
  for by Mr Leo Moore.

  Chapter 12

  140

  [12.22] MINISTER FOR TRANSPORT HOLDS PRIVATE DISCUSSIONS WITH
  TOPBAY INVESTMENT LTD IN HONG KONG

  During this visit to Hong Kong, the Minister for Transport
  met with Mr Leo
  Moore and six representatives of a Hong Kong-based company
  called
  Topbay Investment Ltd.

  Mr Moore testified they had discussed the Spring Garden Road
  project for
  almost two days. Mr Moore arranged the meeting himself. By
  this stage,
  he had formed the view that Outlet Year Ltd may not have the
  ability to
  undertake the Spring Garden Road project. He had had
  previous business
  dealings with Topbay Investment Ltd and saw them as a good
  substitute
  for Outlet Year Ltd.

  The Ombudsman Commission asked Mr Moore whether Topbay
  Investment Ltd had any experience in road construction or
  design: they
  did not. The company had never done any business in Papua
  New
  Guinea and none of the company’s principals had ever been to

• Page 156 of 397

• Papua
  New Guinea.

  [12.23] EVIDENCE OF THE MINISTER FOR TRANSPORT’S PRIVATE
  DISCUSSIONS IN HONG KONG

  In the course of this investigation the Ombudsman Commission
  obtained
  from Mr Temo, a copy of a letter from Topbay Investment Ltd
  addressed
  to the Secretary for Transport, dated 14 June 1991. The
  letter reads:

  Chapter 12

  141

  “My Dear Secretary,

  Re: Burns Peak Freeway

  Please enclose our proposal as requested.

  We would like to show our interest to support
  funding this Freeway project
  subject to all details of construction plan will be
  released to us as soon as
  possible.

  Funding [illegible] US$50,000,000.00 (US Dollars,
  Fifty Million) will be available
  on receipt of our acceptance notification from PNG
  Government.

  Final terms and condition to be discussed on
  acceptances of our proposaL

  Note: The Company has changed from Outlet Year
  Company to Topbay
  Investment Ltd.
  Thank you and we are waiting your favourable reply.

  Yours sincerely,
  [Signed]
  W.C. Dave Kwok
  Group General Manager”
  [EXHIBIT 89]

• Page 157 of 397

• The date of this letter coincides with the date of the
  Minister’s visit to
  Hong Kong, which the Commission has confirmed by checking
  the
  Minister’s passport.

  We are satisfied, therefore, that the evidence given by Mr
  Leo Moore as
  to the Minister’s visit to Hong Kong between 7 and 14 June
  1991 is true
  and correct.

  [1224] WRONG CONDUCT BY THE MINISTER FOR TRANSPORT

  We have emphasised how important it is for Ministers of
  the State not to
  go on privately sponsored overseas trips, especially when
  they are
  provided by foreign enterprises which may expect to reap
  rewards by
  showing hospitality to a Minister.

  Chapter 12

  111

  142

  In our preliminary report, we suggested it was wrong for Mr
  Temo to
  make this second trip to Hong Kong. His response was as
  follows:

  “I met the expenses for my second trip to Hong Kong,my
  wife’s expenses were
  paid for by Mrs L Moore and were on a family business
  trip.
  While there I may have talked to somebody about Burns

• Page 158 of 397

• Peak as a total 10 year
  plan. However, the trip was for my private co. business
  and I have also advised
  the Ombudsman Commission about that trip.” [EXHIBIT 257,
  page 4]

  Mr Temo’s excuse that he was on a family business trip is
  not considered
  acceptable. As the Minister who had assumed primary
  responsibility for
  the Spring Garden Road/Poreporena Freeway project, he
  compromised
  his impartiality by accepting the benefits associated with
  this trip from an
  associate of one of the companies bidding for the project.
  There is also
  no evidence that the Department of Transport knew anything
  about the
  trip or the negotiations the Minister had with Topbay
  Investment Ltd.

  In the circumstances, it was wrong of Mr Temo to conduct
  these
  negotiations. It was another very bad piece of
  administration.

  CHINESE CONSORTIUM VISITS PORT MORESBY

  [12.25] SSDI VISITS PORT MORESBY IN JULY 1991

  An observation group from the Second Surveying & Designing
  Institute
  visited Port Moresby from 6 to 10 July 1991 – just a week
  before the
  Ministerial Committee decided to favour their proposal. The
  group, which
  consisted of about seven engineers, was led by Mr Sun Young
  Hse, who
  described himself as the “Executive Director on behalf of
  the Observation
  Group of the Second Surveying and Designing Institute
  Ministry of
  Railways”. [EXHIBITS 95, 96, 102B].

• Page 159 of 397

• Chapter 12

  143

  Mr Moore, his wife Ida Moore, Mr Leung and Mr Leung’s son
  also
  travelled to Port Moresby for the occasion. Mr Moore said
  that his group
  and the SSDI group were met at the Port Moresby Travelodge
  Hotel by
  the Minister and they spent considerable time inspecting the
  route of the
  Spring Garden Road/Poreporena Freeway project.

  12.26] CONFUSING ASPECTS OF THE OBSERVATION GROUP’S VISIT

  The Ombudsman Commission wonders why Mr Leung of Outlet Year
  Ltd
  would have made this trip to Port Moresby, in view of Mr
  Moore’s
  evidence that Mr Leung had already realised his company
  didn’t have the
  financial capability to undertake the project. There are also
  other aspects
  of the SSDI’s visit that the Ombudsman Commission finds very
  confusing:

  Evidence obtained by the Commission suggests that
  another
  agreement was signed by the Minister for Transport
  during
  the visit of the Chinese consortium. However, no such
  agreement appears in the files of the Department of
  Transport.

  We are also confused by the fact that two different
  proposals
  for the design, finance and construction of the freeway
  appear to have been submitted around this time on
  behalf
  of the Chinese consortium.

  Chapter 12

• Page 160 of 397

• 144

  [12.27] WERE ANY AGREEMENTS SIGNED DURING THE VISIT BY THE
  CHINESE CONSORTIUM?

  Mr Leo Moore testified that during the July 1991 visit by
  the Chinese
  consortium, the Minister for Transport signed a document,
  about two or
  three pages in length, which summarised the financial
  terms on which the
  Government of PNG would engage the consortium.

  The document was also signed by Mr Zhu Chuanhua, a member
  of the
  SSDI observation group. [A copy of a business card in the
  name of this
  person is located in the Department of Transport’s files:
  EXHIBIT 102B]

  According to Mr Moore, the signing of this agreement took
  place at the
  Port Moresby Travelodge Hotel.

  Mr Moore described this document as a “pre-agreement”. The
  Ombudsman Commission has tried unsuccessfully to obtain a
  copy of it.
  The document is not in the Department of Transport’s
  files. But, there is
  a reference to it in a letter to the Minister for
  Transport from the China
  Huashi Enterprises Corporation dated 6 September 1991.

  This letter reads:

  Your Excellency,

  Attached please find a CERTIFICATE issued by Bank of
  China Chengdu
  Branch, which we hope will provide you with a brief
  description of our firm’s
  financial status. We, China Huashi Enterprises Corp,
  (CHECO) joint with the
  Second Surveying & Designing Institute, Ministry

• Page 161 of 397

• Railways are very willing
  and fully capable to undertake the surveying,
  designing and construction of the
  proposed Spring Garden Road Link project

  In order to release current traffic congestion as
  soon as possible based on
  suggestion made by observation group of the Second
  Surveying & Designing
  Institute, Ministry of Railways, the proposed road
  will be constructed in
  following stages.

  Chapter 12

  145

  1. completion of engineering survey, design
  and geological work of above
  road project;

  construction of the first of a twin tunnel
  through the Burns Peak;

  3. construction of the missing sections (i.e.
  nonexisting sections) along the
  proposed route from Moresby Harbour in
  Konedobu to Jackson Airport;

  4. construction of the second of the twin
  tunnel and upgrading the
  existing road to 4-lane highway.

  If you agree the above-mentioned arrangement in
  principle, we intend to sign
  a main contract of contracting the Spring Garden
  Road Link project with you
  based on the Pre-agreement signed by you and Mr
  Zhu Chuanhua in P.N.G.
  And then to sign execution sub-project contract
  stage by stage, and provide you
  Bank Guarantee according to the stipulization of
  sub-project contract

  Please do not hesitate to contact us should you
  desire more information about

• Page 162 of 397

• our firm or clarification of the points in this
  letter.

  With best regards.

  Yours sincerely,

  Liu Shouning Mau Shesheng
  Deputy General Manager Second Surveying
  & Des-
  China Huashi Enterprises Corp. igning
  Institute, Ministry
  of
  Railways.” [11XIIIBTY 106]

  [12.28] WHAT IS THE CHINA HUASHI ENTERPRISES CORPORATION?

  Mr Leo Moore stated that this was another agency of the
  Peoples’

  Republic of China – a Government company closely linked
  with the SSDI.

  In Mr Moore’s view it was not unusual that the letter
  of 6 September 1991

  had come from it, rather than the SSDI, because the
  SSDI is not itself

  authorised to enter into contracts outside China. Only
  a company such as

  the China Huashi Enterprises Corporation can do this,
  he said.

  Chapter 12

  146

• Page 163 of 397

• [12.29] THE MINISTER HAD SIGNED A PRE-AGREEMENT

  The letter of 6 September 1991 confirms Mr Moore’s evidence
  as to the
  signing of some form of “pre-agreement” by the Minister for
  Transport
  during the visit of the SSDI in July 1991.

  When we made this finding in our preliminary report, it was
  not disputed
  by Mr Temo.

  In the opinion of the Ombudsman Commission it was wrong of
  Mr Temo
  to sign any “pre-agreement’. He had no authorisation from
  the National
  Executive Council to conduct negotiations, let alone sign an
  agreement.
  Even the so-called Ministerial Committee on Spring Garden
  Road had not
  authorised its signing. The Minister signed the agreement
  without the
  knowledge or advice of his Department.

  CONFUSION CAUSED BY LODGMENT OF DIFFERENT PROPOSALS

  [12.30] WHAT PROPOSALS WERE ACTUALLY SUBMITTED TO THE
  DEPARTMENT OF TRANSPORT DURING THE COURSE OF THE SSDI’S
  VISIT TO PORT MORESBY?

  As we noted in Chapter 11, it has been impossible to
  precisely ascertain
  which proposals were considered by the Ministerial Committee
  when it
  decided that the project be awarded to the Chinese
  consortium. Most of
  the proposals were lost after they were left in the Minister
  for Transport’s
  office, and the Department of Transport did not keep copies
  of them.

  Chapter 12

  147

  The confusion was made worse by our discovery of two
  different
  proposals on behalf of the Chinese consortium.

• Page 164 of 397

• Of course, it must be appreciated that whenever the term
  “Chinese
  consortium” is used in this report there is bound to be some
  confusion.
  This cannot be avoided because the composition of the
  consortium kept
  changing.

  Even with the benefit of hindsight it has been very
  difficult to ascertain
  which companies comprised the consortium at different times.
  Nevertheless, it is appropriate to always refer to the loose
  grouping of
  companies and individuals as ‘the Chinese consortium”
  because, despite
  frequent changes in its composition, it usually had some
  common
  elements, viz the SSDI and Mr Leo Moore.

  [12.31] THE PROPOSAL BY OUTLET YEAR LTD AND THE SSDI

  The files of the Department of Transport show a joint
  proposal being
  made by Outlet Year Ltd and the SSDI. The proposal was
  submitted
  under cover of a letter on SSDI letterhead addressed to the
  Secretary for
  Transport.

  This letter is undated. Also, there is no date-received
  stamp on it, which
  makes it doubly difficult to determine when it was
  submitted. [EXHIBIT 95]

  In the course of his interrogation by the Ombudsman
  Commission, Mr Leo
  Moore indicated that this letter had been typed on 8 or 9
  July 1991 at the
  Port Moresby Travelodge Hotel. It is poorly written and
  difficult to
  understand. It reads:

  Chapter 12

  148

  “Dear Sir,

  OBSERVATION REPORT (Draft)

• Page 165 of 397

• ON A PROPOSED FREEWAY PROJECT FROM PORT
  MORESBY TO JACKSON’S AIRPORT IN PNG

  It is really a pleasure to send you the Observation Report
  (Draft) on a proposed
  freeway project from Port Moresby to Jackson’s Airport in PNG.
  After having
  received your invitation letter and scrutinizing all relevant
  documents available,
  we, the Second Surveying and Designing Institute, Ministry of
  Railways P.ILC,
  immediately sent a observation group to your beautiful Country,
  (4 Senior
  Engineers and a Senior economist), together with Mr Leung Keung
  (Managing
  Director of Outlet Year Limited) and his partly. From July 6,
  arriving day, to
  July 10, we have made a on-the-spot investigation to the
  proposed freeway
  project. The Observation Report (draft) is attached to the
  Financial Proposal.

  The total project including the tunnel could cost almost US$50
  million are
  included. We believe it is unwise at this stage because the
  traffic lights can
  function just as effectively, but off cause it is negotiable.

  Hence, your government gives the approval of the construction
  of this project
  at a total cost of US$50 million which will become a loan to
  the Government
  in principle with the following Principal terms and conditions.

  Borrow: The Independent State of PNG on behalf of the
  Spring Garden Toll Road Corporation.
  Lender, The Bank of China and our Corporation
  Maturity: 10 years
  Grace Period: 3 years (including construction period)
  Amount: US$50 million (approx K million)
  Interest Rate: Nil
  Commitment Fee: Nil
  Management Fee: Nil
  Performance Bond 10% to be issue by the Bank of China.

  We hope all these reports and conditions for the funding are
  acceptable for
  your requirement.

  With Best Regards.
  Yours faithfully
  [Signed]
  MOORE’S INVESTMENT GROUP
  Sun Young HSE (Executive Director)

• Page 166 of 397

• On Behalf of
  Observation Group of
  The Second Surveying and Designing
  Institute
  Ministry of Railways.” [palIBIT 95]

  This undated letter was accompanied by an “Observation Report’. It
  states:

  Chapter 12

  149

  “This proposal has been prepared in response to an
  invitation from the
  Department of Transport to Outlet Year Ltd to submit
  a proposal for the
  development of the Spring Garden Road through BOT
  system…Outlet Year Ltd
  in joint partnership with the Ministry of Railways of
  People’s Republic of
  China will assume full responsibility to the
  Department of Transport for the
  successfully completion of the required services from
  planning, design,
  financing and implementation.” [EXHIBIT 951

  Curiously, most of this twenty-eight page “observation
  report’ was almost
  exactly the same (i.e. word-for-word) as another document
  the
  Ombudsman Commission obtained during the investigation.
  This other
  document is entitled “Spring Garden Road through BOT
  System Technical
  Proposal Submitted by Topbay Investment Limited Kowloon
  Hong Kong
  June 1991”. [EXHIBIT 91]

  [12,32] THE PROPOSAL BY TOPBAY INVESTMENT LTD

• Page 167 of 397

• The “Technical Proposal” in the name of Topbay Investment
  Ltd is not in
  the files of the Department of Transport. The Ombudsman
  Commission
  was not aware of its existence until it was produced under
  summons by
  Mr Temo. Although the greater part of this document
  [EXHIBIT 91] is
  exactly the same as the “Observation Report’ submitted by
  Outlet Year Ltd
  [EXHIBIT 95] there are significant differences between the
  two documents.

  [12.33] DIFFERENCES BETWEEN TOPBAY PROPOSAL AND THE OUTLET YEAR
  PROPOSAL
  11

  The most obvious difference is in the identity of the
  proponents. Whereas
  the “Observation Report” in the possession of the
  Department of Transport
  refers to Outlet Year Ltd and the SSDI, the document we
  obtained from
  the Minister for Transport states, in the corresponding
  paragraphs:

  Chapter 12

  150

  “This proposal has been prepared in response to an
  invitation from the
  Department of Transport to Topbay Investmented [sic] to
  submit a proposal for
  the development of the Spring Garden Road through the
  BOT system… Topbay
  Investmented [sic] in joint partnership with the
  Ministry of Foreign Economic
  Relations and Trade of the People’s Republic of China
  will assume full
  responsibility to the Department of Transport for the
  successfully completion
  of the required services from planning, design,
  financing and implementation.”
  [EXHIBIT 91]

• Page 168 of 397

• It will be observed that not only is there a different Hong
  Kong -based
  company referred to here, there is also a different agency
  of the Chinese
  Government: the Ministry of Foreign Economic Relations and
  Trade, rather
  than the Ministry of Railways. And at another point in the
  Topbay
  Investment Ltd document, there is a reference to yet another
  mysterious
  entity called the “China Guangzhou International Economic
  and Technical
  Co-operation Company”. [EXHIBIT 91, third last page]

  The “Financial Proposals” included in the two documents are
  also different.
  [Compare EXHIBIT 95, folios 96-101 with the last 3 pages of
  EXHIBIT 91.]

  However, the Topbay and Outlet Year proposals do have some
  things in
  common. They are equally vague and poorly drafted and they
  both
  contain bald assumptions about involvement of Motu-Koita
  landowners in
  the project. They both assume (alarmingly) that as part of
  the deal, the
  Chinese consortium will be awarded contracts for other major
  road
  projects in Papua New Guinea.

  [12.34] THE MYSTERY SURROUNDING THE TWO DIFFERENT PROPOSALS ON
  BEHALF OF THE CHINESE CONSORTIUM IS A MATTER OF SERIOUS
  CONCERN

  Although the bulk of the two proposals was exactly the same,
  they were
  in fact two separate documents. The Ombudsman Commission is
  mystified
  and seriously concerned by the fact that only one of the
  proposals was
  in the possession of the Department of Transport.

  Chapter 12

• Page 169 of 397

• 151

  It is also a mystery why the Topbay Investment Ltd Technical
  Proposal
  was linked with a Ministry of the Chinese Government different to
  the one
  which had consistently been referred to in earlier documentation.

  Even after closely examining the files of the Department of
  Transport and
  questioning two of the key persons in the negotiations at length
  (i.e. the
  Minister for Transport and Mr Leo Moore) it is impossible for us to
  say
  exactly what negotiations had taken place, when they took place and
  with
  whom.

  The mystery surrounding these two proposals is a small indication of
  how
  unprofessionally the whole negotiating process was being handled. tt
  was
  nothing short of a farce.

  The sad thing is that a group of well-intentioned foreign
  businessmen and
  representatives of the Government of the People’s Republic of China,
  were
  being given false expectations by a Minister of the State.

  The Minister was acting without the advice of his Department and had
  assumed far too much control over a decision-making process that
  should
  have been carried out objectively and fairly by other bodies using
  the
  normal and lawful procedures under the Public Finances (Man -gement)
  Act and other laws regulating public works projects (see Part Ill of
  this
  report).

  Chapter 12

  152

• Page 170 of 397

• [12.35] WHAT IMPRESSION WAS GIVEN TO THE CHINESE CONSORTIUM BY
  THE END OF THEIR VISIT IN JULY 1991?

  The Ombudsman Commission has no doubt that the observation
  group
  of the SSDI left Port Moresby at the end of their visit in
  July 1991 with the
  firm belief that, subject to confirmation of financing
  arrangements such as
  the 10% performance bond, they had “won” the contract for
  the Spring
  Garden Road/Poreporena Freeway project.

  This is evident from the undated letter to the Secretary for
  Transport which
  the SSDI delivered just before its departure. It stated:

  “Hence, your government gives the approval of the
  construction of this project
  at a total cost of US$50 million…”. [EXHIBIT 95, page
  1]

  The letter to the Minister for Transport from the China
  Huashi Enterprises
  Corporation of 6 September 1991 was in similar terms:

  “If you agree the above-mentioned arrangement in
  principle, we intend to sign
  a main contract of contracting the Spring Garden Road
  Link project with you
  based on the Pre-Agreement signed by you and Mr Zhu
  Chuanhua in PNG.”.
  [EXHIBIT 106, page 2]

  The Ombudsman Commission questioned Mr Leo Moore as to his
  view of
  the situation at the end of the observation group’s visit.
  He testified that
  the group appreciated the Minister’s decision had to be
  ratified by the
  National Executive Council. But they understood this to be
  only a formality.
  The Minister had told them he foresaw no problems. As long
  as they
  could arrange for a bank guarantee of the performance bond,
  the final
  contract would be signed.

• Page 171 of 397

• Chapter 12

  153

  IMPROPER RELATIONSHIP BETWEEN THE MINISTER AND THE CHINESE
  CONSORTIUM

  [12.36] SUMMARY OF THE RELATIONSHIP BETWEEN THE MINISTER FOR
  TRANSPORT AND THE CHINESE CONSORTIUM PRIOR TO THE
  MINISTERIAL COMMITTEE MEETING OF 18 JULY 1991

  In light of the evidence outlined above, the Ombudsman
  Commission is
  satisfied that, prior to the meeting of the Ministerial
  Committee on 18 July
  1991, the Minister for Transport had formed a very close
  association with
  members of the Chinese consortium.

  In particular we draw attention to the following
  unsatisfactory aspects of
  that relationship:

  1. The Minister had twice been on all-expenses-paid
  overseas trips to
  personally negotiate deals concerning the Spring Garden
  Road/Poreporena Freeway project and other national road
  projects.
  Both trips were paid for by one of the key persons
  involved in the
  bid by the Chinese consortium.

  2. On the first of these trips, the Minister signed a
  contract for
  construction of the Southern Highlands-Kikori Road with
  a company
  that was part of the Chinese consortium. He did this
  without
  authorisation and without the advice or knowledge of the
  Department of Transport.

  3. The first trip took place at the same time the Minister
  himself was
  preparing the shortlist for the Spring Garden Road/

• Page 172 of 397

• Poreporena
  Freeway project.

  Chapter 12

  154

  4. The Minister invited representatives of the Chinese
  consortium to
  Port Moresby on two separate occasions before the Ministerial
  Committee (which he chaired) made its decision on which
  consortium to favour. On both occasions the Minister engaged
  in
  detailed negotiations concerning the Spring Garden
  Road/Poreporena Freeway project, as well as other national
  road
  projects.

  5. On the second visit to Port Moresby by the Chinese
  consortium, the
  Minister signed a “pre-agreement” and gave the clear
  impression
  that, subject to finance, they had won the contract for the
  Spring
  Garden Road/Poreporena Freeway project.

  6. Furthermore, the Minister had formed a personal friendship
  with one
  of the key persons involved in the Chinese bid, Mr Leo Moore.
  This
  friendship was strengthened in the second half of 1991: the
  Minister had another visit to Hong Kong paid for by Mr Moore
  and
  the Minister went into business with Mr Moore.

  By forming this association with the Chinese consortium and entering
  into
  private negotiations without consulting the Department of Transport
  before
  the Ministerial Committee met on 18 July 1991 and before the matter
  was
  considered by the National Executive Council, the Minister for
  Transport,
  Mr Temo, had transformed the decision-making process for the Spring
  Garden Road/Poreporena Freeway project into a sham.

  * * * * * * * * * *

  Chapter 12

• Page 173 of 397

• 155

  13. FURTHER CHANGE IN COMPOSITION OF THE
  CHINESE CONSORTIUM: SEPTEMBER 1991

  [13.1] THE NEGOTIATING PATTERN IN THE FIRST HALF OF 1991

  During the first half of 1991 the Minister for Transport
  had been negotiating
  with a number of different companies and individuals, in
  relation to the
  Spring Garden Road/Poreporena Freeway project. In
  particular, the
  Minister had been negotiating with:

  Mr Leo Moore;

  the Second Surveying and Designing Institute,
  represented
  by Mr Sun Young Hse; and

  Outlet Year Ltd, represented by Mr Leung
  Keung.

  [13.2] WHO ELSE FORMED ‘THE CHINESE CONSORTIUM’?

  However, these were not the only parties that formed,
  what the
  Ombudsman Commission has termed in this report, “the
  Chinese
  consortium”. The following parties were also, at
  different times, involved:

  Topbay Investment Ltd: a Hong Kong-based
  company. The
  proposal endorsed by the Ministerial
  Committee on Spring
  Garden Road was actually in the name of this

• Page 174 of 397

• company.
  [EXHIBIT 99, at page 13]. However, the
  company had never
  conducted business in PNG and the principals
  of the
  company had never been to PNG.

  Chapter 13

  156

  China Guangzhou International Economic and Technical
  Cooperation Company and Ministry of Foreign Economic
  Relations and Trade of the Peoples’ Republic of China:
  referred to as joint partners in the Technical Proposal of
  Topbay Investment Ltd. [EXHIBIT 91] Their role in the
  negotiations is a complete mystery.

  China Ample Development Lid: also linked with Topbay
  Investment Ltd and the SSDI in the summary of proposals
  contained in the draft NEC Submission of July 1991. [EXHIBIT
  99, at page 13, discussed in Chapter 8] However, the name
  does not appear in any other documents in the records of
  the Department of Transport obtained by the for the purposes
  of this investigation. Its role in the negotiations is also a
  complete mystery.

  Moore’s Investment Group: a name used in two letters written
  by Mr Sun of the SSDI. It appears to be a name of
  convenience only, used to describe the consortium, of which
  the SSDI was an integral part.
  [EXHIBITS 95, 110]

  China Huashi Enterprises Corporation: from the evidence of
  Mr Moore, this Chinese Government company is closely linked
  with the SSDI. It was apparently intended that it would
  formally enter into the contract for the Spring Garden project
  Road/Poreporena Freeway with the PNG Government.

  Chapter 13

  157

• Page 175 of 397

• [13.3] THE ROLE OF MR LEO MOORE

  Mr Leo Moore’s role in the negotiations was not well defined,
  but it is clear
  he had an active and vested interest in everything that was
  happening in
  relation to the project.

  The Ombudsman Commission does not suggest there was anything
  illegal
  or improper in Mr Moore’s involvement. He was, however, at
  all times, an
  important link between the Minister for Transport and the
  other parties
  involved.

  [13.4] ANOTHER HONG KONG COMPANY JOINS THE CONSORTIUM

  During September 1991 there was a significant change in the
  negotiating
  pattern: another Hong Kong-based company was appointed to act
  on
  behalf of the SSDI. This company was called Tunson
  Engineering Co Ltd.

  News of this change of plan was conveyed to Mr Temo in a
  letter from the
  SSDI dated 28 September 1991. The letter reads as follows:

  ‘Dear Mr. Temo:

  Our second surveying & designing Institute, ministry of
  Railways Prc. Now
  has pass the burns peak project to our contractor in Hong
  Kong under the
  name of Tnnson Engineering Co. Ltd, 1-3/F, 21-23 Han Wong
  Road, Kowloon
  City, Kowloon Hong Kong. Who has the experience of
  contracting the Mordem
  constructions both in peoples republic of China as well as
  Hong Kong.

• Page 176 of 397

• Chapter 13

  158

  It would be much appreciated if your department will change
  your record
  Accordingly.

  Yours faithfully

  [Signed]
  MOORS INVESTMENT GROUP
  SUN YOUNG HSE (EXECUTIVE DIRECTOR)
  ON BEHALF OF OBSERVATION GROUP OF THE
  SECOND SURVEYING AND DESIGNING
  INSTITUTE, MINISTRY OF RAILWAYS [sic]. [EXHIBIT 110]

  The Minister for Transport made a handwritten note at the bottom of
  the
  letter, dated 10.10.91.

  “SECRETARY

  PLEASE TAKE NOTE OF ABOVE CHANGE AS I HAVE NO OBJECTION AS
  LONG AS THEY ARE MEETING OUR CRITERIA.
  ALSO PREPARE THE FINAL SUBMISSION TO CABINET. WORK CLOSELY
  WITH FINANCE DEPARTMENT.
  THANK YOU
  A. TEMO”. [EXHIBIT 110]

  In his response to the Ombudsman Commission’s preliminary report, Mr
  Temo also claimed that he had asked the Secretary for Transport to
  do
  a company search on all the companies that put in a bid:

• Page 177 of 397

• even instructed the Secretary to send someone to Hong Kong
  to find out in
  case we mislead the NEC.” [EXHIBIT 257, page 4]

  We have been unable to find any evidence to corroborate this claim.

  Chapter 13

  159

  [13.5] SIGNIFICANCE OF CHANGE IN COMPOSITION OF THE CONSORTIUM

  Tunson Engineering Co Ltd was at least the third Hong
  Kong-based
  company to join the Chinese consortium in less than six
  months. In the
  opinion of the Ombudsman Commission, the fact there had
  been yet
  another change in the composition of the consortium should
  have been
  a matter of great concern, both to the Minister for
  Transport and the
  Department of Transport.

  During the course of this investigation, the Ombudsman
  Commission found
  it impossible to identify the precise legal relationships
  between the various
  parties that, at different times, constituted the Chinese
  consortium. We are
  left to wonder how confusing it must have been at the
  time, with
  companies such as Outlet Year Ltd, China Ample Development
  Ltd and
  Topbay Investment Ltd, as well as “Moore’s Investment
  Group”, all being
  linked with the proposal of the SSDI and various other

• Page 178 of 397

• agencies of the
  Chinese Government.

  The addition of Tunson Engineering Co Ltd to the
  consortium in
  September 1991 could only have added to the utter
  confusion that any
  reasonably cautious administrator would have experienced
  at that time.

  [13.6] THE CONFUSION CAUSED BY A FURTHER CHANGE IN THE
  CONSORTIUM SHOULD HAVE LED TO A HALT IN NEGOTIATIONS

  There were some obvious questions to ask about the arrival
  of Tujison
  Engineering Co Ltd:

  Why was the change in composition of the
  consortium
  necessary?

  Chapter 13

  160

  Were the companies previously in the consortium
  disreputable?

  Did they have financial problems?

  If so, what guarantee was there that the same problems
  wouldn’t be encountered with this new company?

  Who was behind Tunson Engineering Co Ltd?

  Was it a reputable company?

  How long had it been established?

  Did it have any experience operating in PNG?

  Had any of its principals been to PNG?

  What was the company’s asset base?

• Page 179 of 397

• Did the company have experience in civil engineering
  projects?

  Was it registered with the National Investment and
  Development Authority (NIDA)?

  It later transpired that the Department of Transport did begin to
  ask some
  of these questions (see Chapter 15). The Minister’s reaction,
  however, was
  not the same as the Department’s.

  Chapter 13

  161

  [13.7] THE MINISTER’S LACK OF CONCERN WAS IRRESPONSIBLE

  The Ombudsman Commission considers that the Minister
  for Transport’s
  direction to the Secretary of the Department of
  Transport on 10 October
  1991 to “take note of the change” and the Minister’s
  comment that he had
  “no objection as long as they are meeting our criteria”
  was an ill-
  considered, inadequate and reckless response to the
  addition of Tunson
  Engineering Co Ltd to the Chinese consortium.

  The Minister for Transport showed a total disregard for
  all the normal and
  proper legal and administrative procedures regulating
  public works projects
  in Papua New Guinea.

  The Minister should have been deeply concerned about
  this development.
  But he was not concerned. Far from it. As we show in
  the next chapter of
  this report, only a few days after advising the
  Secretary for Transport about
  Tunson Engineering Co Ltd, the Minister signed a
  contract with that
  company for construction of the freeway.

  * * * * * * * * * *

• Page 180 of 397

• Chapter 13

  162

  14. MINISTER FOR TRANSPORT SIGNS CONTRACT FOR
  CONSTRUCTION OF FREEWAY: OCTOBER 1991

  [14.1] NEGOTIATIONS WITH TUNSON ENGINEERING CO LTD

  During October 1991, the Managing Director of Tunson
  Engineering Co
  Ltd, Mr Siu Chu Yen, visited Port Moresby and had
  negotiations with the
  Minister for Transport, concerning the Spring Garden Road/
  Poreporena
  Freeway project.

  Mr Siu was accompanied by four other Hong Kong businessmen,
  as well
  as Mr Leo Moore.

  Mr Moore testified that the Tunson group visited Port Moresby
  for one
  week and stayed at the Port Moresby Travelodge Hotel. He came
  on the
  same flight as the Tunson group and returned with them to
  Hong Kong
  in mid-October 1991.

  The Ombudsman Commission is satisfied that the negotiations
  between the
  Minister for Transport and Tunson Engineering Co. Ltd
  occurred without
  the knowledge of the Secretary for Transport, Mr Amini.

  [142] RESULT OF NEGOTIATIONS

  The result of the negotiations was that, on 15 October 1991,
  the Minister
  for Transport, purporting to act on behalf of the Department

• Page 181 of 397

• of Transport,

  Chapter 14

  163

  signed a contract for the construction of the Spring Garden
  Road/Poreporena Freeway. The contract was entered into with
  Tunson
  Engineering Co. Ltd. of Kowloon Hong Kong. [EXHIBIT 115

  THE CONTRACT OF 15 OCTOBER 1991

  [14.3] TERMS OF THE CONTRACT

  The contract dated 15 October 1991 is nine pages in length
  and is entitled:

  ‘CONTRACT AGREEMENT ■
  The agreement for the construction of (Burnspeak-Spring
  Garden Road) (from
  Port Moresby to Jackson Airport [sic].’
  ■

  The document states, amongst other things:

  To change the traffic condition from Port Moresby to
  Jackson airport, design
  the construction of the Spring Garden Road Link project
  from Port Moresby to
  jacksons Airport in PNG.

  From June 1991, we have invited by the Ministry of
  Transport of PNG to realize
  the work and make the agreement as following item.

  A. This agreement will be signed between the
  Transportation of PNG as
  Party A and Tunson Engineering Co., Ltd. as Party.

  B. Project Description:

• Page 182 of 397

• Bl(a) The proposed mad link will start from Moresby
  Harbour in Konedobu,
  along the existing Spring Garden Road crossed the Bums
  Peak saddle (by
  tunnel) and intersects with Wards, Waigani, Boroko Roads,
  and then along the
  Geauta Drive Road intersects with Hubert Murray Highway,
  finally to Jackson
  airport total length 8.8 km.

  B1(b) Based on the economic Assessment for Spring Garden
  Road on Port
  Moresby Road needs study and requirements pointed out by
  the Department
  of Transportation. The main technical standards are as
  follows:

  Chapter 14

  164

  Length of new mad : 4.6 kilometer
  Length of existing mad: 3.5 kilometer
  Number of Lanes : 4
  Width of each Lanes : 35m
  Medium 2m
  Width of each pedestrian
  (earth surface) (for : 3.5 m
  each side, not including
  tunnel)
  Width of Subgrade 23m
  Pavement Bituminous Concret
  Including Traffic Sign Board.’
  [EXHIBIT 115]

  [14.4] A POORLY DRAFTED AND BARELY INTELLIGIBLE DOCUMENT

  This is quite a remarkable document. It purports to be a
  contract for
  construction of the Spring Garden Road/Poreporena Freeway
  project. But

• Page 183 of 397

• it is so vague and poorly drafted, it is difficult to
  believe it was prepared
  by anyone with legal qualifications or, indeed, anyone
  reasonably fluent in
  the English language.

  Mr Moore testified the contract had been drafted and typed
  in a rush, and
  was not finished until the early hours of one morning at
  the Port Moresby
  Travelodge Hotel. This is evident from the quality of the
  document.

  It is riddled with bizarre and barely intelligible terms.
  For example, Clause
  E quotes a total construction cost of US$49,383,000.00.
  Clause F then
  states:

  Not including:

  F(1) Unexpected (nn-limited) cost etc.

  F(2) The cost for land acquisition and removal of
  existing structures,
  houses, electrical power cables, underground
  pipes and cable etc.

  Chapter 14

  165 1

  F(3) Party A shall be responsible for the net profit,
  import materials
  machinery and daily equipment taxes that can be
  omitted.

  F(4) Changing price for the requirements the money or
  other unexpect
  cost.
  From above F(1) and F(4) mentioned about the price
  will be
  written in details in construction agreement.

• Page 184 of 397

• F(5) The construction of channel, drainage, manhole,
  traffic lights and
  all E & M services works.’
  [EXHIBIT 115, page 4]

  It is stating the obvious to say that many of these
  provisions – which
  presumably represent additions to the “total construction
  cost” – simply defy
  comprehension.

  [14.5] THE MINISTER FOR TRANSPORT AGREED TO AWARD OTHER ROAD
  CONTRACTS TO TUNSON

  An alarming part of the Contract is Clause G, which relates
  to ‘Terms of
  Payment”. Its states:

  “G(1) Party A must pay in U.S. dollars and it must make
  promise from bank
  guarantee of (The Bank of Papua New Guinea).

  G(2) Payment to be paid with 10th years including
  construction period. Any
  default over 10th years % (percent) will be charge per
  year.

  G(3) In the meantime, Part A and Part B intend to sign
  other contract.

  G(4) If Party B sign more than one contract with Part A
  (Transportation
  Department of Papua New Guinea Government), the
  aforesaid item of
  G(2) must be voided and payment will according to the
  following
  payment terms, details as shown on G(7), (8), (9).

• Page 185 of 397

• Chapter 14

  166

  G(5) Party B is agree [sic] to sign one more contract for
  45 kilometer [sic]
  of Roadway with Party A (Minis’ try of Transport) Than
  the payment
  must be according to the Original Contract.

  G(6) Furthermore, Party B also intend to sign the another
  contract of
  construction for 147 kilometer length mad link will
  start from Bereina
  to Lae and Malalna to Erave with Party A after their
  future site
  investigation and other preparation works [sic].•
  [EXHIBIT 115, page 4]

  It is apparent from these terms that, in the course of
  negotiating
  construction of the Spring Garden Road/Poreporena Freeway,
  the Minister
  for Transport was also negotiating other road projects,
  including a road
  between Erave, Southern Highlands Province, and Malalaua,
  Gulf Province.

  The Department of Transport was not aware the Minister was
  conducting
  negotiations for the Erave-Malalaua road. Nor is there
  evidence the
  Minister was authorised by the National Executive Council to
  do so.

  [14.6] THE SCOPE OF THE PROJECT IN THE CONTRACT OF 15 OCTOBER
  1991

  The scope of the project is very poorly defined in the
  contract with Tunson
  Engineering Co Ltd.

  Clause B(1)(a), for example, describes the route of the
  proposed road link
  in very general terms and describes the total length as 8.8
  kilometres.

  Clause B1(b) then states the length of new road will be 4.6
  kilometres, and
  the existing road 3.5 kilometres, ie a total of only 8.1
  kilometres: 700

• Page 186 of 397

• metres of road has disappeared in the space of one paragraph.

  Chapter 14

  167

  Clause B1 (b) further states that there will be one
  tunnel, four bridges,

  sixteen cross road drainages and four junctions, but does
  not specify

  where any of them will be.

  These are only a few of the many defects in this woefully
  inadequate

  document The Ombudsman Commission is at a loss to find
  any good

  reason why a Minister of the State would have signed it.

  [14.7] COULD THE MINISTER’S ACTIONS BE JUSTIFIED?

  We emphasised in Chapter 12 that, in the opinion of the
  Ombudsman
  Commission, it is very wrong for any Minister of the
  State to sign contracts

  on behalf of his Department or the Government without
  express

  authorisation.

  In this case, the Minister for Transport repeated the
  mistake he made eight

• Page 187 of 397

• months earlier in Hong Kong: he signed a contract for a
  mufti-million kina

  transport project of national significance, without the
  authorisation of the

  National Executive Council and without the knowledge or
  advice of his

  Department This was unlawful and wrong, and was not in
  the best

  interests of the Government and the State.

  [14.8] WAS THE CONTRACT MERELY A *MEMORANDUM OF

  UNDERSTANDING’?

  The only conceivable way the signing of the contract with
  Tunson

  Engineering Co Ltd could be acceptable is if it were
  regarded as merely

  a record of an “understanding” reached between Mr Temo
  and the

  Managing Director of that company. This was the view
  taken by the

  Department of Transport, when it discovered the signing
  of the agreement.

  Chapter 14

  168

  In his response to our preliminary report, Mr Temo also claimed the

• Page 188 of 397

• contract was only meant to be a memorandum of understanding:

  The Secretary for Transport or in his absence there was always
  someone to
  give me advice in fact we had a morning briefing every week on
  Burns Peak
  and other matters.

  The contract was a documentation of some sort required by Chinese
  Government
  before they leave out of China.

  Because it was mentioned that they did not have office in PNG so
  they required
  a form and reason paper to show their Government so they could
  come again
  to PNG many times. This was very important to them as a
  requirement.’
  [EXHIBIT 257, page 41

  The Ombudsman Commission regards this as a very charitable
  assessment
  of the Minister for Transport’s actions, which were wrong and
  unacceptable.

  The document of 15 October 1991 is entitled “Contract Agreement”.
  Though it is poorly drafted and barely intelligible, it gives the
  appearance –
  at first glance – of being intended to be a binding agreement. It
  has a
  number of specific terms and sets a “total construction cost” of
  US$49,383,000.00. The document has been signed and witnessed in a
  way
  contracts are normally executed.

  The Ombudsman Commission therefore cannot accept that the “Contract
  Agreement” of 15 October 1991 was only intended to be a memorandum
  of understanding.

  Nor do we accept Mr Temo’s spurious claim that it was necessary to
  sign
  the contract, so that members of the consortium based in the
  People’s
  Republic of China would be allowed to leave their country. If there
  were

• Page 189 of 397

• such a requirement, then the only proper way to comply with it was
  to

  Chapter 14

  169
  formally advise and liaise with the Chinese Embassy in Port
  Moresby.
  However, there is no suggestion that that was done.111

  [14.9] THE DANGERS OF ENTERING INTO UNAUTHORISED AGREEMENTS
  WITH FOREIGNERS

  We do appreciate that, in his own mind, the Minister for
  Transport might
  have believed that the contract with Tunson Engineering Co
  Ltd was not
  enforceable without National Executive Council approval. But
  that does not,
  in our view, provide an excuse for his actions.

  When foreign enterprises enter into written agreements with
  Ministers, they
  expect those agreements to be honoured. If the agreements
  are not
  honoured, the time and money of the foreign enterprises can
  be wasted.
  This gives Papua New Guinea a bad name and the investment
  climate
  becomes uncertain, if not bad. Our image abroad is very
  important

  Foreigners who are not familiar with our laws and our
  Constitution won’t
  always understand that the Minister they were dealing with
  had no authority
  to sign the agreement entered into. Nor do they always know
  that an
  agreement will require the approval of the National
  Executive Council or
  a Supply and Tenders Board or the Public Works Committee.
  This is
  especially the case with businessmen from Asia, where
  accepted methods
  of doing business are often different from those applying in
  Papua New
  Guinea.

  In addition to the embarrassment that these *specie’
  agreements with

• Page 190 of 397

• Ministers can cause for the whole Nation when not honoured,
  such
  agreements create an environment for sweetheart deals,
  bribery and
  corruption. It is just plain common sense that Ministers –
  and any other
  persons holding official positions – must not sign these
  documents.

  Chapter 14

  170

  In the opinion of the Ombudsman Commission it was grossly
  irresponsible
  of the Minister for Transport to sign the Contract Agreement
  with Tunson
  Engineering Co Ltd on 15 October 1991.

  [14.10] REACTION OF THE DEPARTMENT OF TRANSPORT TO THE SIGNING OF
  THE CONTRACT WITH TUNSON ENGINEERING CO LTD

  The Department of Transport became aware of the contract
  with Tunson
  soon after it was signed. Not surprisingly, the news that
  the Minister had
  signed a contract for the building of the freeway without
  National Executive
  Council approval caused alarm and bewilderment within the
  Department.

  [14.11] MR HITOLO ADVISES MR AMINI ABOUT THE CONTRACT OF 15
  OCTOBER 1991

  In a minute to Secretary Amini dated 17 October 1991, the
  Director of the
  Policy Secretariat, Mr Hitolo stated:

  ‘… Now I am at a loss, as to how to proceed on this
  project because your verbal
  instruction which is consistent with the World Bank
  advice seem to be in direct

• Page 191 of 397

• conflict with this signed contract agreement.

  I do not know the legality of it but it seems our
  procurement procedures are
  being short-circuited by the use of the delegated powers
  of the NEC in his
  capacity as the Chairman of the Special Ministerial
  Committee on Spring
  Garden Road. Even so, I think there are other legal
  aspects like registration
  of the company in PNG and also the professional
  requirement to practice as
  Engineers in PNG needs to be completed…

  I am trying to get this circulated to the Members of the
  Steering Committee
  so that we are able to get proper advice as to how to
  proceed, because it seems
  our Minister is determined to pursue the project with
  the Chinese. In other
  words, the policy from him is loud and clear as I
  interpreted it, but let us make
  it our business to get the best and the most cost
  effective solution for Papua
  New Guinea.’ [EXHIBITS 117,1181

  Chapter 14

  171

  [14.12] SECRETARY FOR TRANSPORT ADVISES MINISTER TO EXERCISE
  CAUTION

  Shortly after receiving Mr Hitolo’s advice, Secretary Amini
  wrote to the
  Minister in the following terms:

  “My Dear Minister

  I have just browse through an agreement on the Bums Peak
  project (attached)
  which you have signed with the proposed developers.

• Page 192 of 397

• It comes across to me that it may not be accepted as a
  legal binding document
  for the following reasons:-

  As Chairman of the Ministerial Committee, you made
  recommendation for the construction contract to be
  awarded to
  The Second Surveying and Designing Institute,
  Ministry of
  Railways of China’ but the agreement sign is with
  Tunson
  Engineering Co. Ltd, Hong Kong a completely new
  company;

  2. It is my understanding that such agreements are
  between the
  State and the developers, in which case the
  Finance Minister
  or the Governor General is the one that has the
  delegated
  powers to sign;

  3. Some of the conditions and terms are not in the
  best interest
  of the State. Our Attorney General Department
  should review
  the document;

  I am inclined to suggest that perhaps it wads meant to be
  a Memorandum of
  Understanding, in which case you are right to sign but it
  should be made clear
  that it is so, and that it has no legal binding on the
  State.

  On these basis, I would advise you strongly that you do
  not pursue the
  document as an agreement.

  In this regard, I would suggest that you write to the
  developers and advise
  them of this position. I have attached a draft letter for
  your perusal.

  In the meantime, I will seek legal advice from the
  Attorney General Department
  to assist you in dealing with this situation.

• Page 193 of 397

• ale; tiar 14

  172

  I am available to discuss this further with you at your
  convenience.

  Yours sincerely
  [Signed]
  BIC AMINI, CBE
  Secretary’ [EXHIBIT 122 ]

  [14.13] PROPRIETY OF THE SECRETARY’S ACTIONS

  Like Mr Hitolo’s letter to Mr Amini, Mr Amini’s letter to
  the Minister made

  a number of pertinent points about the propriety of the
  Minister’s signing

  of the contract with Tunson. It is, in our view, quite
  proper and necessary

  for the Secretary of a Department to bring such matters to
  the attention

  of his or her Minister.

  Mr Amini deserves praise, at this point, for his prompt
  action in advising

  the Minister to write to Tunson and tell them not to rely on

• Page 194 of 397

• the contract as

  a binding agreement.

  There was one very important matter, however, which Mr Amini
  neglected

  to mention: the signing of the contract was in direct
  conflict with the advice

  of the World Bank. This had been brought to Mr Amini’s
  attention by Mr

  Hitolo and Mr Amini should have spelt it out in clear and
  unambiguous

  terms to the Minister.

  Only a couple of weeks before the Minister signed the
  contract with

  Tunson Engineering Co Ltd, the World Bank had strongly
  advised that the

  Spring Garden Road/Poreporena Freeway project be re-
  tendered. This

  development is documented in Chapter 15.

  Chapter 14

  173

  MINISTER CONTINUES NEGOTIATIONS WITH CHINESE CONSORTIUM

  [14.14] FURTHER DIRECT NEGOTIATIONS BETWEEN THE MINISTER FOR
  TRANSPORT AND THE SECOND SURVEYING AND DESIGNING
  INSTITUTE

• Page 195 of 397

• Though he signed a contract for construction of the freeway
  on 15 October
  1991, the Minister for Transport continued to conduct
  negotiations with the
  Chinese consortium.

  Letter written on 21 October 1991

  On 21 October 1991, the Minister for Transport wrote a
  letter to Mr Zhu
  Chuanmua, a Senior Engineer with the Second Surveying and
  Designing
  Institute and a member of the SSDI team that had visited
  Port Moresby
  three months earlier, in July 1991.

  It appears the Minister was trying to communicate his
  concern about some
  of the terms in “the final contract” which, the Minister
  says, the SSDI had
  sent on 13 and 23 September 1991.

  The letter reads as follows:

  “SUBJECT: REGARDING THE COMMENT OF FINAL CONTRACTS OF
  THE FREEWAY PROJECT FROM PORT MORESBY TO
  JACKSON AIRPORT (OR) BURNS PEAK PROJECT

  DEAR MR. ZHU,

  I acknowledge in receiving the final contract which your
  institute had written
  on 13th and 23rd of September 1991 passed thru Mr. Sun
  Young Use with
  Appreciation. I and my department had review it and would
  like to apply as
  follow.

  Chapter 14

  174

• Page 196 of 397

• According to our Government policy there are four 1/2
  pint to be mentioned.

  1. the total cost of the contraction cannot be over US
  $50 millions, and
  your cost for the contract which you had put in the
  final contract is
  over US$64 million dollars, that is more than the
  other contractors from
  Japan, America, Australia and Hong Kong.

  2. In regards to the supervision of the project, it
  should be supervised by
  our transportation department, as discussed in
  meetings.

  3. The systems of the Surveying, and Designing should
  be in three systems,
  British, Australian, and Papua New Guinean system.

  According to our policy, before construction our
  Government cannot
  per any deposit or advance to the contractor, even
  Moore’s Investment
  Group willing to pay, it would not be accepted,
  what our Government
  will do, will be seeking our bank to guaranty the
  payment thru Bank
  of Papua New Guinea accordingly.

  S. The contract must seek their bank to put up 10%
  Performance bond,,
  and your bank certificate is not accepted.

  Your engineer were here in July, and went thru all the
  meeting, it seems that
  your interpreter had his interpret the whole meaning I
  hope your Institute
  can re-check and advise as soon as possible, awaiting
  for your reply, thanking
  you.

  Yours sincerely
  [Signed]
  HON. ANTHONY TEMO, MP – Minister for Transport,
  Transportation
  Department.• [EXHIBIT 123]

• Page 197 of 397

• [14.15] WHAT DID THE MINISTER MEAN BY THE ‘FINAL CONTRACT’?

  It is unclear what the Minister was referring to as “the
  final contract which

  your institute had written on 13th and 23rd of September
  1991”. There is

  no contract bearing either of those dates in the files of
  the Department of

  Transport. Perhaps the Minister was referring to the
  observation report

  and the financial proposal sent to the Department of
  Transport under cover

  of the undated letter from the SSDI, referred to in Chapter
  12 of this report.

  [EXHIBIT 95]

  Chapter 14

  175

  Perhaps there was a final contract signed with the SSDI,
  that the Minister

  for Transport failed to advise anyone else about.

• Page 198 of 397

• We have been unable to ascertain what the Minister meant
  by “the final

  contract”.

  [14.16] SIGNIFICANCE OF THE LETTER OF 21 OCTOBER 1991

  Irrespective of whether the Minister had signed a
  contract with the SSDI,

  the significant thing about this letter is that it was
  written six days after the

  Minister signed the contract with Tunson Engineering Co.
  Ltd. That is,

  though he had already signed a contract for construction
  of the freeway

  with that company, the Minister was continuing to
  negotiate the terms of

  the deal with its consortium partner.

  [14.17] MR TEMO’S DEFENCE

  When we made this finding in our preliminary report, Mr
  Temo responded

• Page 199 of 397

• as follows:

  ‘NEC had authorised my Ministerial Committee to
  negotiate the best deal for
  PNG by following special tender procedures. There
  was no legal agreement in
  place for any company to proceed everyone knew
  that.’ [EXHIBIT 257, page 51

  Mr Temo consistently claimed the National Executive
  Council had approved

  “special procedures” for this project. He suggested he
  had been

  encouraged to bypass normal tender procedures. If normal
  procedures

  were followed, he said, the project would have taken too
  long to come to

  fruition. He said he was constantly being harangued in
  the Parliament

  about the traffic problems in Port Moresby. Whenever
  there was an

  Chapter 14

  176
  accident on Three Mile Hill, he was blamed. He saw it as his
  duty to the
  Nation to get the project implemented as soon as possible.

• Page 200 of 397

• He didn’t
  always get the support he should have received from other
  members of
  the Ministerial Committee on Spring Garden Road or the
  Department of
  Transport. It was therefore necessary to conduct
  negotiations himself.

  [14.18] Mr TEMO’S EXPLANATION REJECTED

  In the opinion of the Ombudsman Commission, none of these
  things
  satisfactorily explain the Minister’s continuing to
  negotiate the terms of the
  agreement with the SSDI, when he had signed a contract for
  construction
  of the freeway just prior to this, with another member of
  the SSDI
  consortium. His actions could only have caused confusion to
  the various
  members of the Chinese consortium, if they had known what
  the Minister
  was doing. It was very bad for the Government and the
  country.

  THE MINISTER FOR TRANSPORT ACTED IRRESPONSIBLY

  [14.19] SUMMARY OF DEVELOPMENTS DURING OCTOBER 1991

  Prior to October 1991, the Hong Kong-based company known as
  Tunson
  Engineering Co. Ltd had no involvement in the Spring Garden
  Road/Poreporena Freeway project. However, during October
  1991,
  representatives of that company travelled to Port Moresby to
  discuss the
  project with the Minister for Transport.

  Chapter 14

  177

  Following these discussions the Minister wrongly entered into a
  contract
  with the company for the construction of the Spring Garden

• Page 201 of 397

• Road/Poreporena Freeway, without the advice or knowledge of the
  Department of Transport.

  Despite doing this, the Minister continued to negotiate the terms of
  the
  contract with another member of the Chinese consortium.

  As a matter of administration, the Minister’s conduct during October
  1991
  was, in the opinion of the Ombudsman Commission, naive, incompetent
  and irresponsible.

  * * * * * * * * * *

  Chapter 14

  178

  15. ROLE OF THE WORLD BANK IN THE SPRING
  GARDEN ROAD/POREPORENA FREEWAY PROJECT

  [15.1] TWO WORLD BANK MISSIONS

  The World Bank has an on-going interest in the development of
  Papua
  New Guinea’s transport infrastructure. In 1991, at least two
  World Bank

• Page 202 of 397

• Missions visited Port Moresby and made recommendations
  concerning the
  Spring Garden Road/Poreporena Freeway project.

  [15.2] THE FIRST MISSION: JUNE 1991

  The first Mission was carried out from 21 to 26 June 1991 and
  consisted
  of Mr Heins Unger, a municipal engineer. The draft Aide
  Memoire prepared
  following this Mission (we were unable to obtain a final
  version of the
  document) shows that the Mission met with officials from the
  Department
  of Transport, the Office of International Development
  Assistance and the
  National Capital District Commission.

  The purpose of the Mission was to give advice on a wide range
  of World
  Bank-sponsored transport projects, one of which was Spring
  Garden Road.
  The Aide-Memoire dated 26 June 1991 records the following
  observations:

  “The Coffey Geotechnical Investigation of the Spring
  Garden Road scheme
  was reviewed in summary form by the mission and found to
  be thcm3ugh,
  comprehensive and clear in its findings and
  recommendations…

  Chapter 15

  179

  [Regarding] the need of Department of Transport for expert

• Page 203 of 397

• advice and
  assistance with solicitation, evaluation and negotiation
  of private sector BOT
  proposals for the construction of the Spring Garden Road
  link. In the mission’s
  view, short term, intermittent support may be the
  preferable option, because
  different expertise is needed at the various stages of the
  project the costs of the
  assistance could also be kept down, since a suitable
  source of funding is still
  being explored. Further advice will be given from Bank
  HQ.” [EXHIBIT 92]

  It is apparent from this document that the idea of getting
  more expert
  advisers from the World Bank to assist the Department of
  Transport in the
  evaluation of proposals for the Spring Garden Road/Poreporena
  Freeway
  project had been raised.

  As a consequence, another World Bank Mission was dispatched
  to Port
  Moresby a few months later.

  [15.3] THE SECOND MISSION: SEPTEMBER 1991

  The second World Bank Mission visited Port Moresby from 24 to
  28
  September 1991. On this occasion, attention was focused
  solely on the
  Spring Garden Road/Poreporena Freeway project.

  The Aide-Memoire of 28 September 1991

  The Mission’s findings and recommendations are contained in
  an Aide-
  Memoire dated 28 September 1991, signed by Ms M C Nguyen, on
  behalf
  of the World Bank, and Mr Amini, on behalf of the Department
  of
  Transport.

• Page 204 of 397

• Chapter 15

  180

  The Aide Memoire states:

  “a) The private sector proposals do not meet the requirements of
  the TOR
  [i.e. Terms of Reference], including the selected proposal;

  b) The inability of interested parties to respond adequately to
  the request
  is in part due to unclear distinction between the concepts
  of Build-
  Operate-Transfer (BOT) and the turnkey procurement;

  c) While the economic viability of the project is established,
  the financial
  plan of the project based on recovery through tolls alone is
  unrealistic
  and unworkable;

  d) The untested and novel concept of BOT and toll (in PNG)
  prevented
  respondents from submitting responsive bids;

  e) The technic-Al parameters are left unclear as to whether PNG
  was
  seeking a two or four lane road, one or two tube tunnels,
  and whether
  road surface would be of compacted gravel or asphalt
  concrete, and
  whether an open cut or tunnel was desired;

  f) Land acquisition and environmental impact issues were not
  addressed
  in the request for proposaL Given the land tenure problems
  in PNG
  and potential environmental problems if an open cut is
  desired,
  specifications on these points could help get a more

• Page 205 of 397

• responsive interest
  to the project; and

  g) Finally, the uncertain environment in PNG for private sector
  investments
  also contributes to the lack of responsive bids.’
  [EXHIBIT 111, at page 1]

  Other significant findings and recommendations of the World Bank,
  recorded under the heading “Retendering of Spring Garden Road”, were
  as follows:

  ‘An environmental impact study should be prepared to determine
  the
  environmental parameters that should be considered in the design
  of the link
  road- An investigation of the land aquisition in the area to
  determine the
  degree of difficulty in obtaining the right of way.

  Following these studies which could be undertaken in three
  months, Department
  of Transport should issue a new request for proposal (RFP)
  including
  specifications that would help solicit responsive proposals from
  PS [the Private
  Sector]…

  Chapter 15

  181

  If there is no responsive interest from private
  investors after the new tendering,
  it is proposed that Department of Transport seeks public
  funds for financing the
  above project” [EXHIBIT pages 3-41

• Page 206 of 397

• [15.4] SUMMARY OF WORLD BANK RECOMMENDATIONS

  Put simply, the World Bank was saying that:

  The Terms of Reference document prepared by the
  Department of Transport in early 1991 was vague and
  inadequate (see Chapter 10).

  If the Government was intent on pursuing private
  sector
  funding of the Spring Garden Road project, further
  studies
  would have to be undertaken to address the problem of
  financial returns and environmental and land
  acquisition
  issues.

  Once these studies were completed – which would take
  about three months – it would be necessary to issue a
  new
  “request for proposal”.

  If the private sector was still not interested in
  funding the
  project, the Department of Transport would have to
  seek
  public funding.

  In other words, the World Bank was advocating a ” back-to-
  the-drawing-
  boards” approach: the project should be re-tendered.

  Chapter 15

  182

  [15.5] WERE THE WORLD BANK’S RECOMMENDATIONS FOLLOWED?

• Page 207 of 397

• The recommendations contained in the Aide-Memoire of 28
  September
  1991 were completely ignored. No further financial or
  environmental studies
  were undertaken and the project was not re-tendered.

  Only a couple of weeks after the Aide-Memoire was delivered,
  the Minister
  for Transport signed a contract for construction of the
  freeway with Tunson
  Engineering Co Ltd (see Chapter 14). This contract was not
  pursued,
  however, and in February 1992, the National Executive Council
  approved
  the awarding of the project to another company.

  [15.6] WAS THE MINISTER ADVISED ABOUT THE RECOMMENDATIONS OF THE
  WORLD BANK?

  The Ombudsman Commission asked the Secretary for Transport
  whether
  the World Bank’s recommendations were brought to the
  attention of the
  Minister for Transport.

  His reply was that “any major document is always referred to
  the Ministers
  for their information”. Thus, the Secretary was saying that
  the normal
  practice of his Department is to bring such major documents
  to the
  attention of the Minister.

  The Secretary also said:

  The Minister was aware of the World Bank advice but took
  the view that this
  was just an advice and not binding on an Independent State
  and implied that
  NEC has the final say: [EXHIBIT 254, pant 131

• Page 208 of 397

• Chapter 15

  183

  However, the Secretary could not convince us he had
  formally briefed the i
  Minister on the World Bank’s advice. There is no
  documentary evidence
  in any of the Department of Transport files that this had
  been done.

  The Minister for Transport, Mr Temo, said he had not seen
  the World Bank
  report until it was shown to him by the Ombudsman
  Commission and that
  the Secretary had never mentioned it to him.

  The Ombudsman Commission is not necessarily concerned
  about the
  World Bank recommendations not being followed. It was the
  prerogative
  of the National Government to decide whether or not to
  adopt the
  recommendations.

  Our concern is that the Secretary of the Department of
  Transport did not
  bring the recommendations immediately and formally to the
  attention of the
  Minister.

  (15.7] THE IMPORTANCE OF INDEPENDENT ADVICE

  The World Bank recommendations were obviously crucial to
  the future of
  the Spring Garden Road/Poreporena Freeway project. It was
  the duty of
  the Secretary for Transport to immediately and forcefully
  bring them to the
  attention of the Minister: The only way this could
  properly have been done
  was officially, i.e. in writing.

  The Secretary for Transport failed to do this.

  Chapter 15

• Page 209 of 397

• 184

  It is not relevant, in our view, to suggest that the Minister would
  have
  ignored the World Bank recommendations. In the opinion of the
  Ombudsman Commission, it is never an excuse to say that advice was
  not
  given to a Minister because it was thought, or even known, that the
  advice
  would not be followed.

  The integrity and efficiency of our Public Service depends upon
  Ministers
  being promptly and fearlessly advised of all relevant matters – even
  when
  the advice is something the Minister does not want to hear. If we
  get to
  the stage where our Ministers only get the advice that they want to
  hear,
  we will be in a very sorry state. The professionalism of the Public
  Service
  will deteriorate.

  The Ombudsman Commission concludes that the failure of the Secretary
  for Transport to formally convey the World Bank recommendations
  immediately to the Minister for Transport in late September 1991 was
  a
  bad piece of administration.

  * * * * * * * * * *

  Chapter 15

  185

• Page 210 of 397

• 16. FATE OF THE POLICY SUBMISSION FAVOURING THE
  CHINESE CONSORTIUM: DECEMBER 1991

  [16.1] BACKGROUND TO NATIONAL EXECUTIVE COUNCIL SUBMISSION OF 17
  JULY 1991

  In July 1991 the Department of Transport had prepared a
  Policy
  Submission entitled “Financing the Construction of the Spring
  Garden
  Freeway” (see Chapter 11).

  This document contained an evaluation of five proposals. It
  concluded by
  recommending the project be awarded to a Chinese consortium
  consisting
  of the Second Surveying and Designing Institute of the
  People’s Republic
  of China and various Hong Kong-based companies.

  The document was the focus of discussion at the meeting of
  the Ministerial
  Committee on 18 July 1991. It was used by the Committee as
  the basis
  for its decision to recommend negotiations be commenced with
  the
  Chinese consortium. (Though the Minister for Transport had,
  on his own
  accord, already commenced private negotiations with the
  consortium.)

  In Chapter 11 the Ombudsman Commission criticised that
  decision and the
  document on which it was based. The method used in the
  document to
  select the Chinese consortium was vague and unsatisfactory.
  There had
  not been a genuine attempt to objectively evaluate the five
  short-listed
  proposals.

  Chapter 16

  186

  In this chapter, we trace the fate of the document of 17 July
  1991, after its
  consideration by the Ministerial Committee.

• Page 211 of 397

• SUBMISSION FAVOURING THE CHINESE CONSORTIUM FILED IN OCTOBER 1991

  [16.2] THE POUCY SUBMISSION DATED 17 JULY 1991 WAS FILED IN THE
  NATIONAL EXECUTIVE COUNCIL IN OCTOBER 1991

  The document considered by the Ministerial Committee was not
  amended
  following the meeting of 18 July 1991. It was filed in the
  National Executive
  Council during October 1991.

  Though there is no record of this in the files of the
  Department of
  Transport, we are satisfied, after considering the evidence
  of the Secretary
  for Transport, that the document was filed during October
  1991 by the
  Head of the Policy Secretariat, Mr Hitolo.

  [16.3] SECRETARY FOR TRANSPORT CLAIMS THE POUCY SUBMISSION WAS
  FILED WITHOUT HIS KNOWLEDGE

  Mr Amini testified that in October 1991 he attended an
  International
  Maritime Conference in London. He was accompanied by the
  Minister for
  Transport, the Prime Minister’s personal secretary, the
  Principal of the
  Madang Nautical College and the First Assistant Secretary in
  the Maritime
  Division of the Department of Transport, Mr Zurenuoc.

  Chapter 16

  187

  Mr Amini said the Minister for Transport was supposed to
  present the case
  for Papua New Guinea at the Council held in conjunction with
  the
  conference. However, he claimed the Minister left the
  conference early and
  returned to Port Moresby via Hong Kong, where he stayed for a
  few days.

  The Ombudsman Commission discovered that on this visit to
  Hong Kong –
  the Minister’s third in 1991 – he was again accommodated and

• Page 212 of 397

• entertained
  at the expense of members of the Chinese consortium bidding
  for the
  Spring Garden Road/Poreporena Freeway project.

  Mr Amini said he was forced to present the case for Papua New
  Guinea
  at the International Maritime Organisation conference in the
  absence of the
  Minister for Transport; and the case was lost, Mr Amini said.

  Mr Amini testified that when he returned from the conference
  he discovered
  that the Policy Submission dated 17 July 1991 had been filed
  in the
  National Executive Council in his absence on the direction of
  the Minister
  for Transport. Mr Amini said he was very annoyed about this,
  because the
  Submission had not been considered by the Resource Management
  Committee. Also, he said, it was wrong for any Policy
  Submission to leave
  the Department without his approval.

  [16.4] MR TEMO’S EVIDENCE

  When we questioned Mr Temo, his recollection of these events
  was less
  precise than Mr Amini’s.

  In his response to our preliminary report, Mr Temo stated:

  Chapter 16

  188

  “The Secretary for Transport
  was always aware of this even when he was in
  London or USA. His
  Department was briefing him all the time. Mr. Amini
  knew the progress of such
  event. If his Department was aware then Brian
  Amini could not deny. He
  could not carry the Department with him around.

  Mr. Amin and all FAS in the
  Department were summoned to explain about

• Page 213 of 397

• the Burns Peak project in
  NEC 3 times. Mr. Amini was seen by NEC members
  all the time.

  There was so many different
  Chinese companies and when they come to see
  me, I do not go and talk
  into them in a secret place. I call on the Secretary
  and other Department
  officials to brief us.

  I got advice from the
  Department before proceeding to do the work of Chairman
  of Ministerial Committee.

  All NEC submissions are
  prepared by the Department, checked and signed by
  Mr. Brian Amini or his
  delegate.

  I never put in any input in
  wording or selection criteria. If a company group
  come to me I refer the to
  the Department or jointly have a meeting.•
  [EXHIBIT 257, page 51

  Mr Temo also stated that he had, in fact,
  presented the papers on behalf
  of Papua New Guinea at the International
  Maritime Organisation
  conference.

  [16.5] SUMMARY OF CIRCUMSTANCES SURROUNDING FLUNG
  OF THE
  POUCY SUBMISSION FAVOURING THE CHINESE
  CONSORTIUM

  The Ombudsman Commission finds the
  evidence of the Secretary for
  Transport more convincing than that of Mr
  Temo. Mr Amini’s evidence as
  to the movements of the Minister during
  October 1991 is corroborated by
  evidence given by Mr Leo Moore, who
  entertained the Minister on his
  Hong Kong stopover. The Ombudsman
  Commission has also examined
  the entries appearing in the Minister’s

• Page 214 of 397

• passport for the relevant period.

  Chapter 16

  189

  We therefore accept Mr Amini’s version of events as correct.
  That is:

  The Policy Submission dated 17 July 1991 was filed in
  the
  National Executive Council during October 1991.

  It was filed by Mr Hitolo at the direction of the
  Minister for
  Transport.

  It was filed without the knowledge or approval of the
  Secretary for Transport.

  IMPROPRIETY BY MINISTER FOR TRANSPORT

  [16.6] MATTERS FOR CONCERN

  The Ombudsman Commission shares the concerns raised by the
  Secretary
  for Transport as to the way in which the Policy Submission
  favouring the
  Chinese went to the National Executive Council. tt is sound
  administrative
  practice that, whenever a Minister contemplates making an
  important Policy
  Submission to the National Executive Council, it should be
  presented in
  close consultation with the head of his Department.

  There are also other matters which concern the Ombudsman
  Commission
  about the filing of this particular Policy Submission.

  On 5 October 1991 the Minister for Transport had signed a

• Page 215 of 397

• contract for the
  construction of the freeway with Tunson Engineering Co Ltd of
  Hong Kong
  (see Chapter 14).

  Chapter 16

  190

  So, the impropriety that had developed was this: the Minister
  for Transport
  was attempting to present a submission to the National
  Executive Council,
  authorising his Department to commence negotiations with the
  Second
  Surveying and Designing Institute, when he had already, just
  prior to this,
  signed a contract with the SSDI’s consortium partner, Tunson
  Engineering
  Co Ltd, for the construction of the freeway.

  Not only that, on 21 October 1991 he wrote directly to the
  SSDI in China
  trying to renegotiate the terms of their financial proposal
  (which was
  different to the one in the contract he had signed with
  Tunson Engineering
  Co Ltd).

  These disturbing developments show how important it is for
  normal and
  established public tender procedures to be followed in
  projects of this
  nature.

  [16.7] THE POLICY SUBMISSION WAS NOT ACCEPTED BY THE NATIONAL
  EXECUTIVE COUNCIL

  As it turned out, the National Executive Council did not get
  the opportunity
  to debate the Policy Submission favouring the Chinese
  consortium. The
  Minister’s actions were short-circuited by the diligence of
  the Secretary to
  the National Executive Council, Mr P M Eka OBE. Mr Eka
  rejected the
  submission, because proper procedures for filing of National
  Executive
  Council submissions had not been followed.

  In a letter to the Secretary for Transport dated 4 December
  1991, Mr Eka

• Page 216 of 397

• advised that he was returning the fifty copies of the Policy
  Submission
  entitled “Financing the Construction of the Spring Garden
  Freeway.
  [EXHIBIT 127]

  Chapter 16

  191

  Mr Eka rejected the Submission because comments from the
  Department
  of Finance and Planning and the Department of Attorney-
  General had not
  been sought. [EXHIBIT 127]

  [16.8] NATIONAL EXECUTIVE COUNCIL PROCEDURES

  Chapter 2 of the National Executive Council Submissions
  Handbook
  prescribes the requirements for presentation of Policy
  Submissions.
  Paragraph 2.7(d) states:

  “Comments from the five Central Agencies and all other
  Ministries affected by
  the Proposal must be included. Particular care should be
  taken to ensure that
  views of all affected Ministries are obtained in writing
  prior to the Submission
  being referred to the NEC Secretariat Submissions
  requiring views to be sought
  in the NEC Meetings are not accepted,’ [E7GIIBIT 1]

  The “five central agencies” are prescribed in Paragraph 1.14
  of the
  Handbook. They are:

  the Department of Attorney-General;

• Page 217 of 397

• the Department of Finance and Planning;

  the Department of Personnel Management;

  the Department of Provincial Affairs; and

  the Department of Prime Minister and National
  Executive
  Council.

  Chapter 16

  192

  The Ombudsman Commission notes that Section D of the Policy

  Submission of 17 July 1991, under the heading “Views of other
  Ministers
  Affected”, simply states:

  °Being sought.• [EXHIBIT 99, at page 7 ]

  Clearly, there had been a failure to comply with the proper
  National

  Executive Council’s procedures. We therefore find that the
  Secretary to the
  National Executive Council acted properly in rejecting the
  Policy

  Submission.

• Page 218 of 397

• SUBMISSION FAVOURING CHINESE CONSORTIUM WAS NOT RE-PRESENTED

  [16.9] WHAT HAPPENED TO THE POLICY SUBMISSION AFTER IT WAS
  REJECTED BY THE SECRETARY TO THE NATIONAL EXECUTIVE
  COUNCIL?

  Following rejection of the Policy Submission, the Secretary
  for Transport

  took immediate steps to obtain the views of other Departments.
  To his

  credit, he went further than required. In a handwritten note
  dated 6
  December 1991, addressed to one of his First Assistant
  Secretaries, the

  Secretary issued an instruction in the following terms:

  ‘As discussed with you 5/12, I’m disappointed that this
  paper went through
  Minister without my approvaL The procedures required by NEC
  mg be done
  without exception. All comments from other Departs must be
  included esp the
  World Bank, DFP, Foreign Affairs, Lands, DOW, PM’s Dept,
  Personnel Mgt Dept,
  Environment, NCDC, Attorney General, OIDA etc. Urgent
  action.’
  [EXHIBIT 1271

  Chapter 16

  193

  [16.10] CIRCULATION OF THE POLICY SUBMISSION

  The Policy Submission of 17 July 1991 was subsequently
  circulated to the

• Page 219 of 397

• Departments specified by Mr Amini, as well as to the
  Department of Trade
  and Industry. This was done under cover of standard letters
  dated 6
  December 1991. [EXHIBIT 128]

  [16.11] SLACK RESPONSE BY OTHER DEPARTMENTS, PARTICULARLY FINANCE
  AND PLANNING

  Only one of the Departments which had been asked to comment,
  did so:
  the Department of Trade and Industry. [EXHIBIT 133]

  This was a disappointing response. In particular, we single
  out the
  Department of Finance and Planning for its failure to take
  the opportunity
  to demand more information. The Policy Submission indicated
  that the
  total cost of the project would be in the vicinity of $US 50
  million.
  Obviously the financial and budgetary implications were
  going to be
  enormous.

  In the opinion of the Ombudsman Commission it was
  irresponsible of the
  Department of Finance and Planning not to respond to the
  Policy
  Submission. It is that Department’s responsibility and
  therefore should be
  its practice to comment on the budgetary implications of all
  major projects
  undertaken by or on behalf of the State.

  Chapter 16

  194

  [16.12] WAS THE POLICY SUBMISSION OF 17.7.91 RE-PRESENTED?

  On the surface, the circulation of the Policy Submission to
  the other
  Departments in December 1991 meant that proper procedures
  were being
  complied with. But that was not, in fact, the case.

  The Policy Submission circulated in December 1991 was never

• Page 220 of 397

• re-
  presented to the National Executive Council. There was
  another Policy
  Submission presented to the National Executive Council in
  February 1992,
  resulting in the decision to award the project to Kinhill
  Kramer Pty Ltd. But
  this Policy Submission was not circulated for the comments
  of other
  Departments.

  The February 1992 submission was not the same as the one
  circulated in
  December 1991. The February 1992 submission differed from
  the one
  circulated in December 1991 (i.e. the one dated 17 July
  1991) in a very
  significant way.

  The February 1992 submission gave a choice between two
  proposals: the
  Tunson/SSDI proposal and a proposal by Kinhill Kramer. The
  submission
  which the various Departments were invited to comment on had
  unequivocally favoured the SSDI proposal. The name “Tunson”
  was not
  referred to and the only reference to “Kinhill Kramer” was
  as a consortium
  partner in an old proposal promoted by Kumagai Gumi.

  [16.13] MORE MATTERS OF CONCERN

  This state of affairs gave rise to some obvious questions:

  Chapter 16

  195

  Why didn’t any of the other Departments get the chance
  to
  comment on the February 1992 submission?

  How could a National Executive Council submission
  change
  so dramatically in a short space of time?

  Why was Kinhill Kramer permitted to lodge a late
  proposal?

  Why was Kinhill Kramer given equal ranking to the
  Chinese

• Page 221 of 397

• proposal in the 1992 submission, when previously it was
  part
  of the Kumagai Gumi proposal and ranked number three?
  We will address these questions later in this report.

  * * * * * * * * * *

  Chapter 16

  196

  17. CONCERNS ABOUT CREDENTIALS OF
  TUNSON ENGINEERING CO LTD:
  DECEMBER 1991 – JANUARY 1992

  [17.1] DEPARTMENT OF TRANSPORT CONCERNED ABOUT BONA FIDES OF
  TUNSON ENGINEERING CO LTD

  In December 1991, concerns were being raised within the
  Department of
  Transport as to the bona fides of the Tunson Engineering Co
  Ltd proposal,
  especially its financial aspects. These concerns were, of
  course, quite
  legitimate.

  Apart from the obvious technical defects in the contract the
  Minister had
  signed with the company on 15 October 1991 (see Chapter 14)
  the
  Tunson proposal did not comply with the Terms of Reference
  which the
  Department of Transport had circulated. The Terms of
  Reference had
  required the project to be implemented on a Build-Operate-

• Page 222 of 397

• Transfer basis,
  whereas the Tunson contract involved turnkey financing.

  [1 7 21 THE MOST IMPORTANT CONCERN

  Not only that, nobody in the Department of Transport knew
  anything about
  Tunson Engineering Co Ltd or any of the people involved in
  it. Tunson had
  never operated in Papua New Guinea before. It was not known
  whether
  it was a reputable company, whether it had any experience in
  design,
  financing, construction or management of road projects or
  whether it had
  sufficient financial resources to undertake a task of the
  magnitude of the
  Spring Garden Road/Poreporena Freeway project.

  Chapter 17

  197

  This alarming situation had arisen because the negotiations
  which led to
  the contract of 15 October 1991 were conducted secretly by
  the Minister
  for Transport, Mr Temo.

  INVESTIGATIONS CARRIED OUT BY THE DEPARTMENT OF TRANSPORT

  [17.3] DEPARTMENT OF TRANSPORT CONDUCTS ITS OWN INVESTIGATION

  Quite fortuitously, at the time these concerns were being
  aired, the
  Department of Transport had acquired the services of a
  technical adviser
  from Hong Kong, Mr Amin Ebrahim, who was engaged from the
  consulting organisation Wilbur Smith Associates.

  The Department had entered into an arrangement with Mr
  Ebrahim
  whereby he worked in Port Moresby on a fortnight-on-
  fortnight-off basis;
  at the end of each fortnight, he returned home to Hong Kong.
  So, Mr
  Ebrahim was requested to conduct inquiries into Tunson
  Engineering Co
  Ltd on one of his visits to Hong Kong.

• Page 223 of 397

• [17.4] COMPANY SEARCH OF TUNSON ENGINEERING CO LTD

  Mr Ebrahim arranged a company search of Tunson Engineering Co
  Ltd
  in early January 1992. He also attempted (unsuccessfully) to
  arrange a
  meeting with the company’s managing director, Mr Siu Chu
  Yuen.
  [EXHIBIT 131]

  Chapter 17

  198

  The company search revealed very little. Mr Ebrahim
  discovered the
  company had only recently been incorporated (in June 1990)
  and all but
  one of its 500,000 shares had been allocated to Mr Siu Chu
  Yen. However,
  the search did not show what the company’s paid-up capital
  was. Other
  details about the company (eg the state of its bank accounts
  and its
  balance sheets and other financial statements) were also
  unavailable.
  [EXHIBIT 130]

  Consequently, this company search was practically useless.
  Tunson
  Engineering Co Ltd could well have been a one-man shelf
  company, with
  a letterhead as its major asset, and the Department of
  Transport would not
  have known.

  [17.5] TECHNICAL ADVISER RECOMMENDS RE-TENDERING OF THE PROJECT

  When Mr Ebrahim returned to Port Moresby in early January
  1992, he
  reported his concerns in a brief to the Secretary for
  Transport dated 9
  January 1992. He gave a detailed analysis of the numerous
  defects in the
  Tunson contract and recommended that the World Bank’s advice
  be
  followed, ie that the project be “re-tendered”. [EXHIBIT 132]

• Page 224 of 397

• This recommendation was not followed. Instead, the Department
  of
  Transport persisted with the task of trying to find out more
  about Tunson
  Engineering Co Ltd.

  Chapter 17

  [17.6] DEPARTMENT OF TRANSPORT OFFICERS MEET
  REPRESENTATIVES OF199
  TUNSON ENGINEERING CO LTD IN PORT MORESBY:
  14 JANUARY 1992

  Since February 1991 (when the Minister for
  Transport first went to Taiwan
  and Hong Kong) Mr Leo Moore had maintained
  a watching brief over all
  negotiations concerning the Spring Garden
  Road/Poreporena Freeway
  project. His role in the project was never
  clearly defined. However, from
  the oral evidence he gave to the Ombudsman
  Commission, it is clear he
  had ties with all the various Hong Kong-
  based companies that had been
  a part of the Chinese consortium. He had an
  interest in the outcome of all
  negotiations.

  Mr Moore was regarded by the Department of
  Transport as the Port
  Moresby representative of Tunson
  Engineering Co Ltd, even though the
  Department had been advised that Port
  Moresby-based consulting
  company Tauwala Consultants Pty Ltd had
  been appointed by Tunson to
  act as their agent. [EXHIBITS 120, 121]

  When the officers of the Department decided
  to intensify their efforts to
  check the bona fides of the Tunson
  proposal, they decided to interview Mr
  Moore. He and his wife were called to a
  meeting with Department of
  Transport officials in the office of the

• Page 225 of 397

• Secretary on 14 January 1992. The
  meeting was chaired by the Acting Secretary
  for Transport, Mr Zurenuoc.

  [17.7] THE REPRESENTATIVES OF THE CHINESE
  CONSORTIUM STILL
  BELIEVED IN JANUARY 1992 THAT THE PROJECT
  WAS THEIRS

  The officers of the Department of Transport
  informed Mr and Mrs Moore
  of the fundamental problem they saw in the
  contract signed by the Minister
  for Transport on 15 October 1991: Tunson
  Engineering Co Ltd expected
  to be paid for building the freeway – but
  this had not been budgeted for.

  Chapter 17

  200

  It was explained that the project was supposed to be financed
  on a Build-
  Operate-Transfer basis. The contract did not meet this
  requirement. The
  Department also interrogated Mr and Mrs Moore on the
  background of
  Tunson Engineering Co Ltd. They asked the sort of questions
  that should
  have been asked by the Minister for Transport before he
  entered into any
  serious negotiations with this company.

  Following this meeting, the request for more information on
  Tunson
  Engineering Co Ltd was put in writing. [EXHIBITS 135, 141]

  In his evidence to the Ombudsman Commission, Mr Leo Moore
  said he
  was completely taken aback by the attitude of the Department
  of Transport
  officers at that meeting. As far as he was concerned, the
  deal between
  Tunson and the Minister for Transport had already been
  finalised. He
  therefore did not understand why the Department of Transport
  was
  seeking further details about the company. He was offended by
  the
  aggressive manner in which questions were put to him and his
  wife.

• Page 226 of 397

• The Ombudsman Commission accepts that this was Mr Moore’s
  genuine
  reaction to this incident. For many months he had been
  involved in
  negotiations with the Minister for Transport. He was shocked
  to find that
  officers in the Minister’s Department would be asking him
  detailed
  questions about things that were really, as he understood the
  situation, the
  business of the Minister.

  [17.8] DID THE DEPARTMENT OF TRANSPORT ACT RESPONSIBLY?

  While this may have been an understandable reaction for a
  person of Mr
  Moore’s background, the Ombudsman Commission does not
  criticise the
  officers of the Department for their actions. The Acting
  Secretary, Mr

  Chapter 17

  201
  Zurenuoc, is to be congratulated for realising the dangerous
  situation
  created by execution of the contract of 15 October 1991 and
  for taking the
  initiative and calling the meeting with Mr Moore.

  The Ombudsman Commission’s only criticism is that this
  meeting should
  have been called a couple of months earlier, as soon as the
  Department
  discovered what the Minister had done.

  [17.9] THE DECISION-MAKING PROCESS HAD BROKEN DOWN

  The meeting between the Department of Transport and Mr and
  Mrs Moore
  gives an indication of the farce that had developed by the
  beginning of
  1992: the Minister had already signed a contract for the
  construction of the
  freeway, but three months later his Department was still
  trying to find out
  whether the proposal was genuine. In the course of doing
  that, officers of
  the Department were interrogating a foreigner who – though
  having a

• Page 227 of 397

• vested interest in the project – had no formal connection
  with the company
  *selected” by the Minister, and who was totally confused and
  offended by
  their attitude.

  This was all happening just six weeks before the National
  Executive
  Council decided to award the contract for the construction of
  the freeway
  to a completely different company!

  The decision-making process had become a complete shambles
  and it is
  an embarrassment to our country that this sort of thing was
  allowed to
  happen, because the Minister for Transport took it upon
  himself to handle,
  negotiate and sign agreements without consulting his
  Department.

  Chapter 17

  202
  [17.10] DEPARTMENT OF TRANSPORT SEEKS HELP FROM OTHER
  DEPARTMENTS

  Despite the wide circulation of the draft submission
  “Financing the
  Construction of the Spring Garden Freeway”, the only
  Department to
  respond to the request for comments was the Department of
  Trade and
  Industry (see Chapter 16).

  As stated earlier, it is disappointing that other
  Departments did not
  comment on the draft submission. It is most irresponsible of
  those
  Departments, especially the “key” Departments.

  It is also disappointing that, when the Department of
  Transport formally
  sought advice from two Departments on the contract the
  Minister for
  Transport signed with Tunson, no useful assistance was
  given.

• Page 228 of 397

• OTHER DEPARTMENTS GUILTY OF DEFECTIVE ADMINISTRATION

  [17.11] ADVICE SOUGHT FROM DEPARTMENT OF FINANCE AND PLANNING
  AND DEPARTMENT OF ATTORNEY-GENERAL

  On 15 January 1992, the Acting Secretary, Mr Zurenuoc, wrote
  to the
  Office of International Development Agency in the Department
  of Finance
  and Planning. He enclosed a copy of the Tunson contract and
  asked that
  it be reviewed, so the Department of Transport would be in a
  better
  position to advise the Minister for Transport. [EXHIBIT 137]

  Chapter 17

  203

  On the same day, Mr Zurenuoc wrote a similar letter to the
  Department of
  Attorney-General. [EXHIBIT 138]

  Mr Zurenuoc advised the Minister for Transport that he had
  requested this
  advice. [EXHIBIT 136]

  [17.12] INADEQUATE RESPONSE TO REQUESTS FOR ADVICE

  Each of these letters requesting advice should have sent
  alarm bells
  ringing within the Departments which received them. it
  should have been
  obvious to anyone with basic Knowledge of public works
  contracts and the
  requirements of public sector financing that the contract
  with Tunson
  Engineering Co Ltd was seriously and dangerously flawed and
  that the
  Minister for Transport had no right to sign it.

  Any Department reasonably alert to its responsibilities to
  the State, would
  have realised – by a quick examination of the contract –
  that something
  was very, very wrong.

  Unfortunately, however, the responses were inadequate.

• Page 229 of 397

• [17.13] DEPARTMENT OF FINANCE AND PLANNING GUILTY OF DEFECTIVE
  ADMINISTRATION

  The Director of the Office of International Development
  Agency in the
  Department of Finance and Planning, Mr Pepson, responded in
  a letter
  dated 13 February 1992:

  Chapter 17 ■

  204

  “I regret to inform you that we are not in a position to
  comment as we
  note the Minister has already signed the contract and
  also we are not
  in the full picture on the status of the
  proposaL” [EXHIBIT 146

  This was a poor response by the Department of Finance and
  Planning.
  The Minister for Transport obviously had no right to sign
  the contract with
  Tunson Engineering Co Ltd. Furthermore, the contract
  purported to
  commit the State to a minimum outlay of $US 50 million,
  which was
  entirely un-budgeted expenditure.

  By failing to offer any advice, the Department of Finance
  and Planning was
  acting in dereliction of its duties to the State and
  therefore was guilty of
  defective administration.

  [17.14] DEPARTMENT OF ATTORNEY-GENERAL ALSO GUILTY OF DEFECTIVE
  ADMINISTRATION

  The only response made by the Department of Attorney-General
  was in a
  letter dated 30 January 1992, from Senior Legal C Mr Singin.
  He

• Page 230 of 397

• acknowledged receipt of the contract documents and said the
  Department’s comments would be forwarded in due course. But
  they
  never were. [EXHIBIT 144]

  The Acting State Solicitor, Mr Z Gelu, conceded to the
  Ombudsman
  Commission that written advice was not given to the
  Department of
  Transport about the Tunson contract. In his response to our
  preliminary
  report, Mr Gelu said:

  ‘Though I failed to offer written advice, my officers
  namely Messrs. Robert
  ‘rung and Sumasy Singin provided verbal advice to the
  Department of
  Transport during their consultative meeting. The officers
  were representing
  the Department of Attorney General in these
  meetings.’ [EXHIBIT 2621

  Chapter 17

  205

  We do not regard this as an adequate explanation. The
  meetings referred
  to by Mr Gelu were the meetings held in March and April 1992
  during the
  course of negotiations with Kinhill Kramer. Our concern,
  however, at this
  point, is with the period in January 1992.

  In January 1992, the Department of Attorney-General was
  given notice of
  a contract that was manifestly flawed, which contained
  provisions
  purporting to bind the State to large and long term
  financial commitments
  concerning a number of road projects of national
  significance and which
  had been signed by a Minister clearly acting contrary to the
  Public
  Finances (Management) Act.

  In these circumstances, there was a duty to act immediately
  and give
  written advice to the Department of Transport on what it

• Page 231 of 397

• should do. The
  Department of Attorney-General failed to discharge this duty
  and was
  guilty of defective administration.

  [17.15] SUMMARY OF THE DEPARTMENT OF TRANSPORTS ATTEMPTS TO
  INVESTIGATE CREDENTIALS OF TUNSON ENGINEERING CO LTD

  During December 1991 and January 1992 the Department of
  Transport
  tried in vain to find out essential background information
  on the company
  with which the Minister for Transport had signed a contract
  for
  construction of the freeway.

  Assistance was also sought from the Department of Finance
  and Planning
  and the Department of Attorney-General. Both of these
  Departments failed
  in their duty to offer assistance, even though it was clear
  that the Minister
  for Transport had acted unlawfully in signing the contract.

  Chapter 17

  206

  As a result, in January 1992, the Department of Transport was still
  in a
  quandary as to what to do about that contract.

  That problem was soon to become irrelevant, however, because on 13
  February 1992 the Minister for Transport put pressure on his
  Department,
  that was to lead the project in an entirely different direction: he
  suddenly
  instructed his Department to prepare a Policy Submission to the
  National
  Executive Council and consider a very late proposal by Kinhill
  Kramer Pty
  Ltd of Port Moresby. These developments are recorded in Chapters 18
  and 19.

  * * * * * * * * * *

• Page 232 of 397

• Chapter 17

  207

  18. MINISTER FOR TRANSPORT EXPEDITES PREPARATION
  OF NEW POUCY SUBMISSION:
  FEBRUARY 1992

  [18.1] ASSUMPTION THAT THE PROJECT WOULD BE AWARDED TO CHINESE
  CONSORTIUM

  Ever since the Ministerial Committee decided to recommend
  awarding the
  contract to the Chinese consortium, it had been assumed that
  decision
  would go to the National Executive Council for ratification.

  The Minister for Transport pre-empted this process by
  negotiating directly
  with the Chinese consortium on a number of occasions (see
  Chapters 12
  and 14). But it seems to have been assumed that the matter
  would
  eventually go to the National Executive Council and that the
  Minister would
  recommend that the project be formally awarded to the Chinese
  consortium. This had been the purpose of the draft submission
  ‘Financing
  the Construction of the Spring Garden Freeway’ (see Chapters
  11 and
  16).

  18.2] A SIGNIFICANT TURN OF EVENTS

  In February 1992 there was a significant turn of events: a
  new National

• Page 233 of 397

• Executive Council Policy Submission was prepared. But rather
  than
  favouring the Chinese consortium, the new submission gave the
  National
  Executive Council a choice of two proposals: the Chinese
  proposal and
  a proposal by Kinhill Kramer Pty Ltd of Port Moresby.

  Chapter 18

  208

  In this chapter we trace the events that led to this new
  submission being
  presented to the National Executive Council.

  SECRETARY FOR WORKS BRIEFS THE MINISTER FOR TRANSPORT

  [18.3] MINISTER FOR TRANSPORT ASKS SECRETARY FOR WORKS FOR
  BRIEFING ON SPRING GARDEN ROAD PROJECT
  In early February 1992, the Minister for Transport asked the
  Secretary for
  Works, Mr Hitolo, for a briefing on the Spring Garden Road
  project.

  Mr Hitolo did not advise the Secretary of the Department of
  Transport, Mr
  Amini, that he was briefing the Minister for Transport.

  [18.4] MINISTERS SHOULD NOT OBTAIN “SECRET’ BRIEFS FROM
  DEPARTMENTS FOR WHICH THEY HAVE NO RESPONSIBILITY

  The Ombudsman Commission regards this as a bad administrative
  practice. If the head of a department is requested to provide
  a brief to a
  Minister other than the one carrying political responsibility
  for the
  department he is in charge of, he should advise the head of
  that Minister’s
  department that he has been asked to provide the brief,
  either before or
  immediately after it is given.

  Chapter 18

• Page 234 of 397

• 209

  This basic administrative procedure is necessary to ensure
  consistency in
  the advice given to Ministers and to avoid the chaos that
  inevitably results
  when Ministers receive uncoordinated advice from a number of
  different
  sources.

  [18.5] WHY DID THE MINISTER FOR TRANSPORT ASK THE SECRETARY FOR
  WORKS FOR ADVICE?

  The Minister for Transport acted as he did because the
  Secretary for
  Works, Mr Hitolo, until a short time beforehand, had headed
  the Policy
  Secretariat in the Department of Transport. He had been
  responsible for
  the Spring Garden Road/Poreporena Freeway project for a
  considerable
  time and had briefed the Minister for Transport on a number
  of occasions.
  From the evidence given by Mr Leo Moore, it is also apparent
  Mr Hitolo
  knew a lot more about the negotiations with the Chinese
  consortium than
  did the Secretary for Transport.

  [18.6] IT WAS WRONG OF THE SECRETARY FOR WORKS NOT TO ADVISE
  THE SECRETARY FOR TRANSPORT

  When we suggested in our preliminary report that Mr Hitolo
  had erred in
  briefing the Minister for Transport, he said that he had done
  so because,
  at that time, Mr Temo was the Acting Deputy Prime Minister.
  He also gave
  a number of other reasons for his actions. These were:

  Chapter 18

  210

  that presentation of a draft National Executive Council
  submission recommending involvement of Motu-Koitabu

• Page 235 of 397

• landowners in the project had been delayed by the
  Office of
  the Secretary for Transport; and

  that landowners were becoming frustrated and suspicious
  about delays in getting the project started and their
  co-
  operation was critical to the smooth implementation of
  the
  project; and

  that the Government had to make a quick decision on the
  type of financing required for the project. [EXHIBIT
  261]

  The Ombudsman Commission appreciates that the Secretary for
  Works
  genuinely believed he was acting properly in briefing the
  Minister for
  Transport. Our concern is not so much that he provided the
  brief. What
  we are critical of is Mr Hitolo’s failure to advise the
  Secretary for Transport
  of what he had done.

  As a matter of sound administrative practice and common
  courtesy, the
  Secretary for Works should have advised the Secretary for
  Transport he
  had received the request from the Minister for Transport. His
  failure to do
  so was defective administration.

  [18.7] THE POSITION OF ACTING DEPUTY PRIME MINISTER IS NOT
  RECOGNISED BY LAW

  One of the reasons given by the Secretary for Works for
  briefing the
  Minister for Transport was that the Minister was, at the
  time, Acting Deputy
  Prime Minister. However, there is no such position recognised
  by the

  Chapter 18

  211
  Constitution or any Act of the Parliament. The Prime Minister
  Act (Chapter
  No. 27 of the Revised Laws) which creates the office of
  Deputy Prime
  Minister and allows the office-holder to be Acting Prime
  Minister in certain

• Page 236 of 397

• situations, does not refer to an “Acting Deputy Prime
  Minister”.

  Though the Minister for Transport may have carried the
  unofficial title of
  Acting Deputy Prime Minister, he had no extra official powers
  or
  responsibilities beyond those conferred on him as Minister
  for Transport.

  One of the themes of this report is that there is a need for
  all our Ministers
  and Departmental Heads to become fully acquainted with the
  limits of
  Ministerial powers imposed by the Constitution. The briefing
  of the Minister
  for Transport by the Secretary for Works is an example of the
  type of
  confusion about Ministerial powers that seems to exist. This
  important
  issue is dealt with further in Chapter 39.

  [18.8] PURPOSE OF THE SECRETARY FOR WORKS’ BRIEF TO THE MINISTER
  FOR TRANSPORT

  The purpose of Mr Hitolo’s brief was to bring the Minister
  for Transport up
  to date on what was happening with the project. But Mr Hitolo
  did not
  have a great deal to report. He noted that the draft National
  Executive
  Council submission favouring the Chinese had been prepared by
  the
  Department of Transport in July 1991, but stated that the
  Department was
  still “holding onto it” because views of other Departments
  had not been
  received. [EXHIBIT 145, at page 3]

  Chapter 18

  212

  [18.9] NO MENTION OF KINHILL KRAMER

  The most significant aspect of Mr Hitolo’s brief was that he
  assumed the

• Page 237 of 397

• Chinese proposal was still the favoured option. There was no
  indication
  that the Kumagai Gumi/Kinhill Kramer proposal was being
  reconsidered or
  that Kinhill Kramer was to be given the opportunity to lodge
  a fresh
  proposal.

  In retrospect this is very interesting, because it was only
  eighteen days
  after this brief was presented to the Minister for
  Transport, that Kinhill
  Kramer was selected by the National Executive Council to
  undertake the
  project. It is apparent therefore that, iess than three
  weeks before that
  decision, the Secretary for Works was completely unaware of
  the Kinhill
  Kramer proposal.

  But it was not only the Department of Works that was
  ignorant of the
  Kinhill Kramer proposal. The Department of Transport was
  also unaware
  of it, until at least seven days before the National
  Executive Council’s
  decision in favour of that company.

  MINISTER INSTRUCTS DEPARTMENT OF TRANSPORT TO EXPEDITE POLICY
  SUBMISSION

  [18.10] MINISTER FOR TRANSPORT INSTRUCTS HIS DEPARTMENT TO FINALISE
  SUBMISSION TO NATIONAL EXECUTIVE COUNCIL

  On 13 February 1992 the Minister for Transport wrote to the
  Secretary for
  Transport in the following terms:

  Chapter 18

  213

  ‘RE: BURNS PEAK NEC SUBMISSION

  This matter has been dragging on for quite sometime. I
  would like to have the
  matter discussed at the next NEC meeting which is on the
  19th of February,
  1992,

• Page 238 of 397

• You are required to have the submission in order for
  presentation on the above date. Discuss with me on any hold
  up on the matter.’ [EXHIBIT 147]

  i.11] NO INDICATION THAT KINHILL KRAMER PTY LTD WOULD BE
  CONSIDERED

  There is no indication in the Minister’s instruction that he
  had changed his
  mind about favouring the Chinese consortium. There is no
  suggestion an
  invitation would be extended to any other consortium to put in
  a late bid.
  The Secretary was simply required to have “the submission”
  ready for
  presentation.

  The fact that the Minister did not ask that the submission be
  altered adds
  to the mystery surrounding the subsequent lodgment of the
  Kinhill Kramer
  proposal.

  The Minister’s instruction was received in the Department of
  Transport
  Secretariat the following day, 14 February 1992, and the
  Secretary made
  the following handwritten notation on it:

  ‘Pis action urgently
  Finance and Attorney General Depts views must be
  obtained.’ (EXHIBIT 147)

• Page 239 of 397

• Chapter 18

  214

  [18.12] VIEWS OF OTHER DEPARTMENTS WERE NOT OBTAINED

  It is interesting to note the Secretary’s insistence that
  views be obtained
  from the Department of Finance and Planning and the
  Department of
  Attorney-General. They never were. Both these Departments
  were given
  the opportunity to comment on the previous draft submission
  (the one
  circulated in December 1991 favouring the Chinese
  consortium) – but they
  failed to respond.

  Neither Department was given the opportunity to comment on
  the
  submission which led the National Executive Council to the
  decision in
  favour of Knhill Kramer Pty Ltd.

  [18.13] DEPARTMENT OF TRANSPORT’S IGNORANCE OF THE KINHILL KRAMER
  PROPOSAL

  On 17 February 1992 the Secretary for Transport wrote to the
  Secretary
  for Works.

  This was, in effect, a protest note. Mr Amini had just
  obtained a copy of
  the brief Mr Hitolo gave to the Minister for Transport and
  was obviously
  very cross that the Secretary for Works had prepared it,
  rather than
  himself. Mr Amini stated:

  ‘The matter of Spring Garden Road is the responsibility
  of the Department of
  Transport until such time as the consortium is selected
  and all the detailed

• Page 240 of 397

• contracting arrangements are completed. At the time of
  design and
  construction, the DOW will be fully involved.” [EXHIBIT
  149]

  Chapter 18

  215

  Later in this letter, Mr Amini made a very frank and startling
  admission:

  “In the draft NEC submission dated 17 July 1991 on the financing
  of Spring
  Garden Road prepared by you while you were with the Department of
  Transport, you evaluated five consortiums, however, we do not
  have any
  proposals from any companies except the Chinese consortium- If
  you do have
  any of the information, please arrange to send it to me at your
  earliest
  convenience.” [EXIBBIT 149, emphasis added]

  In other words, Mr Amini was saying this: of the five proposals
  short-
  listed for the consideration of the Ministerial Committee in July
  1991, only
  one was still in the possession of the Department of Transport as at
  17
  February 1992 – the Chinese one.

  This was only seven days before the National Executive Council
  decision
  in favour of Kinhill Kramer.

• Page 241 of 397

• This disturbing situation prompted two questions for the Ombudsman
  Commission during the course of the investigation:

  What had happened to the remaining four proposals? and

  Was the Kinhill Kramer proposal that was eventually
  approved by the National Executive Council one of the four
  “lost”, or was it a new proposal?

  Chapter 18

  216

  [18.14] WHAT HAD HAPPENED TO THE FOUR LOST PROPOSALS?

  This question has already been addressed in Chapter 11: the
  proposals
  were left in the Minister for Transport’s office on 18 July
  1991 and have
  never been seen since. The Department of Transport had not
  kept copies
  of them, nor requested copies from the companies which
  submitted them.

  [18.15] WAS THE KINHILL KRAMER PROPOSAL A NEW PROPOSAL?

  The Ombudsman Commission put this question to the Executive
  Chairman
  of Kinhill Kramer Pty Ltd, Mr Frank Kramer. He testified
  that previously
  Kinhill Kramer had submitted a joint proposal with Kumagai
  Gumi Ltd. But
  Kumagai Gumi had lost interest in the project and Kinhill
  Kramer decided
  to submit its own proposal.

• Page 242 of 397

• This candid response begged other questions:

  Was Kinhill Kramer invited to submit a new proposal?

  If so, when?

  Who invited Kinhill Kramer to submit their proposal?

  These important issues are explored in Chapter 19.

  Chapter 18

  217

  19. HISTORY OF THE PROPOSAL BY
  KINHILL KRAMER PTY LTD

  [19.1] INITIAL INTEREST OF KINHILL KRAMER

  The Executive Chairman of Kinhill Kramer Pty Ltd, Mr F M
  Kramer CBE,
  said his company first became interested in the Spring Garden
  Road/Poreporena Freeway project as early as 1987 or 1988,
  when Mr Roy
  Yaki was the Minister for Transport in the Government led by
  the Rt. Hon.
  Paias Wingti. Mr Yaki had sent Kinhill Kramer a letter
  explaining the priority to be given to the project.
  to be given to the project.

  However, nothing came of this and, according to Mr Kramer,
  the project
  “went quiet for several years”.

  INTEREST SHOWN IN THE PERIOD 1990 – FEBRUARY 1992

  [19.2] TECHNICAL FEASIBILITY REPORT SUBMITTED IN 1990

  The next time Kinhill Kramer showed interest was the first
  half of 1990,

• Page 243 of 397

• when it submitted a ‘Technical Feasibility Report’ to the
  Department of
  Transport. [EXHIBIT 7B]

  Chapter 19

  218

  Mr Kramer said this document was given to the Department of
  Transport
  on an unsolicited basis. Its purpose, he said, was to
  demonstrate the
  advantages of constructing an arterial road link from
  downtown Port
  Moresby to Jacksons Airport, to provide a comparison of the
  tunnel/cut
  options and to give an estimate of the project cost.

  The cost of the project was estimated to be K40 million.
  [EXHIBIT 7B at page 15]

  [19.3] NEXT EXPRESSION OF INTEREST: JUNE 1990

  The next time Kinhill Kramer expressed interest was June
  1990, following
  the advertisement inviting expressions of interest.

  By this time Kinhill Kramer had come to an arrangement with
  Kumagai
  Gumi Co Ltd of Japan, a company which Kinhill Kramer had
  worked with
  on other projects in Papua New Guinea: the Morobe Sports
  Complex in
  Lae and PTC Haus and Revenue Haus in Port Moresby.

  A letter dated 25 June 1990 was sent to the Department of
  Transport by
  the “Kumagai Gumi-Kinhill Kramer Consortium”. It stated:

  ‘Dear Sir,

• Page 244 of 397

• RE PROPOSED SEAPORT – AIRPORT ARTERIAL LINK
  (INCORPORATING THE BURNS PEAK TUNNEL)

  We refer to various meetings during the past few weeks
  (HTTOLO/ICIMURA)
  regarding the above proposed project.

  We are pleased to advise that Kumagai Gumi Co. Ltd. of
  Japan and ICinhill
  Kramer Pty. Ltd. of P.N.G. have formed a consortium for
  this project.

  Chapter 19

  219

  The Consortium offers the following advantages to the Department.

  (i) Attractive semi-concessional finance package which is already
  known
  and acceptable to the Department of Finance and Planning and
  which
  is currently being used by the P.N.G. Government for a variety
  of
  projects.

  Through Kumagai Gumi Co. Ltd., the Consortium offers tunnelling
  and
  construction expertise from one of Japan’s leading companies in
  these
  fields.

  Through Kinhill Kramer, the Consortium offers the region’s
  largest
  engineering design capabilities for major engineering projects.

  (iv) The Consortium has already commenced a Toll/Revenue Study which
  is expected to be completed in approximately 3 weeks.

  (v) Given the above factors, this Consortium is the only one who
  may be
  in a position to complete the project by the end of 1991.

• Page 245 of 397

• For your information, we enclose herewith our two company’s
  brochures, Terms
  and Conditions of the Finance Package available, and a set of
  drawings for the
  project

  The basic proposal is to divide the project into three stages as
  follows:

  Stage 1: From the sea-port area to Wards Road including the first
  barrel
  of a twin-barrel tunneL

  Stage 2 Section from Wards Road to the Kennedy Rd/Boroko Dr./Geauta
  Dr. Curie.

  Stage 3: The Section from Kennedy Rd./Boroko Dr./Geauta Dr. Circle
  to the Airport., including the second barrel of the tunneL

  Details of the total proposal can be finalised by mutual
  arrangement.

  The offer is for a full TURN-KEY package comprising design,
  construction and
  finance.

  Should you be interested in our offer, please contact the
  undersigned.

  Yours faithfully,
  KUMAGAI GUMI KIN LL KRAMER CONSORTIUM
  [Signed]
  MR Y. KIMURA
  General MANOWI
  [EXHIBIT 16]

  Chapter 19

  220

  • [19.4] TERMS AND CONDITIONS OF THE KUMAGAI GUMI-KINHILL KRAMER

• Page 246 of 397

• FINANCE PACKAGE NOT IN POSSESSION OF THE DEPARTMENT OF
  TRANSPORT

  The letter of 25 June 1990 suggests the terms and
  conditions of the
  finance package were to be enclosed with the letter.
  However, when we
  examined the files of the Department of Transport, no
  record of these
  terms and conditions could be found.

  When Mr Kramer was asked to produce this letter and its
  enclosures, he
  produced the letter, but the only enclosures attached
  were two identical
  drawings entitled “Moresby-Jacksons/Airport Arterial
  Link Through Burns
  Peak”. [EXHIBIT 16 ]

  The Ombudsman Commission was left in a quandary as to
  what the terms
  and conditions of Kumagai Gumi-Kinhill Kramer’s 1990
  finance package
  actually were. It was only when all the files of the
  Department of Works
  were made available, that we could piece together what
  appeared to be
  the true situation.

  [19.5] WHAT WAS THE KUMAGAI GUMI_KINHILL KRAMER ‘FINANCIAL
  PACKAGE’?

  The files of the Department of Works suggest that there
  were four one-
  page documents attached to the letter of 25 June 1990.
  These were:

  Chapter 19

  221

  1 A document entitled “Information Received from the Export-
  Import Bank of Japan”. This document stated that the typical
  terms and conditions of EXIM financing included an interest
  rate of 7.6% per annum, repayable 5-8 years after the
  completion of the project. [EXHIBIT 16A]

• Page 247 of 397

• 2. A flowchart entitled “Kumagai Gumi Co Ltd Overview Flow”.
  This document purported to show some financial
  relationships between the PNG Government, Kumagai Gumi
  Ltd, an un-named Japanese trading company and the EXIM
  Bank. However, as the flowchart was not referred to in the
  letter of 25 June, 1990, it was difficult to understand its
  relevance to the expression of interest. [EXHIBIT 16B]

  3. A document entitled “Operational Framework”. This document
  appeared to describe the various lending schemes available
  from the EXIM Bank. However, the EXIM Bank was not
  actually referred to and so a person reading the document
  could easily have been confused about its relevance.
  [EXHIBIT 16C]

  4. A document entitled “Note to the EXIM Bank Loan
  Conditions”. Like the first document referred to above, the
  purpose of this document appears to have been to describe
  the conditions attached to EXIM Bank financing. The copy of
  the document we obtained from the Department of Works’
  files is confusing, as various sections have been crossed-
  out and others inserted, in an unknown person’s handwriting.
  We are unclear whether the document was presented to the
  Department of Transport in this form. [EXHIBIT 16D]

  Chapter 19

  222

  These four documents were appended to the letter of 25 June
  1990 in a
  way that was, in our view, quite confusing.

  When we suggested this in our preliminary report, Mr Kramer
  replied that
  the documents were appended in a way that was the “industry
  norm”
  given the circumstances. He described the expression of
  interest as a
  “carefully considered business communication prepared by and
  with one
  of the world’s great engineering enterprises”.
  [EXHIBIT 253 paragraphs 5 and 8]

  Be that as it may, our view is that the Department of
  Transport or any
  other governmental body receiving proposals from private
  corporations for

• Page 248 of 397

• kina projects should insist on a much higher standard
  of
  documentation.

  [19.6] MR HITOLO’S EXPLANATION

  When we suggested in our preliminary report that the Kumagai
  Gumi-
  Kinhill Kramer proposal was vague and should not have been
  regarded as
  acceptable, we received the following response from Mr
  Hitolo, the former
  head of the Policy Secretariat in the Department of
  Transport:

  “Kumagai Gami-lCinhfil Kramer consortium proposal is the
  classical example
  of the other three proposals that got lost except for the
  Chinese. In fact they
  never submitted a definite proposal consistent with the
  B.O.T. concept of the
  Terms of Reference. So in fact most of them were vague and
  unprofessionally
  done purely letter show of interest or trying to buy time
  for them to organise
  finandng. Hence, the deadline was extended 2 or 3 times as
  I cannot recall
  properly but I know I had discussions with some of the 5
  short listed
  companies. The deadline had expired and the so-called
  Ministerial Committee
  was to be briefed. The Secretary of Department of
  Transport directed Mr
  Parakei and me to brief them and the so-called proposals
  were taken up to
  Parliament. At least he should have stopped it or attend
  himself but this is the
  type of attitude he has been portraying throughout the
  project’.
  [EXHIBIT 265, pant 12]

  Chapter 19

• Page 249 of 397

• 223

  Mr Hitolo is suggesting the Department of Transport was put
  under
  pressure by the Minister for Transport to rank the proposals
  for the
  Ministerial Committee meeting in July 1991. He concedes that
  most of the
  proposals, including Kinhill Kramer’s, were only letters of
  interest, rather
  than firm proposals. Under normal circumstances, most of the
  proposals
  would not have been regarded as acceptable.

  [19.7] THE KINHILL KRAMER FINANCIAL PROPOSAL WAS NEVER PUT IN
  PRECISE TERMS

  There was no other occasion on which Kinhill Kramer’s
  financial proposal
  was formally put to the Department of Transport in more
  precise terms
  than in the letter of 25 June 1990. Mr Kramer said that
  further details were
  delivered to the relevant persons and departments on
  numerous
  occasions after June 1990. [EXHIBIT 253, paragraph 5]

  However, this must have been done on an informal basis, as
  there is no
  record of these events in any of the Departmental files and
  Mr Kramer did
  not provide us with any record of the meetings.

  [19.8] FURTHER CORRESPONDENCE IN JULY 1990
  The next occasion on which Kumagai Gumi-Kinhill Kramer
  expressed
  interest was in a letter dated 31 July 1990. This was in
  response to a
  letter from the Department of Transport, inviting a detailed
  proposal from
  the consortium. [EXHIBIT 31]

  Chapter 19

  224

  We reported in Chapter 6 that the Department of Transport was

• Page 250 of 397

• wrong to
  only invite proposals from a select group of companies. The
  Kumagai
  Gumi-Kinhill Kramer consortium was among the selected group.

  However, the letter of 31 July 1990 did not elaborate on the
  financial
  proposal that had earlier been given to the Department.

  [19.9] TRAFFIC REVENUE STUDY: AUGUST 1990

  Mr Kramer stated to the Ombudsman Commission that around
  August
  1990, he had submitted a document to the Department of
  Transport
  entitled “Port Moresby to Jacksons Airport Arterial Road Link
  Via Burns
  Peak Tunnel Preliminary Traffic and Revenue Report”. This
  document was
  prepared by Kinhill Cameron McNamara Pty Ltd of Milton,
  Queensland,
  Australia. [EXHIBIT 37]

  The report provided an analysis of expected revenue on the
  assumption
  that certain parts of the Spring Garden Road network would
  become a
  tollway.

  Mr Kramer indicated that, like the “Technical Feasibility
  report” presented
  to the Department of Transport in the first half of 1990, the
  Traffic and
  Revenue Report had been given to the Department of Transport
  on an
  unsolicited basis as an indication of the seriousness of the
  interest in the
  project by the Kumagai Gumi-Kinhill Kramer consortium.

  Chapter 19

  225

  [19.10] FURTHER INTEREST EXPRESSED BY KUMAGAI GUMI-KINHILL KRAMER;
  MAY 1991

  In early 1991 the Department of Transport had prepared a

• Page 251 of 397

• document
  entitled ‘Terms of Reference for Spring Garden Road”. In
  Chapter 10 we
  criticised this document: it was vague and poorly prepared.
  These
  concerns were also expressed by the World Bank (see Chapter
  15).

  Another concern was that, like the July 1990 invitation for
  proposals, the
  Terms of Reference document was only circulated to a few of
  the
  companies which had expressed interest in the project. The
  Kumagai
  Gumi-Kinhill Kramer consortium was again among the selected
  group.

  On 20 May 1991 the Kumagai Gumi-Kinhill Kramer consortium
  wrote a
  brief letter to the Department of Transport, in response to
  the Terms of
  Reference document. The letter, again, did not elaborate on
  earlier
  correspondence and stated that the details of the finance
  could be
  “finalised by mutual arrangement.” [EXHIBIT 86]

  [19.11] NO FURTHER CORRESPONDENCE AFTER MAY 1991

  There was no further correspondence between the Kumagai
  Gumi-Kinhill
  Kramer consortium and the Department of Transport after the
  letter of 20
  May 1991.

  Kumagai Gumi Ltd had no further involvement in the project.
  As to Kinhill
  Kramer Pty Ltd, their next involvement was in February 1992
  when they
  were invited to submit another-proposal.

  Chapter 19

  226

  [19.12] FINDINGS REGARDING THE KUMAGAI GUMI-KINHILL KRAMER
  PROPOSAL

  In light of the above, the Ombudsman Commission makes the
  following

• Page 252 of 397

• findings regarding the proposal by the Kumagai Gumi-Kinhill
  Kramer
  Consortium:

  1. The consortium formally expressed interest in the
  project on
  three occasions: June 1990, July 1990 and May 1991.

  2. On the first occasion, the consortium’s financial
  proposal was
  attached to the letter of interest. The proposal
  should not,
  in the opinion of the Ombudsman Commission, have been
  regarded by the Department of Transport as a firm
  proposal
  for financing the project. It should only have been
  regarded
  as an expression of interest. The next two letters of
  interest
  failed to give further details.

  3. As a result of the Minister for Transport’s arbitrary
  shortlisting
  procedure in the first half of 1991, Kumagai Gumi-
  Kinhill
  Kramer was one of five consortiums considered by the
  Ministerial Committee at the meeting of 18 July 1991.
  It was
  ranked number three. (See Chapter 9.)

  4. It is impossible to conclude precisely the form in
  which the
  Kumagai Gumi/Kinhill Kramer proposal was presented to
  that
  meeting, because it was one of the four proposals
  subsequently lost. However, it is clear there was
  never at any
  time a single document which embodied the Kumagai
  Gumi
  Kinhill Kramer proposal.

  Chapter 19

  227

  5. It appears the proposal consisted of the three
  letters of
  interest, the collection of documents which
  constituted the
  financial proposal and the Technical Feasibility
  Report
  prepared by Kinhill Kramer in April 1990.

• Page 253 of 397

• 6. Thus, the proposal submitted by Kinhill Kramer Pty
  Ltd in
  February 1992 was an entirely new proposal, in which
  Kumagai Gumi Ltd had no involvement at all.

  THE FEBRUARY 1992 PROPOSAL

  [19.13] NO RECORD OF LODGMENT IN DEPARTMENT OF TRANSPORT FILES

  As the Commission has remarked many times in this report,
  the extent to
  which important decisions, policies and events were being
  documented by
  the Department of Transport left a great deal to be desired.
  We make the
  same comment in relation to the events of February 1992,
  when Kinhill
  Kramer Pty Ltd lodged the proposal which resulted in it
  being awarded
  the contract for the Spring Garden Road/Poreporena Freeway
  project.

  There is no record in the Department’s files of when that
  proposal was
  lodged or why IGnhill Kramer was permitted to lodge it. Nor
  is there any
  record of its evaluation by officers of the Department. In
  fact, the only
  record of its existence is its inclusion as an appendix to
  the Policy
  Submission which led to the decision by the National
  Executive Council in
  the company’s favour on 24 February 1992.

  When we made these allegations in our preliminary report,
  the Secretary
  for Transport responded in the following terms:

  Chapter 19

  228

  The Department received this additional information from
  the Minister, who
  requested the information direct from the developer for
  clarification purposes
  at a meeting with the consortium. As I have said above,
  if a proposal has the

• Page 254 of 397

• potential to deliver the services, but lacks details,
  additional information can be
  sought.” [EXHIBIT 254, pars 141

  With due respect to Mr Amini, he has not addressed the point
  of our
  criticism.

  A full and proper record should have been made of the
  receipt of the
  Kinhill Kramer proposal. At the very least, a date-received
  stamp on the
  proposal should have indicated when it was received. There
  should have
  been some indication of when, how and by whom the proposal
  was
  evaluated. However, there was just no record of its
  lodgment.

  In the opinion of the Ombudsman Commission this is not good
  enough.
  The lodgment of a proposal for a multi-million kina project
  – especially the
  proposal which is successful – should not be shrouded in
  mystery. The
  Department of Transport failed in its duty to keep a proper
  public record
  of this important event.

  [19.14] ORAL EVIDENCE GIVEN TO THE OMBUDSMAN COMMISSION

  Because of the gap in the Departmental records, the
  Ombudsman
  Commission was forced to rely on oral evidence given in the
  course of the
  investigation to determine the circumstances in which the
  proposal was
  lodged. We considered evidence from the Executive Chairman
  of Knhill
  Kramer, Mr Kramer, the Minister for Transport, Mr Temo and
  the Secretary
  for Transport, Mr Amini.

• Page 255 of 397

• Chapter 19

  The evidence of Mr Kramer

  Mr Kramer stated that the February 1992 proposal was submitted as a
  result of a telephone call by an officer of the Department of
  Transport. He
  said the caller advised him that, of all the consortiums which had
  bid for
  the project, there were only two that the Government was still
  interested
  in: the Kumagai Gumi-Kinhill Kramer consortium being one of them. Mr
  Kramer said the caller invited him to update his bid or re-confirm
  it.

  Mr Kramer could not recall who the caller was. Inquiries by the
  Ombudsman Commission during this investigation have also failed to
  reveal the identity of the caller. There is no evidence on the
  Department
  of Transport’s files of this important phone call being made.

  As to the date of the telephone call, Mr Kramer stated, after
  checking
  records kept in his company’s office, that it was on or about 17
  February
  1992.

  Evidence of the Secretary for Transport
  Mr Amini said the Department had reluctantly considered this late
  proposal
  because they had been instructed to do so by the Minister for
  Transport.
  There had been a meeting between the Minister for Transport and
  representatives of Kinhill Kramer which had taken place before the
  Klnhill
  Kramer proposal was lodged.

  As to the date of lodgment, Mr Amini stated that it was at “the last
  minute”.
  By that, he meant that it was only a day or so before the meeting of
  the
  Resource Management Committee which was held on 20 February 1992
  (see Chapter 20).

  Chapter 19

  230

• Page 256 of 397

• Evidence of the Minister for Transport

  Mr Temo’s recollection of these events was not very clear,
  but he
  indicated that all of the consortiums which had been
  shortlisted in 1991
  were invited to update their proposals. Mr Temo said only
  Kinhill Kramer
  was “still interested”.

  Mr Temo denied giving Kinhill Kramer favoured treatment:

  ‘Kinhill Kramer proposal was brought in by the
  Department’s advise that the
  Chinese proposals were confusing because of change of
  companies. Also we
  need to have 1 or 2 companies who are already based in
  PNG and who have
  registered interest and have a reasonable grading in the
  Department’s criteria.

  The Secretary advised that the Chinese wanted to bring in
  a lot of Chinese to
  be as labourers they did not have reputation. The
  Secretary advised we should
  give the NEC a choice of expensive, neat and quality work
  and cheap and poor
  Pe°Ple-
  As a result the NEC decision to go for Kinhill Kramer, I
  did not favour any
  company after the Department’s advice` [EXHIBIT 257 pages
  5-61

  [19.15] FINDINGS OF THE OMBUDSMAN COMMISSION REGARDING THE
  FEBRUARYAN2TROPOSAL: KINHILL KRAMER PTY LTD WAS INVITED
  TO LODGE A LATE PROPOSAL

  We do not accept Mr Temo’s claim that all shortlisted
  consortiums were
  given the opportunity to update their proposals. There is no
  evidence in
  the Department of Transport’s files that this was done and
  Mr Temo was
  unable to produce any documentary evidence to corroborate

• Page 257 of 397

• the claim.
  We found Mr Amini’s evidence to be more credible than Mr
  Temo’s.

  Chapter 19

  231

  We accordingly conclude that Kinhill Kramer was invited by
  the
  Department of Transport to submit a late proposal and that
  the invitation
  was issued on the instructions of the Minister for
  Transport.

  The opportunity given to Kinhill Kramer to lodge a late
  proposal was 1o1
  given to any other company which had expressed interest in
  the project

  When Mr Kramer was invited to comment on this finding in
  our preliminary
  report, he denied his company had been invited to submit a
  fresh bid. The
  invitation, he said, was only to “update” the 1990
  proposal.

  Irrespective of the exact wording of the invitation – i.e.
  whether the
  telephone caller asked Mr Kramer to “update” the proposal
  or to submit I

  a fresh bid – we conclude that Kinhill Kramer took the
  opportunity to lodge
  a fresh proposal.

• Page 258 of 397

• 19.16] KINHILL KRAMER PTY LTD WAS GIVEN FAVOURED TREATMENT

  In his written response to the Ombudsman Commission’s
  preliminary
  report, Mr Kramer denied that it was unfair to other
  interested parties, to
  allow Kinhill Kramer to lodge a proposal in February 1992:

  ‘Your investigators miss the point in rejecting
  Minister Temo’s ‘claim’ that all
  shortlisted consortiums were given the opportunity to
  update their proposals.

  The Tunson Engineering proposal, for one, needed no
  updating. It was only a
  matter of months old – by contrast with the Kumagai
  Gumi proposal (some 2
  years out of date). There could have been no
  unfairness in inviting novation
  of our proposal, in those circumstances.” (EXHIBIT
  253, paragraph 11]

  We accept Mr Kramer’s point that the proposal by Tunson
  Engineering Co
  Ltd did not need updating. But many other proposals di d
  need updating.

  Chapter 19

  232

  [19.17] WHY WERE OTHER CONSORTIUMS NOT CONTACTED?
  We do not understand why other companies whose proposals
  were also
  out of date were not given the opportunity to update them.
  None of the
  three consortiums shortlisted for consideration by the
  Ministerial
  Committee in July 1991, were given this opportunity. Those
  consortiums
  were:

  Periquan’s International Resources Pty Ltd and Pan
  Asia
  Management Consultants Centre

• Page 259 of 397

• Tasman Pacific International and Crooks Mitchell
  Peacock
  Stewart Pty Ltd

  McConnell Dowell. [See Chapter 11]

  In particular, it is very strange the Periquan consortium –
  ranked ahead of
  Kumagai Gumi-Kinhill Kramer in July 1991 – was not invited
  to update its
  bid.

  The Ombudsman Commission concludes that Kinhill Kramer Pty
  Ltd was
  given favoured treatment.

  It was unfair to the other companies which had expressed
  interest in the
  project for only IGnhill Kramer to be allowed to submit a
  late proposal. It
  was a totally unsatisfactory situation. It was wrong of the
  Minister for
  Transport to direct his Departmental Head to consider a late
  proposal
  from only one company.

  When this sort of thing happens, it is hardly surprising
  that allegations of
  bribery and corruption surface.

  Chapter 19

  233

  WHEN WAS THE KINHILL KRAMER PROPOSAL LODGED?

  [19.18] DATE OF LODGMENT OF THE PROPOSAL

  The Ombudsman Commission is satisfied that by the time the
  Resource
  Management Committee met on 20 February 1992, the Kinhill
  Kramer
  proposal had been lodged. The records of that meeting reveal
  that the
  Kinhill Kramer proposal was considered. [EXHIBITS 151A &
  152]

  This means the proposal was lodged at some time before 20
  February
  1992.

  The Ombudsman Commission also concludes that the proposal

• Page 260 of 397

• was
  lodged no earlier than 17 February 1992, for the following
  reasons:

  Mr Kramer testified he had received the phone call
  inviting
  the proposal on or about that date.

  Mr Amini’s letter to the Secretary for Works of 17
  February
  1992, clearly shows that the only proposal in the
  possession
  of the Department of Transport on that date was the
  proposal by the Chinese consortium (see Chapter 18
  and
  EXHIBIT 149).

  Thus, the Kinhill Kramer proposal was in all probability
  lodged on 18 or 19
  February 1992: only five or six days before the National
  Executive Council
  decided to award the project to this company.

  Chapter 19

  234

  The Ombudsman Commission finds it incredible that following a
  decision-
  making process that had been proceeding for more than two years
  (since
  NEC Decision 14/90 on 24 January 1990) the decision on such an
  important project, with its huge financial implications for the
  State, could
  be made in this way.

  * * * * * * * * * *

• Page 261 of 397

• Chapter 19

• Page 262 of 397

• 235

  20. RESOURCE MANAGEMENT COMMITTEE RECOMMENDS
  RE-TENDERING OF PROJECT: 20 FEBRUARY 1992

  1

  [20.1] MEETING HELD TO DISCUSS THE PROJECT

  On 20 February 1992 a meeting of the Resource Management
  Committee
  was held to discuss the Spring Garden Road/Poreporena
  Freeway project.
  This meeting was necessary because of the administrative
  requirement
  that submissions to the National Executive Council
  involving un-budgeted
  allocation of resources be considered by the Resource
  Management
  Committee and the National Planning Committee, before
  being finally
  presented. [National Executive Council Submissions
  Handbook, paragraph
  1.23, Exhibit 1]

  The Secretary for Transport, Mr Amini, was present at the
  meeting and
  introduced the Policy Submission entitled “Financing the
  Construction of
  the Spring Garden Freeway”.
  1

  It is clear that, by this stage, the version of the Policy
  Submission being
  discussed was the one actually presented to the National
  Executive
  Council on 24 February 1992, i.e. the one which gave a
  choice of two 1
  consortiums: the Chinese and Kinhill Kramer. [NEC Policy
  Submission No.
  33/92, EXHIBIT 148]

• Page 263 of 397

• I

  Chapter 20

  236

  [20.2] RECOMMENDATIONS OF THE RESOURCE MANAGEMENT COMMITTEE

  After the meeting, the Chairman, Mr B Bai CBE, prepared a
  submission
  from the Resource Management Committee to the National
  Planning
  Committee. [EXHIBIT 151 A]

  The submission expressed the following views:

  The Resource Management Committee was not impressed
  with either the Chinese (Tunson Engineering) proposal
  or the
  Kinhill Kramer proposal: neither was considered
  suitable as
  they were based on turnkey financing, ‘Which is too
  expensive for the Government” (paragraph B3).

  Rather than build a freeway from downtown Port Moresby
  to
  the Airport, it would be better to proceed in stages;
  the first
  stage being the Champion Parade-Wards Road section,
  through Burns Peak: “this will enable financing for the
  construction to be easily secured” (paragraph B4).

  The project should be re-tendered: “the Department of
  Transport in calling for tenders should specify and
  advertise
  widely on both Build-Operate-Transfer and Turnkey
  proposals. It should also specify that the Government
  would
  prefer the Build-Operate-Transfer proposal” (paragraph
  B5).

  If the Government cannot secure finance, a loan could
  be

• Page 264 of 397

• negotiated to fund the project (paragraph B7).

  Chapter 20

  237

  [20.3] RECOMMENDATIONS CONVEYED TO MINISTER BY SECRETARY FOR
  TRANSPORT

  The Secretary for Transport conveyed the recommendations of
  the
  Resource Management Committee to the Minister for Transport
  on 21
  February 1992. Mr Amini stated:

  Both the proposals, namely the Chinese and the Kinhill
  Kramer’s are turn-
  key proposals. The country has had very bad experience
  from turn key projects.
  Normally, Papua New Guinea does not benefit from turnkey,
  and the benefits
  are derived by the country which provides the funding.
  Also, the turnkey
  financing is very expensive. Although turnkey method of
  financing as proposed
  by the Chinese and Kinhill’ Kramer is convenient, it is
  not in the interest of
  PNG’ [EXHIBIT 152, paragraph 5]

  In the opinion of the Ombudsman Commission, Mr Amini acted
  property
  in bringing these matters to the attention of the Minister.
  As we have
  emphasised throughout this report, the Government’s top
  advisers have
  a duty to give advice fearlessly and forcefully at all times,
  which means it
  is usually necessary to give the advice in writing or confirm
  verbal
  briefings or advice in writing.

• Page 265 of 397

• [20.4] SECRETARY FAILED TO ADVISE MINISTER OF REQUIREMENTS OF
  PUBUC FINANCES (MANAGEMENT) ACT

  However, we find it necessary to make a criticism of Mr
  Amini’s advice to
  the Minister.

  We point out that this is a criticism of the Secretary for
  Transport – not a
  condemnation. We appreciate the difficult position he had
  been put in by
  the Minister for Transport’s indiscretion in October 1991,
  when he signed
  the contract for construction of the freeway with Tunson
  Engineering Co

  Chapter 20

  238

  Ltd. We do not intend to cast all the blame on the Secretary for a
  wrongful act of the Minister. The Minister must, clearly, carry
  responsibility
  for his decision to sign that contract (see Chapter 14).

  Our criticism is that, though the Secretary properly suggested to
  the
  Minister in February 1992 that the Champion Parade to Wards Road
  section of the project be put to tender, he did not say why it was
  so
  important to do this.

  As we show in Chapter 35, this project was subject to the normal
  public
  tender procedures in the Public Finances (Management) Act. The
  Secretary should have pointed this out to the Minister. The message
  should have been clearly and unambiguously given to the Minister
  formally, in writing – that his signing of the contract in October
  1991 had
  been unlawful and that it was necessary to follow normal tender
  procedures.

  Mr Amini responded to this allegation in the following terms:

• Page 266 of 397

• ‘The Minister was appropriately advised and, as further step, I
  sought advice
  from the Department of Attorney General, Department of Finance
  and Planning
  and the Loans Borrowing Committee but none responded. As far as I
  am
  concerned, what was critical was that the Minister did not have
  the delegated
  powers to sign the contract. That is what I highlighted to him.
  That advice did
  work and no harm was done. The effectiveness of my actions should
  be
  acknowledged.’ [EXHIBIT 254, para 161

  In the opinion of the Ombudsman Commission, this does not adequately
  explain the Secretary’s failure to advise the Minister of the
  requirements of
  the Public Finances (Management) Act, either on this occasion (the
  brief
  of 21 February 1992) or any other occasion.

  Chapter 20

  239

  We have found that the Secretary for Transport did not at any
  time during
  the life of the project, advise the Minister in writing of
  the need to follow
  the public tender procedures in the Public Finances
  (Management) Act.

  As permanent head of the Department of Transport, it was the
  Secretary’s
  duty to ensure that the provisions of the Act were complied
  with in relation
  to his Department. He failed to discharge this important
  duty.

  [20.5] THE SECRETARY’S ADVICE WAS TOO LATE

  The Ombudsman Commission concludes that, while the Secretary

• Page 267 of 397

• for
  Transport acted properly in bringing the recommendations of
  the
  Resource Management Committee to the attention of the
  Minister, it really
  was a case of “too-little-too-late”.

  The crucial advice he gave on 21 February 1992 – only three
  days before
  the National Executive Council decided to award the project
  to Kinhill
  Kramer – should have been given in much clearer terms and a
  long time
  before it eventually was.

  [20.6] CHAIRMAN OF RESOURCE MANAGEMENT COMMITTEE PRESENTS
  RECOMMENDATIONS TO THE NATIONAL EXECUTIVE COUNCIL

  The usual procedure with recommendations of the Resource
  Management
  Committee is that they are presented to the National Planning
  Committee,
  before going to the National Executive Council. [EXHIBIT 1,
  para 1.23]

  Chapter 20

  240

  In this case, however, the National Planning Committee
  was by-passed
  and the recommendations were forwarded direct to the
  National Executive
  Council.

  The recommendations were tabled in the National
  Executive Council and
  the Chairman of the Resource Management Committee, Mr
  Bai, on
  direction from the Prime Minister, presented the
  Committee’s views at the
  National Executive Council meeting on 24 February 1992.
  [EXHIBITS 151 A – 151 B]

  [20.71 RESOURCE MANAGEMENT COMMITTEE RECOMMENDATIONS
  REJECTED

  All the recommendations of the Resource Management

• Page 268 of 397

• Committee were
  rejected. Instead, the National Executive Council
  decided to award the
  project – a freeway from downtown Port Moresby to
  Jacksons Airport – to
  Kinhill Kramer Pty Ltd.

  * * * * * * * * * *

  Chapter 20

  241

  . THE MINISTER FOR TRANSPORT’S POLICY
  SUBMISSION OF FEBRUARY 1992

  21.1] POLICY SUBMISSION NO. 33 OF 1992: A NEW SUBMISSION

  The Minister for Transport presented Policy Submission No.
  33/92 to the
  National Executive Council at its meeting on 24 February
  1992.
  [EXHIBIT 148]
  Though this document carried the same title as the
  submission dated 17 I
  July 1991 and filed in October 1991, it was a
  fundamentally different
  document (see Chapter 16).
  Whereas the submission dated 17 July 1991 strongly
  favoured the I
  Chinese consortium and ranked a joint proposal from
  Kumagai Gumi and
  Kinhill Kramer as number three in a short-list of five,
  Policy Submission No.
  33/92 gave a choice of two proposals: the Chinese proposal

• Page 269 of 397

• and a
  proposal dated February 1992 from Kinhill Kramer Pty Ltd.

  21.2] THE HURRIED PREPARATION OF THE POUCY SUBMISSION

  The Secretary for Transport testified that Policy
  Submission No. 33/92 was
  prepared by his Department on the instructions of the
  Minister for
  Transport. He further stated that the views expressed in
  it were those of
  his Department.
  11]

  Chapter 21

  242

  Mr Amini conceded the Policy Submission was prepared in a
  rush. Indeed,
  it must have been. The Commission found in Chapter 19 that a
  proposal
  from Kinhill Kramer had been lodged on 18 or 19 February 1992
  and in
  Chapter 20 it was shown that Policy Submission No. 33/92 –
  which
  evaluated the Kinhill Kramer proposal – was considered by the
  Resource
  Management Committee at its meeting on 20 February 1992.

  So, the Policy Submission must have been prepared by the
  Department
  of Transport on 18 or 19 February 1992 after the proposal had
  been
  lodged. We note that it carries the date 14 February 1992.
  However, that
  date cannot be accurate because the proposal was not lodged
  until after
  17 February 1992.

  [21.3] THE SUBMISSION WAS POORLY PREPARED AND DEFECTIVE

  The fact that Policy Submission No. 33/92 was prepared

• Page 270 of 397

• hurriedly is borne
  out by the quality of the document. It was poorly prepared
  and seriously
  defective in a number of important areas.

  When we made findings to that effect in our preliminary
  report, the
  Secretary for Transport responded as follows:

  ‘NEC Secretariat follows strict guidelines, if it was
  poorly done as alleged they
  would have rejected it. Again when it went -to NEC, no
  such comments were
  made I was there. The submission was prepared by Mr
  Parakei, assisted by a
  World Bank technical assistant. This person is now in
  charge of the multi-
  billion dollar new Hong Kong Airport project’ [EXHIBIT
  254, para 171

  Chapter 21

  243

  With due respect to Mr Amini, he has not answered our
  criticism of the
  Policy Submission. The fact that it was not rejected by the
  National
  Executive Council Secretariat and not adversely commented on
  by
  members of the National Executive Council is no guarantee of
  its quality.

  The Ombudsman Commission retains the view that Policy
  Submission No.
  33/92 was poorly prepared and seriously defective. In this
  and the
  succeeding chapter, we explain our reasons for making this
  finding.

• Page 271 of 397

• POOR PRESENTATION OF ISSUES

  [21.4] THE COLLECTION OF CONFUSING APPENDICES

  In finding that Policy Submission No. 33/92 was poorly
  presented, we are
  not referring to the cosmetic appearance of the document. If
  the
  document were to be judged on its appearance, it would have
  to be said
  it appears to be well presented. But the appearance is
  deceptive: a book
  must not be judged by its cover.

  In terms of its presentation of issues, the document is very
  weak. It
  contains numerous appendices, none of which are marked
  alphabetically
  or numerically and none of which are referred to in the text
  of the
  submission. As a consequence, it would have been extremely
  difficult for
  anyone without an intimate knowledge of the project to
  appreciate the
  significance of the appended documents.

  Chapter 21

  244

  All Policy Submissions to the National Executive Council
  should be
  carefully and professionally compiled, so as to present
  issues in a lucid
  and methodical manner to avoid confusion.

  Policy Submission No. 33/92 failed to meet these
  requirements. The ten
  page text of the submission was accompanied by a collection
  of twenty-
  two appendices. The Ombudsman Commission has examined each of
  these and found most to be meaningless and confusing and in
  some
  cases very misleading.

• Page 272 of 397

• [21.5] EXAMINATION OF THE DOCUMENTS APPENDED TO THE POLICY
  SUBMISSION

  The twenty-two appendices (which the Ombudsman Commission has
  itself
  numbered for the purpose of this report) and our comments on
  each of
  them, are as follows:

  Appendix 1: this was the document recording the decisions of
  the
  Ministerial Committee on 18 July 1991.
  It related to paragraph 24 of the submission. However there
  was no cross-
  reference in that paragraph to this document. Readers of the
  submission
  were therefore left to their own devices to assess its
  significance.

  Appendix 2: the contract agreement between Tunson Engineering
  Co Ltd
  and the Minister for Transport of 15 October 1991.
  This document related to paragraph 26 of the submission, but
  again there
  was no cross-reference to the document in the text of the
  submission.

  Chapter 21

  245

  Appendix 3: a letter from the Secretary for Transport to the
  Secretary for
  Works dated 5 December 1991.
  This letter was presumably meant to show that the views of the
  Department of Works on Policy Submission No. 33/92 were sought. But
  the letter of 5 December 1991 was actually seeking views on the
  previous
  draft National Executive Council submission (ie the one dated 17
  July
  1991) – not Policy Submission No. 33/92. It was very misleading to
  include
  this letter as an appendix to the submission.

  Appendix 4: an undated memorandum from Tunson Engineering Co Ltd
  to the Minister for Transport regarding the details of a bank
  account.
  This document is not referred to in the text of the submission. It
  is an
  entirely meaningless and irrelevant document.

• Page 273 of 397

• Appendix 5: the World Bank Aide-Memoire of 28 September 1991. This
  document related to paragraph 26 of the submission, but there was no
  cross-reference to the document in the text of the submission. The
  text
  also failed to draw attention to the most significant recommendation
  in the
  Aid-Memoire: that the project be re-tendered.■
  Appendix 6: a two page undated and unsourced document entitled
  “Information Received from the Export-Import Bank of Japan”.
  This is a completely meaningless document. It bears no relation to
  anything discussed in the submission.

  Appendix 7: a one page unsourced and undated document headed
  “Operational Framework”.
  This is also a completely meaningless document. It bears no relation
  to
  anything discussed in the text of the submission.

  Chapter 21

  246

  Appendix 8: a letter from the Secretary for Transport to the
  Secretary of
  the Department of Prime Minister dated 5 December 1991.
  Like Appendix 3, it gives the impression that the views of another
  Department had been sought. But the only occasion on which the views
  of the Department of Prime Minister were sought on Policy Submission
  No.
  33/92 was during the course of the Resource Management Committee
  meeting on 20 February 1992. And the Resource Management Committee
  recommended that the project be re-tendered.

  Appendix 9: an unsourced and undated document headed “Appendix B
  Preliminary Traffic and Revenue Report”.
  This document is not referred to in the text of the submission. In
  the way
  it is presented, it is just a meaningless set of toll revenue
  figures
  estimated by an unknown person.

  Appendix 10: an unsourced sixteen page document entitled “Port
  Moresby
  to (Jacksons) Airport Arterial Road Link Via Burns Peak Tunnel
  Technical
  Feasibility Report April 1990”.
  This document actually forms a part of the February 1992 Turnkey
  Proposal by Kinhill Kramer Pty Ltd. But in its presentation, it
  appears to
  be yet another unsourced document, bearing no necessary relation to

• Page 274 of 397

• any
  of the proposals referred to in the text of the submission. Without
  a
  proper explanation of its relevance, the inclusion of this document
  as an
  appendix is utterly confusing.

  Appendix 11: a map of the City of Port Moresby.
  There were no maps referred to in the text of the submission. This
  map
  does not show with any precision the scope of the project the
  National
  Executive Council was being asked to approve.

  Chapter 21

  247

  Appendix 12: an unsourced line drawing no. 75024, entitled “Moresby-
  Jacksons/Airport Arterial Link Through Burns Peak: Typical Section &
  Details”.
  The Ombudsman Commission is at a loss to understand the relevance of
  this document. It is entirely meaningless.

  Appendix 13: an unsourced line drawing no. 75025, entitled “Moresby-
  Jacksons/Airport Arterial Link Through Burns Peak: Dual Lane Bridge
  Typical Cross Section”.
  Yet another meaningless appendix.

  Appendix 14: an unsourced line drawing no. 75026, entitled “Moresby
  –
  Jacksons/Airport Arterial Link Through Burns Peak: Typ Tunnel Cross
  Sections”.
  This document was also not referred to in the text of the
  submission.
  Perhaps this document and Appendices 11 and 12 were appended to
  give the appearance that the technical aspects of the project had
  been
  addressed. But they were nothing more than a confusing collection of
  meaningless technical drawings of no relevance whatsoever to the
  text of
  the submission.

  Appendices 15. 16. 17 and 18: standard letters from the Secretary
  for
  Transport to the Departments of Lands and Physical Planning, Trade
  and
  Industry, Attorney-General and Finance and Planning inviting
  comments on
  a draft NEC Submission.
  We have already commented above on the illusion created by including

• Page 275 of 397

• these types of letters as appendices. The letters were seeking
  comments
  on the previous submission, i.e. the one which did not favour the
  selection
  of Kinhill Kramer Pty Ltd.

  Chapter 21

  248

  Appendix 19: a letter from the Acting Secretary for Transport to the
  Department of Attorney-General dated 15 January 1992 seeking advice
  on the contract agreement signed by the Minister with Tunson
  Engineering
  Co Ltd.
  This document was not referred to in the text of the Policy
  Submission.
  Its inclusion could only confuse readers of the Policy Submission.

  Appendix 20: a letter from the Acting Secretary for Transport to the
  Office
  of International Development Agency dated 15 January 1992.
  This document was also not referred to in the text of the
  Submission. It is
  another meaningless document.

  Appendix 21: an unsourced two page document entitled “Financial
  Terms”.
  This document was actually quite important. When the Executive
  Chairman
  of Kinhill Kramer Pty Ltd gave evidence to the Ombudsman Commission,
  he testified that this particular two page document, which he
  referred to
  as ”the financial envelope”, had been enclosed – as a separate
  document –
  when the Kinhill Kramer proposal was lodged with the Department of
  Transport. It therefore represented the financial terms on which the
  company was offering to undertake the project.
  The Policy Submission gave no indication that this is what the
  document
  was. It appears – like most of the other appendices – to be yet
  another
  unsourced, undated, meaningless, irrelevant document.

  Appendix 22: the February 1992 Turnkey Proposal by the Kinhill
  Kramer
  Consortium.
  This thirteen page document was probably the most important
  appendix.
  However, it was not expressly referred to in the text of the
  submission.

• Page 276 of 397

• Any person – especially a busy Minister – who was required to
  quickly
  read the text of the submission may not have realised the
  significance of
  this document and could quite easily have skipped over it.

  Chapter 21

  249

  As we explain below, the Kinhill Kramer proposal was, in
  fact, quite vague.
  With respect, if the members of the National Executive
  Council had
  realised how vague the proposal really was, they may not
  have voted in
  favour of it.

  [21.6] WAS THE POUCY SUBMISSION MEANT TO BE CONFUSING?

  Policy Submission No. 33/92 was so confusing in its
  presentation, the
  question must be raised whether this was intentional.
  We refrain from making that finding. Our view of the
  situation is that,
  following the Minister for Transport’s direction of 13
  February 1992, the
  Department of Transport was required to hurriedly compile
  the submission.
  The Department’s efforts to put together a proper
  submission were
  hampered by the Minister’s instruction that it include the
  late proposal by
  Kinhill Kramer Pty Ltd.

  That proposal had to be evaluated and the Department’s
  assessment of
  it incorporated in the submission. This assessment was
  also done in a
  hurry. With the Minister putting pressure on the
  Department and the
  deadline for filing the submission fast approaching, it
  appears that a
  number of documents were hastily and carelessly appended
  to the text of
  the submission to give it a bulky appearance. The members
  of the
  National Executive Council were expected to find their own
  way through
  the jungle of papers.

  In addition to the confusion that the presentation of the

• Page 277 of 397

• document must
  have caused, the Ombudsman Commission is surprised the
  National
  Executive Council entertained it, when its contents were
  seriously
  defective.

  Chapter 21

  250

  DEFECTS IN THE POLICY SUBMISSION

  [21.71 SEVEN SERIOUS DEFECTS IN THE POLICY SUBMISSION 1992

  In the opinion of the Ombudsman Commission, the text of
  Policy
  Submission No. 33/1992 is seriously defective in a number of
  important
  areas.

  The Ombudsman Commission has identified seven serious
  defects. These
  relate to:

  1. The establishment of the Ministerial Committee.

  2. The illusion that an equal opportunity had been given
  to
  numerous companies and consortiums to submit proposals.

  3. The failure to properly advise the National Executive
  Council
  of the recommendations of the World Bank.

  4. The failure to give any explanation of non-compliance
  with
  the Public Finances (Management) Act and the Public
  Works
  Committee Act.

  5. The failure to refer to the recommendations of the
  Resource
  Management Committee.

  6. The failure to properly explain the history of the
  Kinhill Kramer
  proposal.

  7. The favourable assessment of the Kinhill Kramer
  proposal.

• Page 278 of 397

• Chapter 21 II

  i

  251
  a

  [21.8] FIRST DEFECT: ESTABLISHMENT OF THE MINISTERIAL COMMITTEE
  I
  Paragraph 7 of the Policy Submission No. 33/92 refers to
  “a special ■
  Ministerial Committee” being established by the National
  Executive Council
  to speed up development of this project. However, no such
  Committee ■
  was ever established (see Chapter 11).

  The members of this committee assumed powers and
  responsibilities
  which they did not lawfully have.

  [21.9] SECOND DEFECT: ILLUSION THAT AN EQUAL OPPORTUNITY HAD
  BEEN GIVEN TO ALL COMPANIES AND CONSORTIUMS TO SUBMIT
  PROPOSALS

  Paragraphs 8 and 9 refer to the various expressions of
  interest that were
  lodged and clearly give the impression that all of the
  companies and
  consortiums were given a fair opportunity to lodge
  proposals for the
  project. As the Ombudsman Commission explained earlier in
  this report,
  that was far from the truth (see particularly Chapter 9).

  The shortlist for this project was arbitrarily prepared by
  the Minister for
  Transport without advice or consultation. Some companies
  which had
  expressed interest did not even receive an acknowledgement
  from the
  Department of Transport. Some unknown foreign companies
  which had no
  experience operating in Papua New Guinea were given
  special treatment
  by the Minister for Transport. Other companies were
  shortlisted, though
  they had no experience at all in road construction or
  design.

• Page 279 of 397

• Chapter 21

  252

  The statement in paragraph 8 that the proposals of fifteen
  consultants
  were presented to a Steering Committee meeting on 31 July
  1990 is false
  and misleading (see Chapter 7).

  There was never any meeting at which all of the proposals
  were fairly and
  objectively evaluated

  [21.10] THIRD DEFECT: FAILURE TO PROPERLY REPORT THE
  RECOMMENDATIONS OF THE WORLD BANK

  The World Bank reccommended in September 1991 that the
  Spring Garden
  Road/Poreporena Freeway project be re-tendered (see Chapter
  15).

  Paragraph 25 of the Policy Submission referred to the World
  Bank Mission
  which made this recommendation but did not make any mention
  of that
  recommendation.

  The National Executive Council was not advised of this
  crucial piece of
  advice from the World Bank.

  [21.11] FOURTH DEFECT: FAILURE TO EXPLAIN NON-COMPLIANCE WITH
  NORMAL TENDERING PROCEDURES

  The decision-making process which led to the State entering
  into the
  contract with Kinhill Kramer Pty Ltd on 27 May 1992 was
  fundamentally
  unlawful. Legislation such as the Public Finances
  (Management) Act and
  the Public Works Committee Act was completely ignored (see
  Chapters 35
  and 36).

  Chapter 21

• Page 280 of 397

• 253

  The Policy Submission should have given some explanation as
  to why
  these laws were by-passed. It did not do this.

  [21.12] FIFTH DEFECT: FAILURE TO REFER TO THE RECOMMENDATIONS OF
  THE RESOURCE MANAGEMENT COMMITTEE
  Only four days before the National Executive Council decided
  to award the
  project to Kinhill Kramer Pty Ltd, the Resource Management
  Committee
  recommended that the project be implemented in three
  distinct phases
  and put to tender.

  The Policy Submission failed to refer to either of these
  crucial
  recommendations.

  [21.13] SIXTH DEFECT: FAILURE TO EXPLAIN THE HISTORY OF THE KINHILL
  KRAMER PROPOSAL

  Paragraph 8 claimed that some of the fifteen original
  companies which
  expressed interest in the project had sought an extension of
  time to lodge
  their proposals, but that these requests had been rejected.
  Paragraph 13
  stated that of the original fifteen, only the Kinhill Kramer
  consortium
  presented a detailed technical and financial proposal. These
  statements
  were very misleading and false.

  The truth is that many of the original fifteen companies
  were not given a
  fair opportunity to submit proposals. Also, in its original
  proposal, Kinhill
  Kramer Pty Ltd was linked with Kumagai Gumi Ltd of Japan.
  The proposal
  which was before the National Executive Council in February
  1992 was a
  new proposal, not involving Kumagai Gumi Ltd. Kinhill Kramer
  had been

  Chapter 21

  254
  given a considerable extension of time. In fact, as we
  revealed in Chapter

• Page 281 of 397

• 19, the new proposal was lodged only five or six days
  before the National
  Executive Council met.

  The Policy Submission should have carefully explained
  all this for the
  benefit of the members of the National Executive
  Council.

  [21.14] SEVENTH DEFECT: FAVOURABLE ASSESSMENT OF THE KINHIll,
  KRAMER PROPOSAL

  The most serious defect in National Executive Council
  Policy Submission
  No. 33/92 was its unjustified favourable assessment of
  the Kinhill Kramer
  proposal.

  This unrealistic assessment is something which, we
  believe, affected the
  integrity of the whole decision-making process
  concerning this project. It
  is dealt with as a separate matter in the next chapter.

  * * * * * * * * * *

  Chapter 21

  255

  22. FAVOURABLE ASSESSMENT OF THE

• Page 282 of 397

• KINHILL KRAMER PROPOSAL

  [22.1] THE NATIONAL EXECUTIVE COUNCIL POLICY SUBMISSION WAS

  SERIOUSLY DEFECTIVE

  We have concluded that the Policy Submission which
  resulted in the

  project being awarded to Kinhill Kramer Pty Ltd was
  poorly prepared and

  seriously defective (see Chapter 21).

  One of the most serious defects was the favourable
  assessment of the

  I
  Kinhill Kramer proposal. That assessment was
  unjustified.

  I
  When this opinion was expressed in our preliminary
  report, we received

  responses from two persons: the Secretary for
  Transport, Mr Amini and

  I
  the Executive Chairman of Kinhill Kramer Pty Ltd, Mr
  Kramer.

  Mr Amini’s response was as follows:
  I

• Page 283 of 397

• I
  ‘This is a matter of professional judgement.
  The detailed proposals were all
  put before National Executive Council. Nothing
  was hidden from them. I
  believe National Executive Council always make
  an informed decision. My
  Department, however, did argue for more time
  but this request was rejected I
  by National Executive Council. This is not
  defective administration.’
  [EXHIBIT 254, para 18]

  1

  Chapter 22

  256

  Mr Kramer’s response was similar to Mr Amini’s:

  “Are you suggesting that the most serious defect(s)” was
  the “favourable
  assessment of the Kinhill Kramer proposal”. What does this
  mean? The
  assessment was made by the Department of Transport and
  presumably proper
  advice was obtained in respect of such assessment The
  statements in the
  report in relation to this heading are made without any
  proper evidence of same
  and show, with respect, a very limited understanding of

• Page 284 of 397

• the bureaucratic
  procedures in respect of matters such as this.” [EXHIBIT
  253, pars 131

  Having considered these responses, the Ombudsman Commission
  retains
  the view that the favourable assessment of the Kinhill Kramer
  proposal in
  the Policy Submission was unjustified. In this chapter, we
  explain the
  reasons for drawing that conclusion.

  Before we do that, it is necessary to specify what the
  Kinhill Kramer
  proposal consisted of, when it was evaluated by the
  Department of
  Transport.

  OUTUNE OF THE KINHILL KRAMER PROPOSAL

  [22.2] WHAT DID THE KINHILL KRAMER PROPOSAL CONSIST OF?

  This is not a straightforward issue, because there is no
  official record of
  the Department of Transport receiving the Kinhill Kramer
  proposal (see
  Chapter 19). It was therefore difficult to conclude, by just
  looking at the
  Department’s files, what exactly the Kinhill Kramer proposal
  was. In
  addition, because of the confusing manner in which Policy
  Submission No.
  33/92 was compiled, it was virtually impossible for anyone
  reading it to
  work out what the Kinhill Kramer proposal consisted of.

  Chapter 22

• Page 285 of 397

• 257

  However, after questioning the Executive Chairman of
  Kinhill Kramer Pty
  Ltd, Mr Kramer, we are satisfied that the proposal
  lodged on 18 or 19
  February 1992 actually consisted of two separate
  documents:

  1. A spirally-bound document, consisting of twenty-
  nine pages (not
  numbered consecutively), entitled:

  “Independent State of Papua New Guinea
  Department of
  Transport Seaport/Airport Link
  Incorporating Burns Peak
  Tunnel and Spring Garden Road Turnkey
  Proposal The IGnhill
  Kramer Consortium February, 1992”.
  [EXHIBIT 150]

  2. A stapled document of two pages, entitled:

  “Financial Terms”. [EXHIBIT 151]

  [223] THE TURNKEY PROPOSAL DOCUMENT

  This document consisted of twelve pages of text, which
  formed the main
  part of the proposal, and two appendices.

  [22.4] THE TEXT OF THE PROPOSAL

  The proposal was introduced in the following terms:

  ‘The Joint Venture Consortium of Kinhill Kramer
  and a Major Contractor
  through their many years of construction
  involvement in Papua New Guinea.
  Fully appreciate the environmental, social,
  political and financial aspects of a

• Page 286 of 397

• project of this magnitude. In response to known
  Terms of Reference the Joint
  Venture Consortium shall assemble in the
  Preliminary Planning Phase an
  experienced multi-disciplined team to fully
  investigate and develop an economic
  solution in which in the social and environmental
  criteria will take precedence.’
  [EXHIBIT 15O, para. I.0)

  Chapter 22

  258

  The text of the proposal continued:

  “The Joint Venture Consortium shall consist of two
  principle partners being
  Kinhill Kramer and a Major Civil Engineering and
  Construction and Consulting Engineering. [sic]
  The Project Management and preliminary design
  phase followed by detail
  design and construction supervision will be
  undertaken by Kinhill Kramer the
  background of Kinhill Kramer is set out in the
  attached appendices.

  During the Construction Phase, Kinhill Kramer
  shall act as the Superintendent
  of the Works. Any disputes between the
  Government’s Executing Agency and
  the Construction Consortium shall be resolved at
  the sole discretion of the
  Superintendent.

  Construction works including detailed tunnel
  design shall be undertaken by
  a Major contractor (yet to be named). The
  Contractor shall also arrange the
  financing of the project. The background of the
  Contractor shall be provided
  at a later stage.” [EXHIBIT 150, pars 2.0,
  emphasis added]

  [22.5] KINHILL KRAMER DID NOT HAVE A CONSORTIUM

• Page 287 of 397

• The significant thing to note is that, though the
  proposal was lodged in the
  name of “the Kinhill Kramer consortium”, Kinhill Kramer
  did not have a
  consortium at all. It was a sole proposal by Kinhill
  Kramer Pty Ltd. At the
  time of lodgment of the proposals, the other member(s)
  of “the
  Consortium” did not exist

  When this point was made in our preliminary report, the
  Executive
  Chairman of Kinhill Kramer Pty Ltd responded in the
  following terms:

  ‘The fact that the Kinhill Kramer Consortium did
  not have a company to do
  the contracting work is not surprising. There are
  any number of major
  contractors available who are qualified and have
  expertise to carry out this
  type of work. There is no attempt by myself in the
  proposal to mislead the
  State. My statements envisaged “a consortium*.
  This was accepted by the
  State. At all times, our nomination of the
  contractor was subject to National
  Executive Council approval. Selection of the
  contractor would have been, in
  the circumstances, a condition precedent to
  overseas funding (as you are
  obviously aware).” [EXHIBIT 253, pars 15]

  Chapter 22

  259

  [22.6] FINANCIAL TERMS IN THE TURNKEY PROPOSAL
  a

• Page 288 of 397

• The other feature of the text of the Turnkey Proposal
  document is the

  section headed “Financial Terms”. It states:

  ‘The Lump Sum Cost of the Project shall be Sixty
  Million Kina (IC60,000,000) for
  stages 1, 2 and 3 which consist of a four (4) lane
  road link between downtown
  Port Moresby and Jackson’s Airport including a 2
  lane single barrel tunnel
  through Burn’s Peak.

  In addition to this Lump Sum Cost a Five Million
  Kina (K5,000,000) contingency
  sum has been allowed for. The use of the
  contingency sum shall be jointly at
  the discretion of the Secretary of the Department
  of Transport and the
  Executive Chairman of Kinhill Kramer.

  The Consortium shall arrange a loan for the entire
  construction cost of Sixty
  Million Kina together with the Five Million Kina
  contingency sum. The terms
  of the repayment shall be 10 – 15 years repayment
  period with a 3 year initial
  grace period and at an interest rate not exceeding
  10%.

  The commencement of loan period and the grace
  period shall coincide with
  the signing of formal contract between the
  Consortium and the Government’s
  Executing Agency. The contract shall be exempt from
  all Government Import
  Duties and taxes.” [EXHIBIT 150, para. 6.0]

  It will be observed that the conditions on which the lump
  sum price of the

  project would be paid by the State were expressed in very
  broad terms:

  the interest rate was not specified, except to say it
  would not exceed 10%

• Page 289 of 397

• and the period for repayment of the loan was stated
  generally to be “10 –

  15 years”.

  [22.7] THE APPENDICES

  There are two appendices which also formed part of the
  Turnkey Proposal

  document. (The contents page of the proposal indicated
  there were three

  appendices, but the first one – “Company Profiles” – is
  missing; perhaps

  because, when the proposal was completed, Kinhill Kramer
  did not have

  a consortium partner.)

  Chapter 22

  260

  The two appendices are:

  “Appendix B: Preliminary Traffic and Revenue Report”.
  This is a one page summary of the document of August
  1990, [EXHIBIT 37] which gives an analysis of expected
  revenue on the assumption that certain parts of the
  Spring
  Garden Road network would become subject to a toll.

  “Appendix C: Port Moresby to (Jacksons) Airport
  Arterial
  Road Link via Burns Peak Tunnel Technical Feasibility

• Page 290 of 397

• Report
  April 1990″. [EXHIBIT 7B]
  This is the document which, Mr Kramer said, had been
  submitted to the Department of Transport in 1990.

  [22.8] THE “FINANCIAL TERMS” DOCUMENT

  This was the second part of the Kinhill Kramer proposal.

  Mr Kramer stated that this two-page stapled document – which
  he referred
  to as “the Financial Envelope” – was “attached” to the
  “Turnkey Proposal”
  document. Though the “Financial Envelope” was physically
  separate from
  the spirally bound main proposal, the two documents were
  clearly meant
  to be read together.

  It is apparent that the purpose of the “Financial Envelope”
  was to
  elaborate on the rather general terms in which the
  corresponding section
  of the “Turnkey Proposal” document was expressed.

  Chapter 22

  261

  [22.9] THE KINHILL KRAMER PROPOSAL WAS PREPARED IN A RUSH

  It is also apparent, from the way in which the Kinhill
  Kramer proposal was
  presented (e.g there were a number of typographical errors
  and the “Key
  Personnel” section did not mention the company’s Executive
  Chairman) •
  that the Kinhill Kramer Proposal was prepared in a rush.

  Also, the fact that the Financial Terms document was
  physically separate
  from the Turnkey Proposal document, shows that the
  proposal was
  hurriedly put together.
  Mr Kramer admitted as much in his evidence to the
  Ombudsman ■
  Commission. He testified that, as soon as he got the phone
  call from the
  Department of Transport on 17 February 1992, inviting him

• Page 291 of 397

• to “update” the
  Kinhill Kramer bid, he contacted Kumagai Gumi Ltd to see
  if they were still
  interested.

  When Kumagai Gumi said they were not still interested, Mr
  Kramer was
  put in quite a predicament: he had to lodge a proposal
  without a
  consortium partner. And because he didn’t have a
  consortium partner, he
  could not say who the financier would be.

  Kinhill Kramer Pty Ltd had always intended to arrange
  finance for the
  project through an export finance corporation such as the
  EXIM Bank of
  Japan or the Export Finance Insurance Corporation of
  Australia. But these
  institutions invariably insist that the major contractor
  is a resident of the
  country exporting finance for the project. So, if Kinhill
  Kramer didn’t have
  a contractor, they also didn’t have a financier.

  When these findings were made available in our preliminary
  report, Mr
  Kramer made the following comments:

  Chapter 22

  ‘The heading under this section [Le.’the Kinhill Kramer
  proposal was prepared
  in a male] is subjective and improper. It is further
  evidence of the bias shown
  in the report. Paragraph 2 under this heading is absurd.
  I do not understand
  how the physical presentation of a document could show
  ‘that it was hurriedly
  put together’. Indeed if it was ‘hurriedly put together’
  what does this mean?.
  Presumably it means it was done in a hurry.’ [EXHIBIT
  253, para

  We note that Mr Kramer did not deny that the proposal was
  done in a
  hurry. There is no other conclusion that can be drawn.

  The finding that the proposal was prepared in a rush is not
  meant as a

• Page 292 of 397

• criticism of Kinhill Kramer or its Executive Chairman. It is
  simply a finding
  of fact, which is reported here to illustrate the unusual
  circumstances
  leading to and in which the National Executive Council came
  to make its
  decision on 24 February 1992.

  THE PRICE OF THE PROJECT

  [22.10] DIFFICULTIES IN PRICING THE PROJECT

  As to the task of quoting a lump sum price for the project,
  this also
  presented Mr Kramer with some difficulty. He stated to the
  Ombudsman
  Commission that he was concerned that the company did not
  have
  sufficient information on which to base a price. He said
  that Kinhill Kramer
  Pty Ltd, was reluctant to submit a price to the Department
  of Transport
  without having had an opportunity to consider the
  geotechnical report of
  Coffey Partners International, which had been arranged by
  the Department
  of Works (see Chapter 8).

  Chapter 22

  263

  [22.11] DEPARTMENT OF TRANSPORT HAD CONSISTENTLY FAILED TO
  SPECIFY THE SCOPE OF THE PROJECT

  Mr Kramer’s claim that he had insufficient information on
  which to base a
  price is an understatement. As we have noted a number of
  times

• Page 293 of 397

• previously, the scope of the Spring Garden Road/Poreporena
  Freeway
  project was poorly defined from the very beginning – when
  the National
  Executive Council decided that “the Burns Peak Road” should
  be
  constructed.

  It was, by February 1992, more than two years since that
  vague decision
  was made and in all that time the Department of Transport
  had been
  unable to define, with any precision, the route of the
  freeway or its basic
  engineering characteristics. Even in February 1992 – almost
  a year after
  the results of the geotechnical investigation were released
  – no decision
  had been made on the tunnel/cut option.

  Mr Kramer said that, when the Kinhill Kramer proposal was
  lodged, the
  company had not seen the results of the geotechnical
  investigation. In
  these circumstances, any figure that Kinhill Kramer Pty Ltd
  were to quote
  would, at best, have to be a rough “guesstimate”.

  This was a very unsatisfactory situation. In the opinion of
  the Ombudsman
  Commission it is very poor administrative practice – and it
  defies common
  sense – to expect companies to submit firm proposals when
  the exact
  scope of a project is not known. The Department of Transport
  must be
  held responsible for allowing this unsatisfactory situation
  to develop. The
  Terms of Reference released – selectively – in early 1991
  did not specify
  the end points of the freeway. Twelve months after that, the
  Department
  of Transport still hadn’t specified exactly what it wanted.

  Chapter 22

  264

  [2212] K25 MILLION INCREASE IN THE PRICE OF THE PROJECT

• Page 294 of 397

• There is one part of Kinhill Kramer’s February 1992 proposal
  that needs
  to be specially noted: the substantial increase in the price
  of the project.

  When Kinhill Kramer submitted its “Technical Feasibility
  Report” to the
  Department of Transport in April 1990 it quoted a price for
  the Spring
  Garden Road/Poreporena Freeway project of K40 million (see
  Chapter 19
  and Exhibit 7B, page 15).

  But, when the February 1992 proposal was submitted, the price
  had
  increased to K65 million.

  This obviously should have been a matter of concern to the
  Department
  of Transport when it was evaluating the February 1992
  proposal. How can
  the cost of a road project increase – without explanation –
  by more than
  60% in less than two years? How could such a huge increase be
  overlooked by the Department of Transport in its evaluation?

  The following explanation of the K25 million increase in the
  price of the
  project was provided by Mr Kramer:

  ‘The 1990 figure (MOM) was a highly qualified ESTIMATE or
  the likely cost
  of the project, on 1990 prices.
  A price produced some 2 years later must, first, be
  adjusted for inflation
  (escalation) at 10%.

  That, alone, escalates the K4OM to around the project bid
  calculated to the
  medium point of actual constructions period.

  Much more importantly, the February 1992 bid was no longer
  an ESTIMATE
  but fl2(1:2AMMMAPMa accepting liability for all and any
  increases and
  contingencies’. [EXHIBIT Z53, para 181

• Page 295 of 397

• Chapter 22

  265

  [22.13] 1990 PRICE ALTERED BY KINHILL KRAMER

  We noted earlier in this chapter that the 1990 document was
  included as

  one of the appendices to the February 1992 proposal.
  However, pages 10

  and 15 of the 1990 document – which deal with the project
  cost – were

  altered when these pages were annexed to the. 1992
  proposal.

  Page 10 of the 1990 document stated:

  “Subject to prevailing costs, at the time of
  commissioning of the new proposed
  Arterial Road and Tunnel the cost of construction
  would be in the range of
  KINA 40.0 million, and the cost breakdown is given in
  Table 3.’
  [EXHIBIT 7B, page 15]

  By contrast, the altered version, attached to the February
  1992 proposal,

  stated:

• Page 296 of 397

• “Subject to prevailing costs, at the time of
  commissioning of the new proposed
  Arterial Road and Tunnel the cost of construction
  would be in the range of
  KINA 60,0 million, and the cost breakdown is given in
  Table 3 based on 1992
  construction rates.” [EXHIBIT 150, page 15 of Appendix
  C]

  Page 15 of the 1990 document, which contained the cost
  breakdown, was

  also altered when it appeared in the February 1992
  proposal. A

  comparison of the different versions of the cost breakdown
  reveals that all

  cost items were increased markedly, as follows:

  Chapter 22

• Page 297 of 397

• 266

  DESCRIPTION COST SHOWN IN COST SHOWN IN ALTERED
  ORIGINAL 1990 VERSION ANNEXED TO 1992
  DOCUMENT PROPOSAL

  Relocation cost K 500,000.00 K 750,000.00
  Roadworks K12,600,000.00 K 24,250,000.00
  Bridgeworks K 2,100,000.00 K 7,000,000.00
  Tunnel Works K16,250,000.00 K 20,000,000.00
  Traffic Lights K 1,500,000.00 K 2,000,000.00
  Contingencies K 3,295,000.00 K 5,000,000.00
  Fees K 2,295,000.00 K 6,000,000.00
  Total Say K40,000,000.00 K 60,000,000.00
  [See EXHIBIT 7B, page 15 & EXHIBIT 150, page 15 of Appendix C]

  The point to be emphasised here is that, since the April 1990
  document
  was attached as an appendix to the February 1992 proposal, it was
  reasonably to be expected it would be a replica of the April 1990
  document. There was no indication that the figures in the appendix
  had
  been altered or ‘updated’.

  Mr Kramer stated that the amendment of the 1990 schedule to 1992
  values was made expressly at the direction of the Department of
  Transport, which had the 1990 document. He rejected the suggestion
  that
  the alteration of the figures could have been misleading.
  [EXHIBIT 253, para 18]

  Chapter 22

• Page 298 of 397

• 267

  [2214] DEPARTMENT OF TRANSPORT SHOULD HAVE EXPLAINED K25 MILLION
  PRICE INCREASE

  Having considered Mr Kramer’s explanation, we still do not
  believe it was
  right for the Department of Transport to allow a document
  dated April
  1990 to be annexed to a 1992 document and altered without
  any
  indication being given that the 1990 document had been
  altered.
  [EXHIBIT 253, para 18]

  The Department of Transport should not have asked for or
  accepted the
  document in that form. At the very least, the Department
  should have
  indicated in the Policy Submission to the National Executive
  Council that
  the 1990 figures had been updated. The Department should
  have
  explained why the estimated price of the project had
  appeared to have
  risen K25 million in less than two years and whether this
  was
  reasonable.

  KINHILL KRAMER PTY LTD GIVEN FAVOURABLE ASSESSMENT DESPITE ITS VAGUE
  PROPOSAL

  [22.15] THE RECOMMENDATIONS OF POLICY SUBMISSION NO 33 OF 1992

  The aspect of Policy Submission No. 33 of 1992 which made it
  very
  different to the previous one prepared by the Department of
  Transport
  was that it gave the National Executive Council a choice of
  two
  consortiums:

  Chapter 22

  268

  The Chinese consortium, which the Submission referred
  to

• Page 299 of 397

• as the “Tunson Engineering consortium”.
  .QB

  The “Kinhill Kramer consortium”, which was referred
  to as a
  consortium, even though the proposal had been lodged
  by
  Kinhill Kramer on its own.

  The recommendations of the Policy Submission were expressed
  in the
  following terms:

  “It is recommended that either consortium can be
  selected. Tunson Engineering
  consortium is proposing a better financial package
  provided the source of
  funding is confirmed. The Kinhill Kramer consortium has
  advantage of
  experience and quality product.

  It is also recommended that NEC direct Department of
  Finance and Planning
  and Department of Transport to carry out further
  negotiations with the
  approved consortium in consultation with the Department
  of Attorney General.
  Alternatively, it may be desirable to seek B.O.T or full
  turnkey proposals for
  design, construction and finance from all the companies
  and consortiums who
  registered interest’ [EXHIBIT 148, page 10]

  [22.16] NEITHER CONSORTIUM DESERVED TO BE SELECTED

  This was a very strange set of recommendations. The third
  paragraph
  seems to be an admission that all companies and consortiums
  which had
  expressed interest in the project had not been asked for
  proposals. This
  was, of course, quite true.

• Page 300 of 397

• Chapter 22

  269

  In making this recommendation the Minister for Transport and
  the
  Department of Transport seem to have expressed a lack of
  confidence in
  their recommendation in the first paragraph that “either
  consortium can be
  selected”. The Ombudsman Commission considers that such a
  lack of
  confidence was warranted.

  In the opinion of the Ombudsman Commission, neither
  consortium
  deserved to be selected. The decision-making process that led
  to the
  National Executive Council being faced with this choice of
  two proposals
  was a shambles. There was insufficient information on which
  the National
  Executive Council could base an informed decision.

  Unfortunately, the Department of Transport was under pressure
  from the
  Minister to expedite the project. So, rather than
  recommending to the
  Minister that the project be put to tender in the normal and
  lawful manner,
  the Department inserted the vague recommendation that “it may
  be
  desirable” to seek more proposals.

  [2217] THE FAVOURABLE ASSESSMENT OF KINHILL KRAMER PTY LTD

  Though the submission recommended that “either consortium can
  be
  selected”, this was not actually consistent with the
  comparison of the two
  proposals provided. On page 8, five criteria were identified
  and the
  proposals were ranked as follows:

• Page 301 of 397

• Chapter 22

  270

  CRITERION KINHILL KRAMER TUNSON

  Financier’s credibility excellent not clear

  Financial package satisfactory to excellent
  good

  Relevant experience excellent confined to
  China and not
  clear

  Expected quality of excellent satisfactory
  tunnel

  Employment Papua New Guinea could be Chinese for
  at least for unskilled labour
  unskilled work

  [EXHIBIT 148, page 8]

  Kinhill Kramer was ranked more favourably than the Chinese
  consortium
  on all but one of the criteria (the financial package). It is not
  surprising
  therefore that, though the final recommendation was that either
  proposal
  could be selected, the National Executive Council decided in favour
  of
  Kinhill Kramer.

  However, a dose examination of Kinhill Kramer’s ranking on four of
  the

• Page 302 of 397

• five criteria shows the whole decision-making process to be very
  suspect
  and verging on a farce.

  Chapter 22

  271

  FINANCIAL CRITERIA

  [22.18] THE CRITERION OF “FINANCIER’S CREDIBILITY”

  On this criterion, Kinhill Kramer was ranked “excellent”.
  The Ombudsman
  Commission finds this quite remarkable, because there was no
  indication
  given in the Kinhill Kramer proposal of who the financier
  was going to be.

  The Ombudsman Commission is at a loss to see how any
  reasonable
  person could conclude from the Kinhill Kramer proposal that
  their
  financier’s credibility was “excellent”. Nobody – including
  Kinhill Kramer –
  knew where the finance was going to come from. The reason
  for this was
  explained earlier: after Kumagai Gumi dropped out of the
  negotiations,
  Kinhill Kramer did not have a consortium partner to do the
  construction
  work and so their source of finance was not known.

  Mr Kramer explained to the Commission that the documents
  were drafted
  in such a way that it was a matter for the consortium to
  obtain the proper
  finance within the parameters set in the proposal. We accept
  that that was,
  in fact, the situation. [EXHIBIT 253, paragraph 19] •

  Nevertheless the Ombudsman Commission concludes that it was
  irresponsible of the Department of Transport to give the
  company an
  “excellent’ ranking on the issue of “financier’s
  credibilityTM, when the

• Page 303 of 397

• proposal did not name who the financier was going to be.

  Chapter 22

  272

  [22.19] THE CRITERION OF “FINANCIAL PACKAGE’

  On the issue of “financial package”, Kinhill Kramer was said
  to be
  “satisfactory to good”. But satisfactory to good, compared
  to what? The
  Policy Submission made the following comments:

  “From the cost point of view, Kinhill Kramer at K60m
  would be a less attractive
  consortium to Tunson Engineering at US$49383m.
  From the point of view of financial package, Tunson
  Engineering consortium
  has proposed a better package.° [EXHIBIT 148, page 71

  It is apparent that the only benchmark against which the
  Kinhill Kramer
  financial package was being judged was the financial package
  contained
  in the contract agreement the Minister for Transport had
  signed with
  Tunson Engineering Co. Ltd on 15 October 1991 (see Chapter
  14).

  We have already remarked on the atrocious quality of that
  document. It
  was so bad it could not be taken seriously. There was also
  the problem
  of whether that financial package truly represented the
  Chinese
  Consortium’s proposal. The Minister for Transport had been
  negotiating
  deals with at least three different Hong Kong-based
  companies during
  1991, as well as a couple of different agencies of the
  Chinese

• Page 304 of 397

• Government; so how could it be said that the package
  referred to in the
  Tunson contract was the real one?

  There was also a huge question-mark surrounding the bona
  fides of the
  Tunson company. The Department of Transport had still not
  established
  whether the company was genuine.

  Chapter 22

  273

  [22.20] THERE WAS NO GENUINE STANDARD AGAINST WHICH THE KINHILL
  KRAMER PROPOSAL COULD BE JUDGED

  In these circumstances, it was very dangerous to use the
  Tunson financial
  package as a basis for comparison with the Kinhill Kramer
  package. The
  point is, there was no genuine standard against which the
  Kinhill Kramer
  financial package could be judged. Kinhill Kramer was
  quoting an all-up
  cost of K65 million, but there was no guarantee that that
  figure was
  realistic or that it represented value for money.

  [2 91] THE SECRETARY FOR TRANSPORTS COST ANALYSIS

  When we suggested in our preliminary report that the
  Department of
  Transport had failed to check Kinhill Kramer’s price, the
  Secretary for

• Page 305 of 397

• Transport , Mr Amini, disagreed:

  This statement is incorrect The Department did
  check the price of 1065
  million. The Department in accepting the cost was
  guided by the World Bank
  financed Port Moresby Road Needs Study which was
  undertaken by Ow Arup
  Consultants. The study estimated the cost of the
  section of the project The
  report was reviewed by Department of Transport,
  Department of Works,
  Department of Finance and Planning and the World
  Bank and was accepted.’
  [EXHIBIT 254, pare 191

  Mr Amini’s cost analysis can be summarised as follows:

  Town to Boroko Drive K40 million
  Boroko Drive to Airport K 5 million
  Fly-overs K 5 million
  Detailed design K 5 million
  Cost increases K16 million
  TOTAL COST K 71 MIWON

  Chapter 22

  274

  With respect to the Secretary for Transport, we find his explanation
  unsatisfactory. The analysis he provided was in the form of a
  response
  to the preliminary findings of the Ombudsman Commission. However,
  there was no document in the Department of Transport files which
  supported his analysis.

  It appears that the Secretary has only provided the Ombudsman
  Commission with a retrospective justification of why, in his view,
  the price
  of K65 million was acceptable.

  He has been unable to convince us that any proper cost analysis of
  the
  project was undertaken before the Kinhill Kramer financial package
  was
  described in the Policy Submission as “satisfactory to good”.

• Page 306 of 397

• Even if we accept that the analysis presented by Mr Amini was
  undertaken
  when the Kinhill Kramer proposal was being evaluated, it was, in our
  opinion, a bad piece of administration to evaluate the cost of a
  definite
  proposal for a project by comparing it with (what could only have
  been)
  a rough estimate made in the course of a general study of the road
  needs
  of Port Moresby.

  The Ombudsman Commission maintains the view, expressed in the
  preliminary report, that there was no genuine standard against which
  the
  Kinhill Kramer proposal could be judged and that the Department of
  Transport failed to properly check Kinhill Kramer’s price.

  Chapter 22

  275

  [22.22] WAS THE PRICE QUOTED BY KINHILL KRAMER TOO HIGH?

  In making the finding that there was no genuine
  standard against which
  the Kinhill Kramer financial package could be judged,
  the Ombudsman
  Commission is not saying that the price quoted by
  Kinhill Kramer was
  definitely too high.

  This point needs to be emphasised because, in his
  response to our draft
  report, the Executive Chairman of Kinhill Kramer Pty
  Ltd was concerned
  that the Ombudsman Commission had made a judgment on
  this issue.
  Mr Kramer stated:

  ‘Repeatedly, your investigators show bias in

• Page 307 of 397

• their treatment of our February
  1992 bid price – wrongly putting it in a
  context of Tunson’s figure of K47114 –
  odd. This was NOT the comparable figure.

  Was it deliberate malice that led your
  investigators to omit the further K17M
  – odd for overpasses? Any why do they fail to
  disclose the ‘strings’ attached
  to the Chinese bid?

  The relevance of these comments is that the
  writer was repeatedly dismayed
  upon reading your draft to note the repeated
  and plainly malicious
  characterisation of our bid as incapable of
  comparison. There cannot always
  be a convenient benchmark for the indolent
  investigator – in this case, our bid
  has to be judged on its own merits. If that
  requires careful expert engineering
  assessment of our bid’s component elements, so
  be it.’ [EXHIBIT 253, para 11]

  Mr Kramer also provided copies of submissions made to
  the Ellis
  Commission of Inquiry concerning the price of the
  project, to support his
  claim that the price of K65 million was not excessive.
  (A Commission of
  Inquiry into the Spring Garden Road/Poreporena Freeway
  project was
  established on 30 August 1992; see Chapter 34.)

  Chapter 22

  276

  Counsel’s submissions

• Page 308 of 397

• Counsel for Kinhill Kramer, S.M. Littlemore, made the following
  submissions during the course of the Inquiry:

  The Kinhill Kramer February bid was not excessive, in all the
  circumstances.
  It represents no more than 10% escalation of the 1990 estimate
  (NB that was an
  estimate and not a guaranteed maximum price); it is less than Mr
  Clark would
  have fixed it at; it is much more favourable than the Chinese Bid
  – which was
  highly qualified, open-ended, conditional upon the granting of
  further mad
  building contracts at, obviously, massive budgets, and was
  plainly contrary to
  the National Interest in that it would have imported coolie
  labour; yet had been
  Ministerially approved!

  It is a figure at which the mad would have been built – at a high
  standard (Mr
  Sharp agrees) and with the customary high quality of Kinhill
  Kramer projects
  (see Commission Document 0.181page 10).

  My clients are entirely confident that hindsight will prove the
  State lost a
  bargain when it cancelled this Contract.

  Nobody else has offered to build this mad at any price under
  these conditions,
  and nor will they in future.” [EXHIBIT 249B, Page 9]

  The Clark report

  A report from J A Clark, of the Australian consulting firm Jackson
  Clark
  Pty Ltd, emphasised the considerable risks undertaken by the Kinhill
  Kramer consortium as a result of the special nature of the design-
  finance-
  construct contract that was to be entered into:

  “I consider that the terms of the Contract impose risks and
  obligations on the
  Consortium that would usually be borne by a Principal to the

• Page 309 of 397

• Contract I
  believe that the terms of the Contract had the effect of making
  the Contract
  Amount a fixed price inclusive of any claims the Consortium may
  make and
  thus the Consortium was prudently required to make some judgment
  as to the
  risks of carrying out their obligations under the Contract and to
  include what
  they considered to be an appropriate monetary allowance in the
  Amount they
  agreed to perform those obligations.

  Chapter 22

  277

  In the usual form of Contract for mad works of this nature used
  in Papua New
  Guinea or elsewhere allowances for the costs of many of the
  those risks would
  not be included in the Contract Amount but would be the subject
  of additional
  payments by the Principal to the Contractor if and to the extent
  those risks
  emerged as actual events.” [EXHIBIT 249A, page 4]

  This report emphasised the substantial cost risks arising from the
  unknown quality of the material accruing from the excavation of
  Burns
  Peak, the inability of the consortium to recover the costs of any
  delays by
  way of claims on the State, the uncertainty surrounding the extent
  of
  relocation of public utilities, the likely problem of land
  acquisition and the
  consortium’s obligation to arrange finance for the project within
  the
  maximum rate provided for in the contract of 9.5%.

  The report concluded:

• Page 310 of 397

• ‘n my opinion and experience all of the above matters represent
  substantial
  risks which are likely to occur on a mad construction project in
  Papua New
  Guinea. In my experience significant costs would result from
  their occurrence.
  The question of what financial provision should be made for
  those risks is a
  matter for those who would be accepting the risks and their
  assessment of them
  together with their ability to overcome them as they arose.
  Whatever provision
  was allowed would be additional to costs which were taken from
  the more
  usual type of construction contract. The events giving rise to
  such cost
  allowance may not occur at all, occur in part, or occur in
  excess of the
  allowance but that is the risk a contractor accepts in such a
  contract as this.

  In return the Principal has obtained the benefit of a fixed cost
  for the project
  without him being exposed to the cost of these substantial
  risks.

  If the Contract Amount for the Poreporena Freeway is to be
  compared against
  the cost of other freeway projects it is important that the
  comparison be made
  with a project having a similar work content and similar risk to
  the contractor.’
  [EXHIBIT 249A page 8]

  Chapter 22

  278

  [2223] CONCLUSION AS TO THE PRICE OF THE PROJECT AND THE RANKING

• Page 311 of 397

• GIVEN TO THE KINHILL KRAMER FINANCIAL PACKAGE

  We reiterate that we have nat concluded that the price of K65
  million for
  the Spring Garden Road/Poreporena Freeway project was
  definitely too
  high. Nor have we said that the State obtained a bad deal
  when this
  price was agreed to.

  But what we do say is this: if the State was getting value
  for money or
  as Kinhill Kramer asserted – “a bargain”, that situation had
  only come
  about by pure accident.

  During the course of this investigation, nothing could
  convince the
  Ombudsman Commission that the decision to award the project
  to the
  Kinhill Kramer consortium had been made in a competent,
  rational,
  methodical or professional manner.

  Many other companies had expressed interest in this project,
  but they
  were prevented from providing any competition for the Kinhill
  Kramer
  proposal by the arbitrary and mysterious short-listing
  process that
  occurred in 1990 and 1991 and by the Minister for Transport’s
  decision to
  invite only Kinhill Kramer to update its proposal, when the
  National
  Executive Council was on the verge of making its decision in
  February
  1992

  So, although the Kinhill Kramer financial package was
  described in the
  Policy Submission as “satisfactory to good”, it could well
  have been one
  of the most expensive options available to the Government,
  since there
  was no public tender.

  Chapter 22

  279

• Page 312 of 397

• The Ombudsman Commission therefore concludes that, at the
  time the
  National Executive Council made its decision in favour of
  Kinhill Kramer,
  nobody could possibly have known how good the Knhill Kramer
  financial
  package was. It was entirely irresponsible for the
  Department of Transport
  to proffer the view that it was “satisfactory to good”.

  ENGINEERING CRITERIA

  [22.24] THE CRITERIA OF “RELEVANT EXPERIENCE” AND “EXPECTED QUALITY
  OF TUNNEL”

  On both of these criteria Kinhill Kramer was ranked
  “excellent”. These
  rankings reaffirmed the comparisons drawn earlier in the
  Policy
  Submission, where it was stated:

  ‘From the point of view of experience, Kinhill Kramer
  consortium offers
  tunneling and construction expertise having the region’s
  largest engineering
  design capabilities.
  Turman Engineering Consortium’s, and more specifically
  the Second Surveying
  and Designing Institute’s experience is confined to China
  which still uses old
  Russian methods of design.’ [EXHIBIT 148, page 7]

  The claim that Kinhill Kramer has “the region’s largest
  engineering design
  capabilities” is a direct quote from the letter to the
  Department of
  Transport from the then Kumagai Gumi-Kinhill Kramer
  Consortium dated

• Page 313 of 397

• 25 June 1990. [EXHIBIT 16, page 1, para (iii) referred to in
  Chapter 19]

  Chapter 22

  280

  In his response to the Ombudsman Commission’s preliminary
  report the
  Executive Chairman of Kinhill Kramer Pty Ltd maintained that
  Kinhill Kramer
  is the region’s largest engineering design firm. [EXHIBIT
  253, para 20] We
  make no comment on this claim. Our point is that the direct
  quote from
  one of the consortium’s own letters to the Department is not
  the sort of
  objective assessment that should have been contained in a
  Policy
  Submission of this nature. It must be comparatively assessed
  independently.

  As to the claim that the Chinese consortium “still uses old
  Russian
  methods of design”, the Ombudsman Commission was unable to
  find any
  basis for this very prejudicial statement.

  The most alarming aspect of Kinhill Kramer’s “excellent”
  ranking on
  “relevant experience” and “expected quality of tunnel” is,
  as pointed out
  earlier, Kinhill Kramer had not decided on a contractor to
  undertake the
  construction phase of the project.

  [22.25] KINHILL KRAMER DID NOT HAVE A CONTRACTOR

• Page 314 of 397

• In Part 2 of their proposal Kinhill Kramer described their
  own role as being
  confined to project management, preliminary design, detail
  design and
  construction supervision:

  “Construction works including detailed tunnel design
  shall be undertaken by
  a Major contractor (yet to be named). The Contractor
  shall also arrange the
  financing of the project. The background of the
  Contractor shall be provided
  at a later stage.” [EXHIBIT 150]

  Chapter 22

  281

  This was reaffirmed in Part 3.6 of the submission:

  The Major Contractor shall undertake all the construction
  works for the project
  including the construction of the tunnel through Burns
  Peak.”
  [EXHIBIT 1501

  In these circumstances, it was almost deceitful to suggest
  that the Kinhill
  Kramer consortium’s experience and the expected quality of
  the tunnel
  they would build were “excellent”. How could Kinhill Kramer
  possibly be
  given such a favourable assessment when it was not known
  what
  company was going to build the tunnel and the rest of the
  freeway?

  WHO WAS RESPONSIBLE FOR THE IMPROPER ASSESSMENT OF KINHILL KRAMER?

• Page 315 of 397

• [22.26] SUMMARY OF THE DEPARTMENT OF TRANSPORTS ASSESSMENT OF
  THE KINHILL KRAMER PROPOSAL

  The Kinhill Kramer proposal evaluated by the Department of
  Transport was
  given a very favourable assessment.

  On each of the criteria “financier’s credibility”, “relevant
  experience” and
  “expected quality of tunnel”, Kinhill Kramer was given an
  “excellent”
  ranking. This was despite the fact that nobody – including
  Kinhill Kramer
  Pty Ltd – knew who was going to build or finance the
  freeway.

  We can only assume that a great deal of credit was being
  given to Kinhill
  Kramer on account of its past performance and experience in
  project
  supervision.

  Chapter 22
  tw

  282

  No proper checks had been done on whether Kinhill Kramer’s
  quote of
  K65 million plus interest represented value for money. And no
  mention
  was made of the fact that Kinhill Kramer’s price in 1990 was
  only K40
  million.

  There was no genuine standard against which the figure of K65
  million
  could be judged. The only other option offered to the
  National Executive
  Council was the proposal of Tunson Engineering Co. Ltd. But
  there were

• Page 316 of 397

• so many problems with it, it simply should not have been
  taken seriously.

  The favourable assessment of the Knhill Kramer proposal was
  therefore
  quite unjustified. Not only that, it was irresponsible. It
  was the Department
  of Transport who made this assessment. However, the blame for
  allowing
  this situation to arise does not rest only with the
  Department of Transport.

  (22-27]THE IMPORTANCE OF FOLLOWING CORRECT PROCEDURES
  The problem of having to make a last-minute evaluation of a
  very late
  proposal from only one company would not have arisen if
  proper
  procedures had been followed by the Minister for Transport in
  the first
  place.
  If the project had been put to public tender, all interested
  parties would
  have had an equal opportunity to lodge a proposal.

  A competitive bidding environment would have been created and
  there
  would have been ample time for a careful and methodical
  assessment of
  the available alternatives, by an experienced Supply and
  Tenders Board –
  not by the Minister for Transport or a self-appointed
  “Ministerial
  Committee” or a selected group of officers within one
  Department.

  Chapter 22

  283

  Furthermore, if normal procedures had been followed, the rumour and
  innuendo which have surrounded the National Executive Council’s
  decision
  to award the project to the Kinhill Kramer consortium would not have
  flourished.

  * * * * * * * * * *

• Page 317 of 397

• Chapter 22

  284

  23. NATIONAL EXECUTIVE COUNCIL DECIDES TO AWARD
  PROJECT TO KINHILL KRAMER CONSORTIUM:
  24 FEBRUARY 1992

  [23.1] DECISION MADE ON MONDAY 24 FEBRUARY 1992

  The National Executive Council made its decision on which
  consortium
  would be awarded the Spring Garden Road/Poreporena Freeway
  project
  on Monday 24 February 1992.

  NEC Decision No. 36/92 was recorded in the following terms:

  On 24th February, 1992 Council:-
  1, approved Kinhill Kramer consortium as the
  successful tenderer

• Page 318 of 397

• to finance the construction of the Spring Garden
  Freeway; and

  2. directed the Departments of Transport, Attorney
  General and
  Finance and Planning to immediately carry out
  further
  negotiations with Kinhill Kramer with a view to
  finalising all
  contractual and financial arrangements within two
  (2) months
  as of the date of this decision.” [ITT 153)

  [232] CIRCUMSTANCES IN WHICH THE DECISION WAS MADE

  The best thing that can be said about this decision is that
  it was made
  without a proper regard for normal procedures. But there are
  many other
  inferences that might be drawn from the circumstances in
  which it was
  made.

  Chapter 23

  285

  To recap, it must be borne in mind that on 17 February 1992 –
  only seven days before the National Executive Council made its
  decision – the
  days before the National Executive Council made its decision –
  the
  Department of Transport knew nothing about the approved
  proposal. It
  was hastily put together on 18 or 19 February 1992 and the
  Department
  of Transport was instructed by the Minister for Transport to
  quickly
  evaluate it. The proposal was, by necessity, short on detail
  and vague.
  The company awarded the project did not, at that stage, have a
  consortium partner to build the freeway and no finance had been
  arranged. Nevertheless, the proposal was rated highly by the
  Department
  of Transport.

• Page 319 of 397

• The proposal went to the National Executive Council without
  being
  evaluated by the Department of Works or the Department of
  Finance and
  Planning. Normal tender procedures were ignored.

  Despite the obvious shortcomings in the proposal and the fact
  that there was no other against which it could properly be
  compared and despite
  was no other against which it could properly be compared and
  despite
  there being no evidence that anybody had properly checked
  whether the
  quoted price of K65 million was realistic, the National
  Executive Council decided to approve it.
  decided to approve it.

  L3] ALLEGATIONS OF BRIBERY AND CORRUPTION
  L3] ALLEGATIONS OF BRIBERY AND CORRUPTION

  The Ombudsman Commission is not surprised that following
  announcement of the decision, there were numerous allegations
  of bribery and corruption. We do not propose to recite them
  because they were not
  and corruption. We do not propose to recite them because they
  were not
  supported by evidence.

  Chapter 23

  286

  However, we refrain from finding that there was no bribery or
  corruption
  involved in the decision-making process which led to the
  National
  Executive Council decision. Having considered all the
  circumstances which
  led to the decision and, in particular, the consistent
  failure to follow normal
  procedures, we cannot say that there was no corruption.

• Page 320 of 397

• [23.4] CHALLENGES TO OPEN FINDING ON THE CORRUPTION ISSUE

  When we stated in our preliminary report that we refrained
  from finding
  there was no bribery or corruption we were challenged by two
  respondents.

  The Executive Chairman of Kinhill Kramer Pty Ltd. Mr Kramer,
  stated:

  ‘The draft report asserts that ‘many other inferences can
  be drawn from the
  circumstances in which (the decision) was made’.

  That is wrong.

  It is trite to say that inferences can only be drawn from
  proves facts.

  There is – as you acknowledge — NO EVIDENCE of any
  bribery or corruption.

  The ‘environment of corruption” reference – is patently
  borrowed from the
  findings of the NSW LC.A.0 inquiry into the Metherell
  allegations and, as
  such, is superficial and unworthy. [EXHIBIT 253, paragraph
  211

  The Chairman of the National Executive Council at the
  relevant time. Prime
  Minister Namallu stated:

  With due respect, I must beg to take issue with your
  highly offensive words.-
  To suggest that you “refrain from finding that there was
  no bribery’, is
  completely unnecessary.
  In stating what you stated * you clearly intended to place
  in the minds of the
  readers that the Cabinet members have been corrupted, but
  you can’t prove it!

  Chapter 23

• Page 321 of 397

• 287

  You next … create the environment “under which a
  reasonable mind could
  assume corruption’. We suggest this is defamatory. Your
  allegations are
  unbecoming and unfitting for a high constitutional office:

  The dangerous trend you now set whereby the National
  Executive
  Council decisions are exposed to adverse public comment
  and

  The consequent danger of exposing State Ministers to
  ridicule and
  unfounded, unsubstantiated scandalous comment.

  You, as Constitutional Office holders owe a duty to
  conduct your affairs with
  dignity, proper decorum and to suggest nothing or
  insinuate nothing that is
  not a fact or truth.

  We respectfully suggest you delete from your report, the
  [paragraphs where
  the Ombudsman Commission indicated that it refrained from
  finding that there
  was no bribery or corruption]. It adds nothing to your
  general objectives,
  suggests corruption and bribery and creates distress and
  anxiety amongst all
  former National Executive Council members.

  Questions of bribery and corruption should be taken up
  specifically so that
  individual leaders, if any, may be dealt with according to
  law and not tried
  and convicted by innuendo, insinuation and
  suspicion.’ [EXHIBIT 256, page 2]

  [23.5] THE DECISION-MAKING PROCESS MUST BE ABOVE SUSPICION

  With respect to the two respondents who challenged our
  preliminary
  findings, the Ombudsman Commission states categorically that
  it reserves

• Page 322 of 397

• the right, in investigations of this nature, to form and
  report an opinion on
  the likelihood that corruption was involved in the decision-
  making
  processes of government.

  If, as in this case, we have found no proof of corruption, it
  does not follow
  that we will ignore the issue altogether.

  One of the central themes of this report is that the decision
  – making
  process must be above suspicion.

  Chapter 23

  288
  Decisions such as who is going to be awarded a multi-million
  kina
  contract to build a freeway and how much it is going to cost
  should be
  made fairly, openly and in accordance with law.

  When decisions are not made in this way, people become
  suspicious,
  allegations of corruption inevitably arise and reputations
  suffer. That is the
  price paid by all those involved in the making of these
  decisions, and also
  by those who benefit from them.

  Procedures are provided by law and they must be followed for
  the benefit
  and interests of all concerned.

  [23.61 MEEIMBORMENTIDELGOBERIEMON

  In the opinion of the Ombudsman Commission, the environment
  for
  corruption was created by the way in which normal and
  established
  procedures were disregarded soon after the National Executive

• Page 323 of 397

• Council
  decided in January 1990 to go ahead with the project; in
  particular by the
  way in which the Minister for Transport, Mr Temo, took
  control of the
  decision-making process.

  Many of the ingredients of corruption were present, due to:

  a flagrant disregard of normal tender procedures

  selected companies being invited to lodge proposals

  private negotiations involving the Minister for
  Transport
  being conducted in overseas locations without the
  knowledge of his own Department or the National
  Executive Council

  Chapter 23

  289

  a very late proposal being invited from only
  one
  compa y, and

  a disregard of proper procedures for
  presentation of
  submissions to the National Executive Council.

  This is the sort of situation in which corruption can flourish.

  Put simply, the National Executive Council decision to approve the
  contractor for the Spring Garden Road/Poreporena Freeway project was
  made in very unusual circumstances – not in the way we would expect
  decisions involving large amounts of public money to be made.

  In the following chapters, the Ombudsman Commission records the
  events
  that took place after that decision was made. Many of the things
  that
  happened – though they did not prove that corruption was involved –
  did
  nothing to alleviate our concerns about the circumstances which led
  to the
  decision.

  * * * * * * * * * *

• Page 324 of 397

• Chapter 23

  290

  24. OVERVIEW OF EVENTS BETWEEN APPOINTMENT OF
  KINHILL KRAMER CONSORTIUM AND SIGNING OF CONTRACT:
  FEBRUARY – MAY 1992

  [24.1] THREE MONTH PERIOD UNDER REVIEW

  The National Executive Council decided to award the project
  to the Kinhill
  Kramer consortium on 24 February 1992. Three months later, on
  27 May
  1992, the Governor-General signed a contract for the design,
  finance and
  construction of the Poreporena Freeway.

  Chapters 25 – 32 trace the events that occurred during that
  period. It was
  a hectic and turbulent time, especially in the second half of
  April and early
  May 1992 when the National Executive Council received
  conflicting advice
  on the course of action that should be taken.

  In this chapter we provide an overview of what happened,
  before
  recording the events in detail in the following chapters.

  [24.2] THE NATIONAL EXECUTIVE COUNCIL DECISION NO. 36/92 OF 24
  FEBRUARY 1992

  There are two aspects of National Executive Council Decision
  No. 36/92
  that need to be noted:

  Chapter 24

• Page 325 of 397

• 291

  1. The failure to include a number of key Government
  agencies
  in the negotiating team.

  2. The imposition of a deadline for completion of
  negotiations.

  [24.3] KEY GOVERNMENT AGENCIES. E G. DEPARTMENT OF WORKS, NOT
  INCLUDED IN THE NATIONAL EXECUTIVE COUNCIL DECISION

  The National Executive Council directed that negotiations
  with the Kinhill
  Kramer consortium be carried out by the Department of
  Transport, the
  Department of Finance and Planning and the Department of
  Attorney-
  General. There was no mention of other key government
  agencies such
  as the Electricity Commission, the National Capital District
  Commission and
  the Department of Works.

  It appears that this was not an oversight. The Minister for
  Transport’s
  Policy Submission, which led to the National Executive
  Council decision,
  made no reference to any of these other agencies. [EXHIBIT
  148, at page
  10]

  It is regrettable that these key agencies were not included
  in the National
  Executive Council decision. The Department of Works, in
  particular, is one
  of the National Government’s key implementing agencies for
  public works
  projects and its administrative structures are geared to
  negotiation of
  contracts for road projects and the construction and
  maintenance of
  roads. It was necessary for the State’s negotiating team to
  have access
  to the experience of the Department of Works and its skilled
  officers, so
  that an informed position could be taken on the technical
  engineering
  aspects of the contract documents. It is also one of the
  discrete functions
  of the Department of Works to “design, plan, supervise,

• Page 326 of 397

• execute and

  Chapter 24

  292
  maintain Government works”. (See the Determination of the
  Functions of
  Departments made under the Public Services (Management) Act,
  discussed in Chapter 40 of this report.)

  Though it transpired that the Department of Works was later
  involved in
  the negotiations, the Ombudsman Commission can see no good
  reason
  for that Department not being formally included in the
  National Executive
  Council decision.

  [24.4] DEADLINE IMPOSED BY THE NATIONAL EXECUTIVE COUNCIL,

  The second significant aspect of the National Executive
  Council decision
  of 24 February 1992 is that there was a time limit imposed:
  “all contractual
  and financial arrangements” were to be finalised within two
  months. Thus
  24 April 1992 became regarded as the deadline for completion
  of
  negotiations.

  This was a disastrous decision, in the circumstances. The
  meeting of the
  deadline became an overwhelming pre-occupation of the
  Department of
  Transport; so much so, that insufficient attention was paid
  to ensuring the
  interests of the State were properly protected by the terms
  of the contract.

  We believe it was inappropriate for the National Executive
  Council to set
  a deadline for conclusion of contractual negotiations in this
  particular case.
  In view of the complexity of the technical engineering
  aspects of the
  project and its vast budgetary implications the National
  Executive Council
  should have realised it would be dangerous to rush the
  negotiations. If
  there was a concern about getting the project started – but
  we do not see
  why there should have been – this could have been dealt with

• Page 327 of 397

• by asking
  the relevant Departments to report back to the National
  Executive Council
  at regular intervals on the status of the negotiations.

  Chapter 24

  293

  When we expressed these views in our preliminary report, the
  Chairman
  of the National Executive Council at the relevant time, Mr Namaliu,
  responded as follows:

  ‘You suggested the National Executive Council decision 3W92 was
  inappropriate
  and dangerous. That is a matter of opinion.

  Experience suggests that unless you give deadlines to
  departments, you are not
  likely to get any immediate responses. Evil minded people see
  evil in
  everything, we discharged our constitutional duties in good
  faith, taking into
  account the Government’s policies to create employment and to get
  the work
  done quickly.’ [EXHIBIT 256, page 3]

  Notwithstanding Mr. Namaliu’s views, the Ombudsman Commission sees
  no good reason for the National Executive Council wanting to impose
  a
  strict limit on the negotiations.

  We appreciate that it is sometimes necessary to give deadlines to
  departments, as an incentive to get policies implemented
  efficiently. But
  this was a very special project. It was not being implemented in the
  normal manner. The legal issues created by the use of the turnkey
  contract were quite involved. There were also complex engineering
  issues
  to address. None of the customary land in the vicinity of Burns Peak
  had
  been acquired. The budgetary and financial implications of a project
  of this
  magnitude were vast, and it should have been obvious that, because
  normal budgetary procedures had not been followed, it would be
  necessary for the State’s negotiating team to take special care to

• Page 328 of 397

• ensure
  that Papua New Guinea was getting a good deal and value for money
  from the successful consortium.

  The Ombudsman Commission strongly maintains the view that it was
  vital,
  in this case, for the State’s negotiating team not to be put under
  unnecessary pressure by the National Executive Council.

  Chapter 24

  294

  Unfortunately, the fact that a strict deadline was imposed
  added to the
  suspicion of corruption created by the unusual circumstances
  leading to
  the selection of the consortium to undertake the project.

  [24.5] CHRONOLOGY OF EVENTS

  The following chronology highlights significant events in the
  period
  between the National Executive Council decision of 24
  February 1992 and
  the signing of the contract on 27 May 1992.

  An asterisk (“*”) is used to highlight meetings of the
  National Executive
  Council at which the Spring Garden Road/Poreporena Freeway
  issue was
  discussed.

  FEBRUARY 1992
  *24 February National Executive Council Decision 36/92 to
  award project
  to Kinhill Kramer consortium.[EXHIBIT 153]

  MARCH 1992
  2 March First meeting between Kinhill Kramer and the State,
  represented by officers of Department of Transport
  and
  Department of Works. [EXHIBIT 155]

• Page 329 of 397

• 6 March Meeting between Kinhill Kramer and the State.
  [EXHIBIT
  157]

  Chapter 24

  295

  10 March Department of Works expresses serious concerns to
  Department of Transport about the Kinhill Kramer proposal:

  “… Kinhill Kramer have simply pulled their estimates
  out of the
  air”. [EXHIBIT 158]

  13 March Steering committee meeting. [EXHIBIT 159]

  13 March Secretary for Works writes to Secretary for Transport:

  am very surprised that.. a very late submission dated
  February 1992 by Kinhill Kramer which seemed to say
  almost
  the same terms and conditions in the Chinese proposal
  is the
  favourable one.

  Already there are complaints from other 100% national
  owned
  companies-.• [EXHIBIT 1601

  18 March Secretary for Transport writes to World Bank seeking urgent
  assistance in the form of a legal adviser and technical
  expert.
  (But there was no response.) [EXHIBIT 162]

  20 March Meeting between Kinhill Kramer and the State. [EXHIBIT
  164]

  23 March Steering committee meeting. Department of Works
  representatives indicated:

• Page 330 of 397

• “…even at this late stage, something else should be
  done. Let
  Kinhill Kramer complete the design, Government pay
  Kinhill
  Kramer for the design, renegotiate with Kinhill Kramer
  to design
  to Department of Works standards and call tenders for
  construction.• [EXHIBIT 1661

  23 March Beca Worley write to Department of Works offering
  consultant
  assistance. [EXHIBIT 167]

  Chapter 24

  296

  APRIL 1992

  3 April Meeting between Kinhill Kramer and the State.
  Department
  of Attorney-General and Department of Finance and
  Planning
  absent. [EXHIBIT 168]

  6 April Steering committee meeting. Department of Attorney-
  General
  and Department of Finance and Planning absent again.
  [EXHIBIT 169]

  WEEK COMMENCING MONDAY 13 APRIL 1992

  15 April Morning: steering committee meeting called by
  Department
  of Attorney-General and Department of Finance and
  Planning
  – concerned that they did not have a copy of Kinhill
  Kramer’s
  financial proposal. [EXHIBIT 175]

  15 April Afternoon: meeting between Kinhill Kramer and the
  State,
  1.00 pm, to discuss second draft of the contract
  documents.
  [EXHIBIT 176]

• Page 331 of 397

• 16 April Beca Gure commence review of contract documents.
  [EXHIBIT 178]

  16 April Consortium agreement signed between Kinhill Kramer
  Pty Ltd
  and Curtain Bros (Old) Pty Ltd. [EXHIBIT 179]

  Chapter 24

  297

  WEEK COMMENCING MONDAY 20 APRIL 1992

  21 April Maunsell Consultants commences review of draft contract.
  [EXHIBIT 180]

  22 April Department of Transport files National Executive Council
  Policy Submission No. 82/92, recommending execution of
  draft contract. [EXHIBITS 181, 183]

  THURSDAY 23 APRIL 1992

  23 April Results of Beca Gure review delivered to Department of
  Works:

  ‘In its present form the proposed contract is very
  heavily i
  weighted in favour of the consortium — the draft
  documents as
  reviewed are seriously flawed and should be totally
  rewritten.’
  POIDITT 184]

  23 April Department of Works advises Department of Transport:
  1

  1— at this time and date we do not believe that the

• Page 332 of 397

• State should
  agree with the documents as they now
  stand.’ [EXHIBIT IBS]

  23 April Preliminary review by Maunsell Consultants given to
  Department of Works, advising that certain:

  1—fundamental requirements must be met without
  which the
  project cannot proceed in any proper
  fashion.’ [EXHIBIT 187]

  Chapter 24

  298

  *23 April National Executive Council meeting: Departments ofi
  Transport, Attorney-General and Finance and Planning
  directed to finalise the contract for presentation to
  National
  Executive Council on Wednesday 29 April. [EXHIBIT 186]

  FRIDAY 24 APRIL 1992

  24 April Secretary for Transport advises officer in charge of
  negotiations that a number of Departments are not
  supporting the signing of the draft contract and instructs
  him
  to ensure “everything is in order” before National
  Executive
  Council meeting on 29 April. [EXHIBIT 190]

  24 April Department of Works formally advises Department of
  Attorney-General that if the draft contract is signed in
  its

• Page 333 of 397

• present form:

  “…the State will be seriously disadvantaged”.
  EXHIBITS 191,
  192]

  MONDAY 27 APRIL 1992

  27 April Secretary for Works writes to Chairman of Resource
  Management Committee, to express:

  ‘…deep concern about the way this project is
  proceeding without
  due protection for the interests of the State’.
  [EXHIBITS 193,
  196]

  Chapter 24

  299

  27 April Secretary for Transport advises Department of Works that
  because of their delaying tactics, he was directing the
  Kinhill
  Kramer consortium to deal only with the Department of
  Transport. [EXHIBITS 194, 195]

  27 April Second part of Beca Gure review delivered to Department of
  Works, raising further concerns about draft contract:

  “…overall, this contract is not sufficiently defined
  to identify the
  full costs of the project to the Government of Papua
  New
  Guinea.’ [EXHIBIT 1961

• Page 334 of 397

• 27 April Department of Transport arranges overnight review of
  contract documents by Cardno & Davies. [EXHIBIT 201]

  TUESDAY 28 APRIL 1992

  28 April Secretary for Works advises Secretary for Transport:

  We are in favour of the project in principle but
  continue to
  advise that unsatisfactory aspects of the current
  contract
  documentation and the land issues, should be sorted
  out Infos
  a final agreement is signed.

  These objections are not raised to frustrate and delay
  but to
  provide proper protection of the State’s
  interest.’ [EXHIBIT MO]

  28 April ElQom formally advises Department of Transport of serious
  concerns about the draft contract:

  The Terms of Payments seem generously biased to the 11
  contractor and progress payments are not linked to
  work
  performance.” [EXHHHT 2021

  Chapter 24

  300

  28 April Cardno & Davies review given to Department of Transport,
  pointing out defects in the draft contract. [EXHIBIT 204]

  28 April Department of Works drafted letter to Prime Minister for
  signature of Minister for Works, strongly objecting to
  execution of the contract in its present form. [EXHIBIT
  209]

• Page 335 of 397

• WEDNESDAY 29 APRIL 1992

  29 April Morning: Department of Finance and Planning prepares
  analysis of alternative methods of financing the project,
  emphasising disadvantages of turnkey financing. [EXHIBIT
  199]

  29 April Morning: Secretary of Department of Attorney-General hand-
  delivers letter to Office of Prime Minister, advising he
  will not
  issue a certificate of legal correctness for the draft
  contract.
  [EXHIBIT 211]

  *29 April Afternoon: National Executive Council meeting: Department
  of Attorney-General given nine days in which to complete
  the
  certificate of legal correctness. [EXHIBIT 210]

  FRIDAY 1 MAY 1992

  1 May Senior Department of Transport officer suggests that
  Department of Works be re-involved in contract
  negotiations.
  [EXHIBITS 215, 216, 222]

  Chapter 24

  301

  1 May Acting Minister for Finance and Planning suggests that NEC
  meeting be brought forward to 6 May. [EXHIBIT 217]

  MONDAY 4 MAY 1992

  4 May Secretary for Transport advises Secretary of the Department
  of Attorney-General against complete re-draft of the
  contract.
  [EXHIBIT 219]

  WEDNESDAY 6 MAY 1992

  6 May Acting State Solicitor (Department of Attorney-General) gives
  legal clearance for the contract, but draws attention of
  National Executive Council to numerous serious defects in
  the contract documents. [EXHIBIT 224]

  *6 May National Executive Council Meeting Decision No. 83/92:

• Page 336 of 397

• directed the Department of Transport and the
  State Solicitor’s Office to Immediately confer
  and verify” some of the defects in the draft
  contract; and

  advised the Governor-General to execute the
  contract “upon finalization of … above”. [EXHIBIT
  225]

  Chapter 24

  302

  THURSDAY 21 MAY 1992

  21 May Acting State Solicitor advises Governor-General to
  sign the
  contract. [EXHIBITS 230, 231]

  WEDNESDAY 27 MAY 1992

  27 May Certificate of Technical Correctness presented by
  Secretary
  for Transport. [EXHIBIT 232]

  27 May CONTRACT SIGNED

  [24.6] RECORD OF EVENTS

  The Ombudsman Commission records and comments on the events
  of
  the period from 24 February to 27 May 1992 in the following
  way:

  Chapter 25 deals with the initial negotiations between
  Kinhill Kramer and
  the State, paying particular attention to the concerns raised
  by the
  Department of Works.

  Chapter 26 assesses the Department of Transport’s reaction to
  the efforts
  by the Department of Works to delay execution of the
  contract.

  Chapter 27 documents the National Executive Council meeting
  on 23 April
  1992, at which it was decided to go ahead with execution of

• Page 337 of 397

• the contract.

  Chapter 24

  303

  Chapter 28 deals with developments between the National Executive
  Council meetings on 23 April and 29 April 1992 and assesses the
  action
  taken by the four key Departments during that period.

  Chapter 29 documents the National Executive Council meeting on 29
  April
  1992, as a result of which the Department of Attorney-General was
  directed to finalise the draft contract within nine days.

  Chapter 30 focuses on the legal clearance that emerged from the
  Department of Attorney-General, just prior to the National Executive
  meeting on 6 May 1992.

  Chapter 31 records the National Executive Council meeting on 6 May
  1991, as a result of which the Department of Transport and the State
  Solicitor’s Office were directed to verify certain defects in the
  draft contract
  prior to its execution by the Governor-General.

  Chapter 32 examines the events that occurred after the National
  Executive
  Council meeting on 6 May 1992, up to and including the execution of
  the
  contract on 27 May 1992.

  Chapter 33 provides an overview of the contract between the State,
  Kinhill
  Kramer Pty Ltd and Curtain Bros (Old) Pty Ltd.

  * * * * * * * * * *

  Chapter 24

  CONCERNS RAISED BY DEPARTMENT OF WORKS
  ABOUT DRAFT CONTRACT: MARCH – APRIL 1992

• Page 338 of 397

• [25.1] SIEEMN6GOMMITMEAT GUSHED

  Negotiations on behalf of the State were conducted by an
  interdepartmental steering committee. In accordance with the
  terms of
  National Executive Council Decision No. 36192, it comprised
  representatives
  of three Departments:

  Transport
  Attorney-General
  Finance and Planning.

  Although the Department of Works was not included in the
  National
  Executive Council decision, officers of that Department were
  nevertheless
  involved in the initial meetings of the steering committee.

  There were also occasions on which officers of other
  Departments and
  governmental bodies were involved, such as the Department of
  Lands and
  Physical Planning, the Harbours Board, the Post and
  Telecommunications
  Corporation, the National Capital District Commission and
  the Electricity
  Commission.

  A draft contract was prepared by Kinhill Kramer Pty Ltd and
  made available
  to the steering committee for perusal.

  Chapter 25

  305

  The Department of Transport assumed control of the steering
  committee,
  which met on four occasions between 13 March and 15 April
  1992.

  There were also four meetings between the steering committee
  and the
  Kinhill Kramer/Curtain Bros consortium, at which the terms of
  the draft
  agreement were negotiated. These meetings were held on 6
  March, 20
  March, 6 April and 15 April 1992.

• Page 339 of 397

• The Ombudsman Commission interviewed a number of members of
  the
  steering committee in the course of this investigation. After
  considering their
  evidence, and the minutes of those meetings, we are satisfied
  that there
  was a considerable difference of opinion within the committee
  as to the
  acceptability of the terms and conditions put forward by the
  Kinhill
  Kramer/Curtain Bros consortium.

  CONCERNS ABOUT THE DRAFT CONTRACT

  [252] THE VIEW THAT THE CONTRACT HEAVILY FAVOURED THE
  CONSORTIUM

  Some members of the committee thought the terms were heavily
  weighted
  in favour of the consortium. These concerns were aired quite
  early in the
  negotiations.

  One of the burning issues was the price of K65 million. On 10
  March 1992,
  the Assistant Secretary (Roads and Bridges) in the Department
  of Works,
  Mr Bolt, wrote to the Secretary for Transport in the following
  terms:

  Chapter 25

  306

  “It is difficult to avoid the conclusion that Kinhill
  Kramer have simply pulled
  their estimates out of the air and if we accept them
  without question then
  there is a real danger that the Government will be paying
  far more for this
  project than is necessary.”[Exhibit 1581

  One member of the committee testified that on a few occasions
  the

• Page 340 of 397

• representatives of the Department of Finance and Planning and
  the
  Department of Attorney-General deliberately failed to attend
  meetings, as
  a means of protesting against the course of the negotiations.

  As a result of these concerns the Department of Works engaged
  two
  consulting firms to separately review the terms of Kinhill
  Kramer’s draft
  contract. The consultants were:

  Beca Gure (PNG) Pty Ltd; and

  Maunsell Consultants PNG.

  [25.3] PART 1 OF THE BECA GURE REVIEW

  Beca Gure was engaged by the Department of Works on 16 April
  1992
  and presented its review in two parts.

  The first part was made available on 23 April 1992 – the day
  the Minister
  for Transport advised the National Executive Council that the
  contract
  should be signed (see Chapters 26 and 27).

  Beca Gure provided a detailed commentary on two documents:

  Chapter 25

  307

  the draft contract agreement between the State and the
  Consortium; and

• Page 341 of 397

• the draft “Particular Conditions of Contract for
  Payment”.
  [Exhibit 184]

  The commentary was stated to be “an aggregate of concurrent
  reviews
  carried out by Beca Gure (PNG) and Beca Worley International
  (NZ) with
  specialist legal advice from Rudd Watts and Stone in New
  Zealand”.

  [25.4] SERIOUS RESERVATIONS EXPRESSED BY BECA GURE

  Beca Gure presented a clause-by-clause analysis of the
  documents and
  expressed many serious reservations. Some of these were:

  The financing agreement between the consortium and its
  financiers was not included in the list of contract
  documents.
  If this agreement were not integrated within the
  documentation, the State would have no idea of the
  terms on
  which finance was being arranged.

  The scope of the works was not well defined.

  The contract amount was fixed in United States dollars,
  thus
  exposing the State to the risk of currency
  fluctuations.

  The contractors were entitled to import all plant and
  equipment duty free, but there were no limits on its
  use after
  completion of the project.

  Chapter 25

  308

  The State only had three months in which to transfer
  possession of the site to the consortium. This was
  insufficient,
  in view of the landowner issues that were likely to be
  encountered and the problem of relocating squatters.

  The consortium was only required to use its “best
  endeavours” to complete the project on time. There were
  no

• Page 342 of 397

• penalties for delayed completion or evaluation or award
  of
  extensions of time: “the State effectively has no control
  over
  progress”.

  There was inadequate provision for the State to monitor
  the
  progress of construction by a nominated representative
  and
  no provision for the State to inspect the works for
  defects
  prior to delivery.

  The terms of the contract relating to termination were
  one-
  sided: they gave the consortium innumerable grounds on
  which to cancel the contract, but made no provision for
  termination by the State.

  No provision was made for the costs and revenue that
  would
  be generated by disposal of the spoil from the cut.

  5.5] BECA GURE ADVISED THAT THE DRAFT CONTRACT WAS SERIOUSLY
  FLAWED AND SHOULD BE TOTALLY REWRITTEN

  In addition to the commentary on particular terms of the draft
  contract, Beca Gure advised as follows:
  Beca Gure advised as follows:

  Chapter 25

  309

  ‘We are of the opinion — that the
  issues identified herein are of major significance to the State and
  warrant urgent and careful consideration.

  In its present form the proposed
  Contract is very heavily weighted in favour
  of the Consortium with few, if any,
  remedies open to the State in the event of
  unsatisfactory performance. The
  financial burden placed upon the State by the
  various provisions of the Contract is
  very considerable and is not balanced by
  reciprocal obligations upon the
  consortium. The General Conditions of
  Contracts as represented by AS2124

• Page 343 of 397

• (1981) are largely inappropriate to lump sum
  Turnkey contracts and presuppose
  independent and impartial action by the
  Superintendent, a situation not
  inherent in the contractual arrangements
  represented by the current
  documentation.

  The requirements for exemption and/or
  reimbursement of personal and corporate
  taxation, customs duties and levies,
  both within PNG and offshore, together with
  the requirement for all payments to be
  made in foreign currency, are unusual
  and further increase the exposure of
  the State during the ten year period covered
  by the Agreement.

  It is in the opinion of ourselves and
  associated specialist advisers that the draft documents as reviewed
  are seriously flawed and should be totally rewritten.
  In their present form the documents do
  not provide the level of protection and
  recourse for the State that would
  normally be contained in contracts between
  the State and contractors providing
  goods and services.

  There are numerous and onerous
  obligations placed upon the State and any
  default exposes the State to
  substantial additional costs, over and above the
  Contract Amount of US$67.6 million.
  There is a danger that claims against the
  State for default may be translated
  into pressures to make concessions to the
  Consortium.

  We earnestly recommend that the Agreement is not signed until the
  issues we
  have identified have been resolved to
  the full satisfaction of the State.

  the State may wish to consider
  requesting competitive tenders for this project.
  It is our experience that mad
  construction costs are comparable internationally
  and in Indonesia current costs for
  dual two lane urban motorway, inclusive of
  land costs, taxes, duties and levies
  and the like are generally US$4 million/km
  or US$33.6 million for 8.4 km. While
  the Burns Peak excavation is an
  extraordinary item it is difficult to

• Page 344 of 397

• see why the costs for this project are some
  USS34 million (or double) the cost of
  similar projects elsewhere, and exclude
  land costs and all taxes, duties and
  the like’.

  [EXHIBIT 184, pages 2-3, emphasis added]

  [25.6] PART 2 OF THE BECA CURE REVIEW : FINANCIAL RISKS
  HIGHLIGHTED

  The second part of the review was given to the
  Department of Works on

  27 April 1992, i.e. just two days before the
  National Executive Council

  meeting on 29 April 1992 at which final approval
  of the contract was

  planned to be given (see Chapter 29).

  Chapter 25

  310

  It incorporated an analysis of financial risks, prepared by Deloitte
  Rosg
  Tohmatsu, Chartered Accountants, of Auckland New Zealand. This
  highlighted a number of additional matters of concern. For example:

  The State was not protected against the financial failure of
  members of the consortium. There were no performance
  bonds or similar guarantees and no provision for the State
  to take over the contractors’ plant and equipment in the event
  of liquidation.

  The effect of six monthly interest periods would make the real
  interest rate in the vicinity of 12%.

• Page 345 of 397

• Interest charges could add a further US$51 million to the cost
  of the project.

  Exchange rate fluctuations could add to the cost of the
  project. A 10% change in the value of the US dollar by June
  1995 could increase the contract price by another US$15
  million.

  There was no provision for early re-payment by the State.

  Deloitte Ross Tohmatsu concluded by stating:-

  ‘Overall, this contract is not sufficiently defined to identify
  the full costs of
  the project to the Government of Papua New Guinea — In terms of
  negotiating
  position, the State should ensure that all contingencies are
  identified, quantified
  and satisfactorily addressed prior to making any commitment to
  such a
  Contract.’ [EXHIBIT 196]

  Chapter 25

  311

  [25.71 THE MAUNSELL REVIEW : KINHILL KRAMER’S PRICE SHOULD NOT BE
  ACCEPTED

  A preliminary review of the draft contract by Maunsell
  Consultants was
  made available on 23 April 1992, the same day on which the
  first part of
  the Beca Gure review was given to the Department of Works.
  [EXHIBIT
  187]

  A more comprehensive review was delivered on 12 May 1992.
  [EXHIBIT

• Page 346 of 397

• 228] This indicated the value of the project was probably
  only K50 million
  and pointed to the dangers of entering into turnkey
  contracts. By the time
  it arrived, however, it was too late to have any effect,
  because the National
  Executive Council had decided on 6 May 1992 to approve the
  draft
  contract and the price of K65 million.

  The preliminary review by Maunsells emphasised that the first
  thing that
  should be done was to engage Kinhill Kramer to complete a
  conceptual
  design for the project:

  “IC.K. should be engaged as soon as possible to complete a
  conceptual design
  for the Project. This should be paid for by the
  Government, either on an agreed
  Lump Sum or on a Time basis, with a budget limit. If and
  when an agreement
  is entered into this sum is deducted from the Contract Sum
  payable.• [EXHIBIT
  187, at page 3]

  Maunsells further advised it was necessary to establish a
  reasonable
  market price for the project. It was not satisfactory to
  accept the price
  quoted by the Kinhill Kramer/Curtain Bros consortium at face
  value:

  Chapter 25

  312

  “Based on the conceptual design ._ a firm of Quantity

• Page 347 of 397

• Surveyors experienced
  in the field of the types of construction work
  contemplated should be engaged
  by the Government to prepare a confidential budget
  valuation of the total
  Project, including the cost of all site investigation,
  design, construction,
  supervision, and all ancillary costs such as insurances
  and sureties. This would
  form a basis for comparison with the Consortium’s Payment
  proposals.’
  [EXHIBIT 187, at page 3]

  [25.8] CREDIBILITY OF THE BECA GURE AND MAUNSELL REVIEWS
  CHALLENGED

  In the course of his response to the Ombudsman Commission’s
  preliminary report, the Executive Chairman of Kinhill Kramer
  Pty Ltd, Mr F
  M Kramer, CBE, challenged the credibility of the reviews
  undertaken by
  Beca Gure and Maunsells.

  First, Mr Kramer queried the source of some of the reviews:

  “I find, with respect, this part of the report [dealing
  with the Beca Gure and
  Maunsell reviews] to be incredible. Throughout the report
  you have constantly
  stated that the State was not properly advised or indeed
  received proper
  independent advice in relation to the documentation and
  other matters in
  respect of the project. You then deal with 2 reports
  obtained from Beca Gure
  and Maunsells Consultants together with a report put
  together by Deloitte Ross
  Tohmatsu.

  In relation to both Beca Gure and Deloitte Ross Tohmatsu
  it was interesting
  to note that both reports were carried out by experts from
  New Zealand. I fail
  to see how any New Zealander could comment upon matters
  relating to Papua
  New Guinea. I find this part of the report offensive and
  quite obviously
  irrelevant to the matters in hand. In relation to the Beca
  Gure report I would

• Page 348 of 397

• refer you to the report of Jackson Clark Pty Limited and
  more importantly the
  submissions by Counsel in relation to the pricing of the
  project.”

  [EXHIBIT 253, page 8, paragraph 23; note that the Jackson
  Clark document and
  counsel’s submissions to the Ellis Commission of Inquiry
  are highlighted in
  Chapter 22 of this report]

  Mr Kramer also challenged the independence of the reviews:

  ‘Quite obviously the engineering consultants are
  competitors of Kinhill Kramer
  Pty Limited and for that reason alone their independence
  has to be questioned.’
  [EXHIBIT 253, page 9, paragraph 23]

  Chapter 25

  313

  Mr Kramer then suggested that much of the advice contained
  in the
  reviews was ill-informed:

  ‘In relation to the list where Beca Cure expressed many
  serious reservations
  I make no comment other than to say such comments are
  obviously ill-
  informed. for example, in respect of point 4 if your
  investigations had made
  proper enquiry they would have ascertained that the
  Customs Department
  would not allow the use of duty free plant and equipment
  to be utilised on
  any other projects. Should this happen duty is
  immediately payable. This is
  only one example of your investigators lack of partiality
  and consideration of
  the proper facts.1133CHIBIT 253, page 9, paragraph 231

  [25.9] RESPONSE TO MATTERS RAISED BY KINHILL KRAMER

• Page 349 of 397

• The Ombudsman Commission makes three points about the
  matters
  raised by Mr Kramer.

  1. Source of the reviews

  As to the fact that two of the reviews emanated from New
  Zealand,
  we regard this as irrelevant to the question of their
  credibility. The
  draft contract was one that might have been executed in
  any
  country having a common law legal system similar to ours.
  As
  Papua New Guinea does not have an indigenous body of
  contract
  law, the commentaries on the draft contract did not
  require a
  detailed knowledge of Papua New Guinea.

  2. Reviews obtained

  As to the reviews being obtained from Kinhill Kramer’s
  competitors,
  this is a fact. But the specialised nature of the advice
  being sought
  meant that whoever gave it was likely to be a competitor
  of some
  sort. The important thing was the substance of the
  reviews, not their
  WINCE).

  Chapter 25

  314

  3. Use of imported plant and equipment

  We are very sceptical of the claim that the lack of restriction
  on the
  use of imported plant and equipment was not a problem because
  the Bureau of Customs would not have allowed it to be used on
  any other project.

• Page 350 of 397

• If the duty-free exemption was supposed to be conditional on the
  plant and equipment being used only on the Poreporena Freeway
  project, it was very important for that to be expressly stated
  in the
  contract, for a number of reasons:

  (a) It would have avoided the possibility of disputes
  arising
  in the future. If the State executes a contract which
  imposes no restrictions on the use of duty-free plant
  and equipment, the party importing . it may have a
  strong case when, say, three years later, the plant and
  equipment is used on another project and duty is
  sought to be imposed.

  (b) While the present policy of the Bureau of Customs
  might be to impose duty in these circumstances, there
  was no guarantee that that policy would have
  remained in force for the next few years.

  (c) There is no guarantee that the Bureau of Customs can
  monitor the use of all plant and equipment imported
  duty-free.

  Chapter 25

  315

  (d) The lack of any restriction on its use left
  open the
  possibility of abuse: an item might be
  imported duty
  free, used for only a very short time on
  the freeway
  project and then sold at market price.

  Our understanding is that contracts conferring duty-
  free status on
  plant and equipment almost always include a term
  imposing
  restrictions on its use.

  For all of these reasons, we consider the concern
  raised by Beca
  Gure as to the duty-free provision in the draft
  contract (and such a
  provision was contained in the final contract) to
  have been legitimate
  and certainly not ill-informed. [EXHIBIT 231A,
  Article 10.1(e)]

• Page 351 of 397

• [25.10] WERE THE BECA GURE AND MAUNSELL REVIEWS CREDIBLE?
  11
  Having examined each of the reviews obtained by the
  Department of ■
  Works, the Ombudsman Commission does not find in them any
  evidence
  of “bias” against Kinhill Kramer. Each of them appears to
  have been
  competently and professionally compiled. We do not
  necessarily endorse
  all of the comments and recommendations they contained.
  But there is no
  doubt, in our opinion, they raised legitimate matters of
  serious concern
  about the terms of the draft contract.

  It was imperative, if the State’s interests were to be
  adequately protected,
  for the issues raised by the various reviews to be
  comprehensively dealt
  with in the course of the negotiations with the Kinhill
  Kramer/Curtain Bros
  consortium. But this did not happen. re

  Chapter 25

  316

  THE PRICE OF THE PROJECT WAS NOT PROPERLY CHECKED

  [25.11] DEPARTMENT OF TRANSPORT MADE NO PROPER ATTEMPT TO CHECK
  THE PRICE OF THE PROJECT

  In the opinion of the Ombudsman Commission, the advice of
  Maunsells
  and Delloite Ross Tohmatsu was eminently sensible. One of
  the critical
  flaws in the National Executive Council decision to award
  the project to the
  Kinhill Kramer consortium was that there was never any
  proper attempt to
  evaluate whether the price of K65 million quoted by Kinhill
  Kramer was
  realistic. Kinhill Kramer was awarded the project without

• Page 352 of 397

• having to justify
  its price (see Chapter 22).

  Until the contract was signed, it was not too late to
  negotiate the price.
  However, during the course of negotiations, no attempt was
  made to get
  an objective, independent valuation of the project. This was
  just plain
  financial irresponsibility. The Ombudsman Commission is very
  concerned
  that such an abuse of public money was made possible.

  When we made these findings in our preliminary report, the
  Secretary for
  Transport responded in the following terms:

  “The project cost was K65 million, however, the
  Department negotiated the
  project cost down from K65 million to K57 million by
  changing the terms. The
  difference of ICS million was classified as contingency
  subject to the State
  approval of the need to commit such funds. It may or may
  not be used. The
  Department of Finance and Planning was aware of this and
  did not raise
  objection. This is not defective administration.’
  [EXHIBIT 254, para 191

  With due respect to Mr Amini, his assertion that the
  Department of
  Transport negotiated the price downwards by K8 million is
  not supported
  by the facts.

  Chapter 25

  317

  The “contract amount” actually contained in the contract
  executed by the
  State was US$67,619,500.00 plus interest. This was expressed
  to be
  inclusive of a general contingency sum of $5,201,500.00.
  There was no

• Page 353 of 397

• term in the contract which made liability to pay the
  contingency sum
  subject to “State approval”. That is, the contract amount
  was a flat sum
  and all payments due by the State to the Kinhill Kramer/
  Curtain Bros
  consortium were to be calculated in accordance with that
  amount. [See
  EXHIBIT 231A, Article 5.1 and EXHIBIT 231B, Article 2.1]

  Again, we are forced to conclude that the Department of
  Transport – being
  the Department in charge of the negotiations – was guilty of
  gross
  administrative incompetence and neglect.

  DEPARTMENT OF WORKS RAISES CONCERNS WITH DEPARTMENT OF TRANSPORT
  AND STATE SOLICITOR

  [25.12] ACTION TAKEN BY DEPARTMENT OF WORKS FOLLOWING
  CONSULTANTS’ ADVICE
  The first part of the Beca Gure review and the advice of
  Maunsells were
  made available to the Department of Works on 23 April 1992.
  On that day,
  the Acting First Assistant Secretary (Technical Services),
  Mr. D Gole, sent
  a fax to the Secretary for Transport.

  Writing on behalf of the Secretary for Works, Mr Gole
  stated:

  Chapter 25

  318

  We write to advise that at this time and date we do not believe
  that the StEt(
  should agree with the documents as they now stand.

  We have only yesterday received some of the documents to study
  (e.g. concept
  and specification and the consortium agreement and contract
  agreement) and
  note that there are a number of issues outstanding in the
  drawings. Some of

• Page 354 of 397

• the issues previously discussed have not yet being resolved.

  We are currently studying the documents and continue to give full
  cooperation
  to resolve the outstanding issues in the near future, providing
  full cooperation
  is given by the consortium.’ [T BIT 1851

  The next day, 24 April 1992, Mr Gale, together with Mr M Sharp, the
  First
  Assistant Secretary (Operations) in the Department of Works, sent a
  letter
  by fax to the State Solicitor. This letter summarised the main
  concerns
  raised by Beca Gure and Maunsells:

  °It is the professional opinion of the officers of this
  Department that =kw
  these and related matters are adequately addressed then the State
  will be
  seriously disadvantaged should the agreement in its current form
  be adopted.’
  [a= 192, at page 1]

  The letter to the State Solicitor also raised a number of technical
  matters:

  ‘Consideration of the technical proposals has raised concern in
  the following
  cases.

  (I)Geometric Design Standards have not been strictly adhered to
  Geometric Designs are therefore incorrect,

  Horizontal Alignments
  Vertical Alignments
  Cross-.Section
  Grades
  No spiral curves shown

  There is inadequate Definition of Accesses to and from the
  proposed
  roadwork and the existing road network and properties.

  Inter-sectional treatments are not detailed and consequently
  are not
  approved by DOW, NCD.

• Page 355 of 397

• Chapter 25

  319

  Plans are incorrect and incomplete and require changes
  with respect to,

  Scales
  libelling of features
  Reference of Cross-Section Types

  At the time of signing the agreement, the land required
  for the project will not
  have been acquired. This is an undesirable, and possibly
  illegal situation and
  could threaten the progress of the works and leave the
  State exposed to claims.”
  [EXHIBIT 192, at page 3]

  The covering letter to the first part of the Beca Gure
  review (which
  recommended that the contract not be signed) was faxed to
  the State

  Solicitor’s Office on 24 April 1992. [EXHIBIT 191] A copy of
  the letter
  was also made available to the Department of Transport,
  which received
  it on 28 April 1992.

  [25.13] DID THE DEPARTMENT OF WORKS ACT RESPONSIBLY?

  As we report in Chapter 26, the suggestion was made in some
  quarters
  that the Department of Works was acting irresponsibly in
  raising these
  concerns and protesting about the way in which the
  negotiations were

• Page 356 of 397

• proceeding.

  In the opinion of the Ombudsman Commission, the Department
  of Works
  acted properly in obtaining the reviews from private
  consultants. However,
  once the results of the reviews were available, the
  Department of Works
  could have handled the matter more effectively and
  professionally.

  The Department of Works’ letter of 24 April 1992 to the
  State Solicitor
  [EXHIBIT 192] did not indicate that “the professional
  opinion” of the officers
  of that Department was based on the reviews that had been
  obtained from
  private consultants. This letter should have clearly
  conveyed that the views

  Chapter 25

  320
  being expressed were not only those of the Department of Works’
  officers.
  Furthermore, although a copy of that letter was given to the
  Department
  of Transport, the Department of Works should have expressly stated
  to
  the Department of Transport that it had obtained the reviews from
  private
  consultants and given the Department of Transport copies of those
  reviews
  the moment they became available.

  We appreciate the difficult position that the Department of Works
  was in.
  However, if that Department had been willing to communicate more
  openly and promptly with the Department of Transport, the relations
  between those two departments may not have deteriorated to the
  extent
  that they did in this case.

  We also note that the letter of 24 April 1992 to the State Solicitor
  was
  signed by two senior officers of the Department of Works – not by

• Page 357 of 397

• the
  Secretary for Works. In a matter as important as this, this letter
  should
  have been signed by the Secretary for Works. Correspondence of this
  nature must be signed by, or on behalf of, the departmental head
  concerned. If it is not, the impression can easily be obtained that
  senior
  officers of a department are attempting to by-pass their
  departmental
  head.

  So, while the Department of Works acted responsibly in arranging the
  reviews of the draft contract, it did not disseminate the results of
  those
  reviews in the correct manner.

  * * * * * * * * * *

  Chapter 25

  321

  26. DEPARTMENT OF TRANSPORT RECOMMENDS SIGNING OF
  CONTRACT AGAINST ADVICE OF OTHER DEPARTMENTS:
  22 APRIL 1992

  [26.1] DEPARTMENT OF TRANSPORT STILL INTENT ON FINALISING THE
  CONTRACT

  To a large extent the efforts of the Department of Works
  to get the
  contract renegotiated were overtaken by other events.

  Though the Secretary for Transport advised against
  awarding the contract
  to Kinhill Kramer, he nevertheless saw it as his duty to

• Page 358 of 397

• implement the
  National Executive Council decision of 24 February 1992.
  The National
  Executive Council stipulated that the contract be signed
  within two months,
  which meant that 24 April 1992 was perceived as the
  deadline. As the
  deadline drew near, the Secretary instructed the officer
  in charge of the
  negotiations with the Kinhill Kramer/Curtain Bros
  consortium, Mr Amoako,
  to prepare a submission to the National Executive
  Council, recommending
  the action to be taken.

  [26.2] DEPARTMENT OF TRANSPORT PREPARES POUCY SUBMISSION
  RECOMMENDING THAT THE CONTRACT BE SIGNED

  Consequently, Policy Submission No. 82/92 was prepared by
  Mr Amoako,
  for the Minister’s signature. It was filed on Wednesday
  22 April 1992,
  together with five copies of a draft contract. [EXHIBIT
  181]

  Chapter 26

  322

  The Policy Submission stated that the steering committee met with
  the
  consortium on a number of occasions and that a draft agreement
  “substantially agreed to by all parties” had been prepared. The
  features of
  the contract were described in the following terms:

  The Consortium will Finance and construct a freeway from Port
  Moresby Seaport to Port Moresby Airport.

  The mad will be 4 lanes all the way through.

  The Burns Peak section will be an open cut 8% grade four lane.

  There will be a minimum of 2 ‘flyovers* (overpasses) and a

• Page 359 of 397

• maximum
  of t

  The mad will be the first of its kind in the city and in the
  country.

  The Consortium made up of Kinhill Kramer and Curtain Brothers
  will
  obtain loan to finance the project

  Upon satisfactory completion of the project in 36 months the
  Consortium
  will hand over the project to the State.

  The State will then begin to pay off the principal of the
  loan.

  The loan amount, drawn down will accrue an interest of 95%,
  (This is
  expected to be lower at time of signing Contract Agreement).
  Interest
  will be paid during construction.

  The total project cost is IC65 million, K5 million of which is
  earmarked
  for contingencies.

  There are other technical details of the project still to be
  completed
  but these should not stand in the way of the Contract
  Agreement being
  executed, and for works to commence. Understanding has been
  reached
  with the Consortium.”
  [EXHIBIT 183, pages 1-2, emphasis added]

  The submission concluded by recommending that the National Executive
  Council “directs Finance Minister to enter into Agreement by signing
  the
  Draft Contract with the Consortium.” [EXHIBIT 182, at page 3]

  Chapter 26

• Page 360 of 397

• 323

  [26.3] RESPONSE BY THE SECRETARY FOR TRANSPORT TO PRELIMINARY
  FINDINGS

  In our preliminary report, we recorded the view that it was
  wrong of the
  Department of Transport to recommend to the National
  Executive Council,
  through the Minister for Transport, that the Agreement be
  signed at that
  time. The Secretary for Transport, Mr Amini, responded as
  follows:

  ‘The submission did bring to the attention to NEC that
  there were some
  outstanding issues yet to be resolved, yet in Department’s
  view they should
  not stand in the way of the contract being executed
  because the details in
  question were to be provided during detailed design and
  that was part of the
  consortium’s work. Secondly, the Department was of the
  view that the Legal
  Correctness Certificate would be issued by the Department
  of Attorney General
  and, if they had concerns, they would be addressed at that
  stage, still not too
  late, and that is exactly what happened. We took this
  approach because it
  became clear that the attendances of the Department of
  Attorney General
  representative at the negotiating meetings were being
  interfered with by
  Department of Works officials, who wanted to delay the
  project so that other
  developer’s interests might be promoted. We raised this
  concern and it was
  repeated by Mr. Karl Stack in an NEC meeting. NEC cannot
  be deceived by
  this means. It should be remembered that the concerns were
  all technical in
  nature but the negotiation team’s commission was financial
  and legal issues.
  The technical issues were to be derived from detailed
  design. There was risk
  in this but that is a normal part of any turn-key project.
  This was not defective
  administration.’
  [EXHIBIT 254, pars 201

• Page 361 of 397

• The Ombudsman Commission does not regard this as a
  satisfactory
  explanation. In this chapter of the report we explain why it
  was premature
  to recommend execution of the contract in April 1992.

  [26.4] WAS THE DEPARTMENT OF TRANSPORT AWARE OF THE CONCERNS
  RAISED BY THE DEPARTMENT OF WORKS?

  Although the Policy Submission was prepared before the
  Department of
  Works officially conveyed its concerns on the draft contract,
  the
  Ombudsman Commission is satisfied that those concerns had
  been
  conveyed, unofficially, well before the submission was
  prepared.

  Chapter 26

  324

  There had been a meeting on 3 April 1992 between the steering
  committee and Kinhill Kramer. The minutes of that meeting
  show that,
  after the Kinhill Kramer representatives left, the following
  discussion took
  place:

  ‘Assistant Secretary (Roads and Bridges) [in the Dept of
  Works] expressed
  serious concern that the committee will not be able to
  adequately assess/change
  the agreement documents and drawings by the deadline for
  submission to NEC.

  First Assistant Secretary (POS) Um the Dept of Works]
  stressed the importance
  of identifying and clearly stating the shortcomings,
  dangers and extra costs of
  the final Agreement to the NEC.

• Page 362 of 397

• Tony James (World Bank) joined the meeting and suggested
  that the best way
  to do this project is by regular procedures. He said that
  the Government can
  arrange much better loan terms than a commercial venture,
  and the cost would
  be significantly less. He also mentioned that the
  interpretation of the word
  ‘Turnkey’ is situation dependent.

  Johnson Amoako mentioned that the DOT – DOW liaison
  meetings are off,
  and that meetings and communications will continue on a
  more informal basis.’
  [1•)011Bff 168, at page 4]

  It is clear that officers of the Department of Works were
  conveying their
  concerns to Mr Amoako informally.

  [26.5] CONCERNS ALSO RAISED BY DEPARTMENT OF ATTORNEY-GENERAL
  AND DEPARTMENT OF FINANCE AND PLANNING

  The Department of Transport was also aware the Department of
  Attorney-
  General and Department of Finance and Planning were concerned
  about
  many aspects of the contract. On 15 April 1992, for example,
  officers of
  those departments called a special meeting of the steering
  committee to
  protest against the fact they had not yet seen Kinhill
  Kramer’s financial
  proposal. They had no knowledge of the proposed financing
  agreement
  between Kinhill Kramer and the Export Finance Insurance
  Corporation.

  Chapter 26

  325

• Page 363 of 397

• Mr (rung, Assistant State Solicitor, informed the meeting that the
  Department of Attorney-General “required the financial proposal
  before they
  can go through the contract documents for their comments”. [EXHIBIT
  175, at page 2]

  The minutes of the meeting also record the following statements made
  by
  Department of Finance and Planning officers:

  es. The Chairman informed the meeting that although the
  financial proposal
  was not available the committee should proceed to dear other
  issues
  where we have information. The committee has a deadline to
  meet and
  it should work towards meeting the deadline.

  6. DOFF provided the following comments:-

  6.1 The financial package and scope of IC65 million to be
  negotiated.

  6.2 RMC did not support the project.

  6.3 The World Bank’s advise has changed and recommended
  Government
  financing.
  6.4 Department of Works’ cost is IC40-50 million and Kinhill
  Kramer’s cost
  is IC65 million. The final figure should be established.

  6.5 Debt servicing gap needs to be reduced over the years. The
  gap will
  be increased if this project proceeds.

  6.6 Other Transport projects and overall capital works programme
  will be
  affected if the project proceeds. DCA also have a proposal
  for a turnkey
  project on Tokua Airport.” [EXHIBIT 175, at pages 2-3]

  These were important matters which should not have been just swept
  aside by the Department of Transport and the Minister for Transport.

• Page 364 of 397

• Chapter 26

  326

  [26.6] DID THE DEPARTMENT OF TRANSPORT ACT RESPONSIBLY IN
  RECOMMENDING THAT THE DRAFT CONTRACT BE SIGNED?

  The meeting called by the Department of Attorney-General and
  the
  Department of Finance and Planning took place on Wednesday 15
  April
  1992 – just one week before the recommendation that the
  contract be
  signed. The concerns that had been raised were not addressed
  in the
  intervening period.

  The Department of Transport prepared the Policy Submission in
  the
  knowledge that the Department of Works, the Department of
  Attorney7
  General and the Department of Finance and Planning had
  serious
  reservations about the draft contract.

  For this reason, we find that it was irresponsible of the
  Department of
  Transport and the Minister for Transport to recommend to the
  National
  Executive Council, at that stage, that the contract be
  signed.

  It was misleading to suggest that the draft contract had been
  “substantially
  agreed to”. The fact was, there was vehement opposition to it
  by the
  Department of Attorney-General, the Department of Finance and
  Planning
  and the Department of Works.

  It made no sense to concede that there were “other technical
  details of the
  project still to b.g completed”, but then to conclude that
  “these should not

• Page 365 of 397

• stand in the way of the Contract Agreement being executed”.
  It was wrong
  and not in the best interests of the State.

  It was naive to believe that, because an “understanding” had
  been reached
  with the consortium, the technical details could be sorted
  out at some later
  time.

  Chapter 26

  327

  The Ombudsman Commission appreciates that the National
  Executive
  Council had set a deadline and that, at the time this Policy
  Submission
  was prepared, it was fast approaching. But what is more
  important:
  achieving a deadline or protecting the interests of the State?

  The Ombudsman Commission has formed the view that the
  Department
  of Transport had no proper appreciation of the complexity of
  the technical
  and legal issues involved in a contract of this nature.

  [26.7]WHAT MOTIVATED THE DEPARTMENT OF TRANSPORT TO IGNORE THE
  ADVICE OF THE DEPARTMENT OF WORKS?

  The Secretary for Transport believed that the Department of
  Works was
  attempting to “interfere” in what he regarded as a Department
  of Transport
  project.

  Relations between the two Departments had been frosty for some
  time.
  The situation did not improve when Mr Lohia Hitolo (until
  1992, a senior
  officer of the Department of Transport and in charge of the
  Spring Garden
  Road/Poreporena Freeway project) was appointed Secretary for
  Works.

  In Chapter 18, we noted the tension created when Mr Hitolo, as
  Secretary
  for Works, briefed the Minister for Transport on the project –
  without telling
  the Secretary for Transport – just a few weeks before the
  National

• Page 366 of 397

• Executive Council decided to award the project to the Kinhill
  Kramer
  consortium.

  Chapter 26

  Mr Arnini’s terse response to that incident was:

  The matter of Spring Garden Road is the responsibility of the
  Department of
  Transport until such time as the consortium is selected and all
  the detailed
  contracting arrangements are completed. At the time of design and
  construction, the Department of Works will be fully involved”.
  [FJCHIBIT 149]

  It is evident that, because of the approach taken by the Department
  of
  Works during the steering committee meeting, the Secretary for
  Transport
  formed the view that the Department of Works was opposed to the
  project. These views were expressed in an internal Department of
  Transport memo to Mr Amoako on 24 April 1992:

  ‘As discussed yesterday (23 April), it was revealed that a number
  of
  Departments is reluctant to give a full support to this
  Submission because they
  feel strongly that some important technical issues have not been
  seriously
  addressed by Kinhill Kramer Consortium and unless they are
  attended to, they
  are of the view that the submission should be deferred. In
  particular, is the
  Wog
  Department in what we have been directed to do by National
  Executive
  Council.

  The General Manager of Elcom also verbally told me yesterday that
  he is
  writing to us to express his views that we should seriously study
  the technical
  aspects of the project and seek an independent Consultant to

• Page 367 of 397

• assist us because
  he fears that the Kinhill Kramer Consortium has not addressed
  these thoroughly
  and there may be flaws in their submission to the Government
  through the
  Department.

  If these organizations are expressing their doubts on this
  project, we should
  at least try to listen to them and reassess our approach to it.

  It could be that these organizations may have been approached by
  Department
  of Works personnel who have been opposing this project to get off
  the ground.
  This assumption is based on what you have told me yesterday. This
  could be
  wrong but quiet investigation could reveal this one way or
  another.

  It is quite clear that a number of organizations has vested
  interest in this project
  and, unless these issues are addressed, these organizations could
  stifle the
  project thus discredit the Department and embarrass the
  Government altogether.
  This must not happen at all cost! You are, therefore, directed to
  ensure that
  everything is in order before the submission is submitted to
  National Executive
  Council on 29 April.” [EXHIBIT 190, emphasis added]

  Chapter 26

  329

  The Secretary for Transport expressed the same views when, on
  27 April
  1992, he replied to the Department of Works’ advice that the
  contract with
  Kinhill Kramer should not be signed:

  ‘Having tried to frustrate the deliberation of the
  Committee, it is not surprising

• Page 368 of 397

• to us to receive such a letter at the last day and put the
  blame on the
  Consortium for lack of cooperation, when the Consortium
  had given the
  Committee full cooperation by meeting demands placed on
  thene.[EXHIBIT
  194]

  On the same day, 27 April 1992, the Secretary for Transport
  directed the
  Kinhill Kramer/Curtain Bros consortium to deal only with the
  Department
  of Transport. [EXHIBIT 195]

  [26.8] NO JUSTIFICATION FOR DEPARTMENT OF TRANSPORT IGNORING THE
  CONCERNS OF OTHER DEPARTMENTS

  The Secretary for Transport thought that the Department of
  Works was
  motivated more by a desire to embarrass the Department of
  Transport,
  than genuine concern for the interests of the State.

  But even if this were, in fact, the case, the Ombudsman
  Commission can
  see no justification for the Department of Transport ignoring
  the issues that
  had been raised. Concerns were being expressed, not only by
  the
  Department of Works, but also by the Department of Attorney-
  General and
  the Department of Finance and Planning.

  These issues were fundamental to the contract and required
  urgent
  attention. They were never properly addressed during the
  negotiations with
  the Kinhill Kramer/Curtain Bros consortium.

  Chapter 26

• Page 369 of 397

• 330

  In an internal memo to the Secretary for Transport on 28
  April 1992, Mr
  Amoako advised he had given the comments of a consultant
  engaged by
  the Department of Works to the consortium and discussed them
  in his
  office:

  To my knowledge they did include all the outstanding
  issues at that point in
  time.”
  [EXHIBIT 201, page 2, para 4]

  This is nonsense. It is clear from reading the contract
  actually executed on
  27 May 1992, that the vast bulk of the concerns raised in the
  Beca Gure
  and the Maunsell reviews were not incorporated in the final
  contract.

  The Department of Transport had ignored the advice and the
  concerns of
  three key Departments, namely, the Department of Attorney-
  General, the
  Department of Finance and Planning and the Department of
  Works.

  [26.9] SUMMARY OF THE DEPARTMENT OF TRANSPORTS ACTIONS

  In the opinion of the Ombudsman Commission the Department of
  Transport made serious errors in the negotiations with the
  Kinhill
  Kramer/Curtain Bros consortium.

  The Department was not prepared to listen to the advice of
  other
  Departments. The pleas for caution by the Department of
  Attorney-
  General, the Department of Finance and Planning and the
  Department of

• Page 370 of 397

• Works were consistently brushed aside as the Department of
  Transport
  pushed ahead in its determined, but careless, pursuit of the
  National
  Executive Council’s deadline.

  Chapter 26

  [Paragraph unreadable in the original]

  An information paper could have been file for the National
  Executive
  Council’s consideration, explaining the ……… for not meeting the
  deadline and asking for an extension of time in order to
  to attend to certain important issues.

  Instead of doing this, the Department of Transport pretended that
  the

  concerns raised by the other Departments were not legitimate and
  recommended that the contract be signed.

  This was wrong and defective administration.

  * * * * * * * * * *

• Page 371 of 397

• Chapter 26

  NATIONAL EXECUTIVE COUNCIL DECIDES THAT CONTRACT
  MUST BE FINALISED 23 APRIL 1992

  7 I POLICY SUBMISSION TO NATIONAL EXECUTIVE COUNCIL HAD
  IGNORED CONCERNS OF KEY DEPARTMENTS

  As we reported in Chapter 26, the attempts by the
  Department of Works
  to have the terms of Kinhill Kramer’s draft contract
  renegotiated were
  thwarted by the Department of Transport.

  The Policy Submission of 22 April 1992 not only ignored
  the serious
  concerns raised by the Department of Works, it also failed
  to mention the
  concerns of the Department of Attorney-General and the
  Department of
  Finance and Planning.

  The Policy Submission recommended that the contract be
  signed and was
  considered by the National Executive Council at its
  meeting on Thursday
  23 April 1992.

  [27.2] NATIONAL EXECUTIVE COUNCIL DECIDES TO POSTPONE APPROVAL
  OF CONTRACT

  Rather than approving the draft contract, the National
  Executive Council

• Page 372 of 397

• decided to defer formal consideration of the matter until
  its next meeting,
  on Wednesday 29 April 1992.

  Chapter 27

  333

  However, the National Executive Council made it clear that
  negotiations
  were to be concluded by that date.

  The Departments of Transport, Attorney-General and Finance and
  Planning
  were given a formal direction in the following terms:

  “to finalise contracts on the Spring Garden Freeway with
  Kinhill Kramer and
  Curtain Bros for presentation to the NEC on 29th April 1992”.
  [EXHIBIT 186]

  As this new deadline was only six days away, the Departments which
  were
  opposing execution of the contract, as it then stood, had to act
  quickly if
  they were to achieve their objective.

  The next chapter of the report focuses on the events that occurred
  in the
  lead-up to the National Executive Council meeting of 29 April 1992.

  * * * * * * * * * *

• Page 373 of 397

• Chapter 27

  334

  28. ACTION TAKEN BY FOUR KEY DEPARTMENTS PRIOR TO
  THE NATIONAL EXECUTIVE COUNCIL MEETING ON
  29 APRIL 1992

  [28.1] THE POSITION OF THE FOUR KEY DEPARTMENTS: TRANSPORT.
  WORKS. ATTORNEY-GENERAL AND FINANCE AND PLANNING

  On 23 April 1992 the National Executive Council directed that
  the contract
  between the State and the Kinhill Kramer/Curtain Bros
  consortium be
  finalised by 29 April 1992. This decision put the Department
  of Works, the
  Department of Attorney-General and the Department of Finance
  and
  Planning in a difficult position.

  These Departments were opposed to the contract being signed,
  in its
  existing form. They wanted more time to negotiate. The
  Department of
  Finance and Planning also wanted to examine the financing
  agreement
  between Kinhill Kramer and the Export Finance and Insurance
  Corporation,
  which had not been made available.

  Only the Department of Transport was interested in seeing
  that the new
  deadline was met.

• Page 374 of 397

• This chapter of the report assesses the action taken by these
  four key
  departments in the lead-up to the meeting of the National
  Executive
  Council on Wednesday 29 April 1992.

  Chapter 28

  335

  THE DEPARTMENT OF WORKS

  [28.2] CONCERNS RAISED WITH RESOURCE MANAGEMENT COMMITTEE

  With the meeting of 29 April 1992 only a couple of days away,
  the
  Secretary for Works, Mr Hitolo, tried a different way of
  airing his
  Department’s concerns.

  On 27 April 1992, he wrote to the Chairman of the Resource
  Management
  Committee (the Secretary of the Department of Prime Minister,
  Mr Brown
  Bai CBE) in the following terms:

  I write to advise the Committee of my Department’s deep
  concern abut the
  way this project is proceeding without due consideration
  for the protection of
  the best interests of the State, and urge that the
  Committee advise the National Executive Council mg to agree
  to the signing of the proposed contracts until the
  documents have been amended accordingly and made good? [EXHIBIT 193]
  Executive Council mg to agree to the signing of the
  proposed contracts until the documents have been amended
  accordingly and made good? [EXHIBIT 193]
  documents have been amended accordingly and made good?
  [EXHIBIT 193]

• Page 375 of 397

• The other official action taken by the Department of Works
  during this
  period was the drafting of a letter for the Minister for
  Works, the Hon.
  Lukas Waka MP. The letter was directed to the Prime Minister.
  It stated:-

  ‘My Prime Minister, as I have stated above I would be
  failing you if I did not
  draw my serious concerns to your attention. I fully
  support the project and
  appreciate the need for rapid implementation. I would
  however strongly
  recommend that the current contract should not be signed
  until adequate time
  has been given to review and amend the documents and in
  particular the main
  agreement between the State and the Consortium- This would
  ensure that the
  State’s interests are protected and that the land related
  matters could also be addressed’. [EXHIBIT 209, at page 2]
  addressed’. [EXHIBIT 209, at page 2]

  Chapter 28

  336

  THE DEPARTMENT OF TRANSPORT

  [28.3] APPROACH REMAINED THE SAME

  During the lead-up to the meeting on 29 April 1992 the
  Department of
  Transport maintained. the approach it had taken since the
  National
  Executive Council decided in favour of Kinhill Kramer: it had
  an overriding
  duty to comply with the direction from the National Executive
  Council to
  finalise the contract.

• Page 376 of 397

• The officer in charge of the negotiations, Mr Amoako, advised
  the
  Secretary for Transport on 28 April 1992 that all the
  amendments
  suggested by other members of the steering committee had been
  incorporated in the draft contract. [EXHIBIT 201, at page 1]

  Mr Amoako also advised that, apart from the Department of
  Works and
  the Electricity Commission, no other Department or
  governmental body
  had expressed their objections in writing to the Department
  of Transport
  or the steering committee.

  The Ombudsman Commission accepts that the latter advice was
  correct:
  though the concerns were widespread amongst the membership of
  the
  steering committee, only the Department of Works and the
  Electricity
  Commission had formally put them in writing.

  However, Mr Amoako’s advice that all the suggested amendments
  had
  been incorporated in the draft contract was wrong and
  misleading.

  Chapter 28

  337

  [28.4] ELCOM RAISES CONCERNS WITH DEPARTMENT OF TRANSPORT

  On 28 April 1992, the General Manager of the Electricity
  Commission, Mr
  P K Amini, wrote to the Secretary for Transport, expressing
  concerns
  about the draft contract. The Electricity Commission had an
  interest in the
  project, because its transmission lines would be affected by
  the route of
  the freeway.

  These concerns mirrored those raised by the Department of
  Works;
  particularly about the conflict of interest created by having
  Kinhill Kramer
  act, on the one hand, as project manager on behalf of the

• Page 377 of 397

• consortium,
  and, on the other hand, as superintendent of the project on
  behalf of the
  State.

  The Electricity Commission letter was received in the
  Department of
  Transport on 29 April 1992, but there appears to have been no
  response
  to it. [EXHIBIT 202]

  [28-5] DEPARTMENT OF TRANSPORT AWARE OF WIDESPREAD CONCERN
  ABOUTRIEDRAELCONIBACI

  The Department of Attorney-General and the Department of
  Finance and
  Planning did not formalise their concerns in the same manner
  as the
  Department of Works and the Electricity Commission. However,
  the
  Department of Transport was well aware that these other
  departments
  were also very concerned about the terms of the draft
  contract.
  Unfortunately, the Department of Transport attributed this to
  the efforts of
  the Department of Works to embarrass the Department of
  Transport and
  did not take them seriously (see Chapter 26).

  Chapter 28

  Nevertheless, the Department of Transport decided to get a
  “second
  opinion”.

  [28.6] DEPARTMENT OF TRANSPORT ARRANGES OVERNIGHT REVIEW OF
  DRAFT CONTRACT

  On the afternoon of Monday 27 April 1992 – just two days
  before the
  contract was due to be approved by the National Executive
  Council – the
  Department of Transport asked the consulting firm Cardno &
  Davies (PNG)
  Pty Ltd to review some aspects of the draft contract.
  [EXHIBIT 201, at
  page 2]

• Page 378 of 397

• Cardno & Davies reported back to the Department of Transport
  the
  following day, 28 April 1992. Given the very short period of
  time, the
  analysis was, understandably, not as comprehensive as that
  given to the
  Department of Works by Beca Gure and Maunsells (see Chapter
  26).
  Nevertheless a number of matters of concern were raised.

  [28.7] THE CARDNO & DAVIES REVIEW

  Cardno & Davies suggested, for example:

  The scope of the project had to be defined in more
  detail.

  Specific provision had to be made for delays in land
  acquisition.

  Chapter 28

  It was necessary to identify and list all codes and
  standards
  for each item of structural work.

  The specifications for bridges did not meet the normal
  requirements of earthquake engineering for bridges in
  Papua
  New Guinea.

  The role of the superintendent had to be defined and
  clarified
  to minimize confusion. [EXHIBIT 204]

  On Wednesday 29 April 1992, the Secretary for Transport
  instructed Mr
  Amoako to incorporate the issues raised by the Cardno &
  Davies review
  and take them up with the parties concerned. This was a very
  strange
  instruction. It was given on the very day the National
  Executive Council
  was due to approve the contract. Surely it was too late for a
  major revision
  of the contract.

• Page 379 of 397

• [28.8] THE CARDNO & DAVIES REVIEW WAS TOO LATE TO HAVE ANY
  EFFECT

  It is not surprising that none of the concerns raised by
  Cardno & Davies
  were addressed in the final contract. In fact nothing was
  really achieved
  by this whole exercise.

  It was simply a belated and rather half-hearted attempt by
  the Department
  of Transport to get confirmation that the contract was in
  order.

  ■

  Chapter 28

  340

  But clearly the contract was not in order. This was the third
  independent
  review of the contract. In each review, there were serious
  matters of
  concern raised. They were not minor matters that could be
  negotiated
  later. They were issues which went to the heart of the
  contract, such as
  who would be the superintendent of the project and who would
  protect the
  State’s interest during the construction phase.

  [28.9] DEPARTMENT OF TRANSPORT MADE NO PROPER ATTEMPT TO HAVE
  THE CONTRACT REVIEWED

  We recorded these views in our preliminary report and
  emphasised that
  the Department of Transport had not made a proper attempt to
  have the
  contract reviewed. The Secretary for Transport responded in
  the following
  terms:

  This statement lie. that the Department of Transport made

• Page 380 of 397

• no proper attempt
  to have the contract reviewed] is totally incorrect. The
  negotiating team were
  doing precisely that. The consultant’s work was only a
  supplement. Remember
  the draft document had been reviewed clause-by-clause,
  paragraph-by-
  paragraph and page-by-page prior to that. This was the
  role of the Committee.
  This is not defective administration. There was no need to
  ask NEC to defer
  because the issues raised by the Consultant were adopted
  before the submission
  to NEC. The Consultant review was in contrast to that
  pursued by the
  Department of Works. Clearly, the Department of Works was
  on the wrong
  path. The person in charge was not a qualified Highway
  Engineer but an
  architect, who had recently taken the Highway Engineering
  job as Acting First
  Assistant Secretary.” [EXI-HBIT 254, pars 22]

  The Ombudsman Commission does not accept Mr Amini’s
  explanation.
  Three key departments were expressing serious concerns about
  the draft
  contract in the course of the negotiations. In these
  circumstances, it was
  incumbent on the Department of Transport to arrange its own,
  independent review before recommending the contract be
  executed.

  Chapter 28

  341

  When the Department did receive the results of the review by
  Cardno &
  Davies, it should have realised that it was dangerous to
  proceed with the
  existing draft contract

  The Ombudsman Commission reiterates the finding made in
  Chapter 26:
  it was irresponsible of the Department of Transport to pursue

• Page 381 of 397

• execution of
  the contract when so many doubts, from so many different
  quarters, were
  being expressed. It was irrelevant that only the Department
  of Works and
  the Electricity Commission had put their concerns in writing.
  All the
  concerns were genuine and deserved close consideration.

  Though it may have been embarrassing for the Department and
  the
  Minister for Transport to postpone execution of the contract
  on the eve of
  its approval, common sense should have prevailed: the
  National Executive
  Council should have been advised that it would be safer to
  re-negotiate
  the contract properly in the interests of the State.

  THE DEPARTMENT OF ATTORNEY-GENERAL

  pa 10] ACTION NOT TAKEN UNTIL ONE DAY BEFORE THE NATIONAL
  EXECUTIVE COUNCIL MEETING

  On Tuesday 28 April 1992 – the day before the contract was
  due to be
  approved – the Secretary of the Department of Attorney-
  General, Mr P
  Paliau ISO, sent a letter by fax to the Secretary for Works.
  He said he
  agreed the draft contract did not adequately protect the
  interests of the
  State and advised he would not be issuing a legal clearance
  for the
  contract. [EXHIBIT 205]

  Chapter 28

  342

  Mr Paliau also asked the Secretary for Works to brief the
  Minister for
  Works and get the Minister to write a letter to the Prime
  Minister,
  recommending execution of the contract be delayed.

• Page 382 of 397

• [28.11] SECRETARY OF THE DEPARTMENT OF ATTORNEY-GENERAL ADVISES
  PRIME MINISTER THAT LEGAL CLEARANCE WOULD NOT BE ISSUED

  On the following day, Wednesday 29 April 1992, Secretary
  Paliau wrote to
  the Chairman of the National Executive Council, Prime
  Minister Namaliu.
  He advised he had perused the contract documents and
  concluded as
  follows:

  ‘la) this project did not comply with the rules and
  procedure for Tender
  under the Public Finances (Management) Act;

  (b) the execution and performance of the Agreement
  and the Contract
  Documents in L(b) – (f) above at this stage will
  mean that the Contract
  amount of K65,000,000.00 authorized by the Loans
  Overseas (Borrowing)
  Act and also the Loans Overseas (Borrowing) (No.
  2) Act, will be
  exceeded, hence Section 209 of the Constitution
  will be breached.

  (c) the Agreement in 1 (a) above and the Contract
  Documents in 1(b) – (f)
  above do not protect or appear to protect the
  best interest of the State;

  (d) the execution of this Agreement and the Contract
  Documents therewith
  be delayed until they are adequately and
  satisfactorily finalised to
  protect the best interests of the State, the
  Consortium, the Project
  Manager and possibly the Export Finance Insurance
  Corporation of
  Australia.

  Accordingly, I decline to issue a Letter of Legal
  Clearance on the Agreement’
  [EXHIBIT 211]

  This letter was hand-delivered to the Prime Minister’s
  office on the morning
  of Wednesday 29 April 1992 by Secretary Paliau.

• Page 383 of 397

• Chapter 28

  343
  [28.12] DEPARTMENT OF ATTORNEY-GENERAL ACTED PROPERLY BUT ADVICE
  SHQULD HAVE BEEN GIVEN SOONER

  In view of the widespread concern expressed about the draft
  contract, the
  Ombudsman Commission considers the decision by the Secretary
  of the
  Department of Attorney-General to write the letter to the
  Prime Minister on
  29 April 1992 to have been responsible and entirely proper.

  It is unfortunate, however, that it was not written sooner,
  as this was the
  first occasion on which the Department of Attorney-General
  had formally
  put in writing the defects perceived in the draft contract.

  So, while we praise Secretary Paliau for writing the letter
  of 29 April 1992
  to the Prime Minister, we must also criticise his Department
  for not taking
  action sooner. It was not sufficient for his officers to
  simply raise their
  concerns in the steering committee. This was a case which
  called for a
  thorough briefing to the Attorney-General in writing.

  [28.13] ATTORNEY-GENERAL SHOULD HAVE BEEN ADVISED

  At the relevant time the Attorney-General was the Hon
  Bernard Narokobi,
  LLB MP. By virtue of Section 156(2) of the Constitution and
  Sections 3 and
  4 of the Attorney-General Act 1989, he was also the
  Principal Legal Adviser
  to the National Executive.

  The Department of Attorney-General should have advised him
  very early
  in the course of negotiations that there were serious

• Page 384 of 397

• defects in the draft
  contract provided by Kinhill Kramer.

  Chapter 28

  344

  The Attorney-General should have also been formally advised
  that the
  Public Finances (Management) Act and other legislation would
  be
  breached if the National Executive Council proceeded with
  the planned
  course of action.

  [28.14] RESPONSE OF THE DEPARTMENT OF ATTORNEY GENERAL

  We accept that the Department of Attorney-General
  representatives on the
  steering committee had raised a number of concerns during
  the
  committee’s meetings. Specifically, we accept what the
  Acting State
  Solicitor, Mr Z Gelu, said in his response to our
  preliminary findings:

  This project was arranged through the turn key concept.
  The concept by
  passes all procedures and requirements under the Public
  Finance &
  Management Act. I may say here that Messrs. hung and
  Singin raised these
  concern during their consultative meeting. The Contract
  was drafted by Kinhill
  Kramer Pty Ltd and Curtain Brothers (Qld). The Contract
  was pushed through
  NEC by the Department of Transport.” [EXHIBIT 26.2, parr
  41

  However, by raising concerns in the committee meetings, the
  Department
  of Attorney General had only gone part of the way to
  protecting the

• Page 385 of 397

• State’s interests.

  When this was put to Secretary Paliau in the form of a
  preliminary finding,
  he responded as follows:

  “Like any project of such nature of any matters that
  require legal assistance in
  terms of advise or drafting of agreements, I normally
  delegate such matters to
  the State Solicitor to handle consistent with his Duty
  Statements. The State
  Solicitor will only come back to me if the matters
  require my personal attention.

  Chapter 28

  345

  Furthermore, client Departments are at liberty to
  instruct the State Solicitor
  directly and I am always informed about such instructions
  by the State Solicitor.
  Again apart from such information the State Solicitor
  deals with the matter
  directly with the client Department unless the matter
  requires my personal
  attention…

  As to the findings in Chapter 28, — the matter only came
  to my personal
  attention at that particular time and I attended to it
  there and then on 29 April
  1992.

  The findings — on myself failing to advise the Attorney-
  General on serious
  defects in the draft contract and the breaching of the
  requirements of the Public

• Page 386 of 397

• Finances (Management) Act and other Legislation if the
  NEC proceeded with
  the course of action if proposed is ill founded.

  At that period of time when the matter was being
  entertained by the NEC, the
  Hon. Bernard Narokobi, the Attorney-General was not
  available. In fact he was
  out of speedy and effective communication and he was
  unable to fulfil the
  duties of Office of the Attorney-General.

  By virtue of Section 5 of the Attorney-Generals Act, I as
  the Departmental
  head became the Attorney-General and the Principal Legal
  Adviser to the
  National Executive Council. Therefore I see no reason why
  I should advise
  the Attorney-General or advise myself for that
  matter.” [EXHIBIT 258]

  [28.15] POOR COMMUNICATION WITHIN THE DEPARTMENT OF ATTORNEY
  GENERAL

  The Secretary’s defence is that the project had been
  delegated to the
  State Solicitor and the matter only came to the Secretary’s
  personal
  attention shortly before the meeting of the National
  Executive Council on
  29 April 1992. He also says the reason the Attorney General
  was not
  advised was that he (the Secretary) was actually the
  Attorney-General on
  29 April 1992.

  With respect to Secretary Paliau, he has not actually
  addressed our
  criticisms. If we accept that the matter was not brought to
  his attention
  until very late in the negotiations, this does not rebut our
  findings – it
  reinforces them.

• Page 387 of 397

• Chapter 28

  Our criticism is directed at the Department of Attorney
  General, as a
  whole, and the State Solicitor’s Office in particular, for
  not formally briefing
  Attorney-General Narokobi early in the negotiating period.
  The fact that the
  Secretary of the Department was also not fully briefed
  underscores the
  overall lack of affirmative action taken by officers of his
  Department. It also
  reflects poorly on the lines of communication within the
  Department.

  We therefore conclude that the Department of Attorney-
  General was remiss
  in its duty to promptly advise the National Executive
  Council, via the
  Attorney-General, of all of the legal problems associated
  with immediate
  execution of the contract.

  THE DEPARTMENT OF FINANCE AND PLANNING

  [28.16] CONCERNS RAISED DURING STEERING COMMITTEE MEETINGS

  The Department of Finance and Planning had little
  involvement in the
  decision to award the contract to Kinhill Kramer. The
  Department was
  concerned, as early as June 1990, about the funding of the
  project.
  [EXHIBIT 10B] However, the shortlisting and evaluation of
  proposals – even
  when it was based on financial criteria – took place without
  consulting the
  Department of Finance and Planning.

  The Department of Finance and Planning only became involved
  when the
  steering committee was established to negotiate with the
  Kinhill Kramer
  consortium.

  Chapter 28

• Page 388 of 397

• 347

  Like the Department of Attorney-General and the Department of Works,
  the
  Department of Finance and Planning had serious reservations about
  the
  way the negotiations were proceeding. On 15 April 1992,
  representatives
  of the Department of Finance and Planning called a special meeting
  of the 11
  steering committee to protest that they had not seen Kinhill
  Kramer’s
  financing agreement. [EXHIBIT 175]

  This, in itself, was a matter of concern: nobody knew the terms on
  which
  the consortium was obtaining finance for the project. In fact, these
  terms
  were never made available to the State. On 27 May 1992, when the
  freeway contract was signed, the agreement with the Export Finance
  Insurance Corporation was not executed. iAnd the agreement remained
  un-
  executed, even when the contract between the State, Kinhill Kramer
  Pty
  Ltd and Curtain Bros (Old) Pty Ltd was terminated on 27 August 1992
  (see Chapter 34).
  The officers of the Department of Finance and Planning suggested
  that the
  Kinhill Kramer financial package be renegotiated and that
  alternative
  sources of funding be investigated. But this was never done.

  If it had been done, implementation of the project would no doubt
  have
  been delayed. But there were obvious alternatives to Kinhill
  Kramer’s
  turnkey proposal: concessional financing from sources such as the
  World
  Bank or the Asian Development Bank, which is generally cheaper than
  finance obtained through institutions such as the Export Finance and
  Insurance Corporation of Australia.

  Unfortunately, the Department of Finance and Planning did not
  undertake
  a detailed analysis of the alternative methods of financing the
  Poreporena
  Freeway project until the eve of the National Executive Council
  meeting on
  29 April 1992.

  Chapter 28

• Page 389 of 397

• [28.17] FINANCIAL ANALYSIS OF ALTERNATIVE FUNDING

  The First Assistant Secretary (Loans and Revenue) in the
  Department of
  Finance and Planning, Mr Kahona, testified to the
  Ombudsman
  Commission that, on 27 or 28 April 1992, he was
  instructed by the Acting
  Secretary of the Department, Mr Mulina, to prepare a
  comparison of the
  different methods of financing.

  The EFIC interest rate was estimated to be 9.5% , which
  transpired to be
  the interest rate in the final contract. This was
  compared with the
  prevailing interest rates for World Bank (IBRD) and Asian
  Development
  Bank Loans of 7.72% and 6.58% respectively. An analysis
  of the “grant
  element’ and the “effective rate of interest’ for each
  loan regime was then
  carried out, which took account of the period of the loan
  repayments, the
  grace period and the commitment fees.

  [28.18] EFIC FINANCING SHOWN TO BE EXPENSIVE

  The Department of Finance and Planning analysis was
  summarised in the
  following terms:

  ‘Grant Element (GE) and Effective Rate of Interest
  (ERI) Comparison

  Lender Current Grant Effective
  Interest (%)Element (%) Rate of
  Interest (%)

  EFIC 9.50 13 9.7
  IBRD 7.72 13.8 7.9

• Page 390 of 397

• ADB 6.58 23.3 6.7

  Chapter 28

  349

  It is obvious from the above table that the grant
  element of the EFIC option
  is very low at 1.3% compared to IBRD and ADB options at
  13.8% and 23.3%
  respectively. The grant element measures the degree of
  concessionality of a
  loan in comparison to a direct grant. So, the higher the
  grant elements the
  higher the degree of concessionality.

  The effective rate of interest on the EFIC proposal is
  high at 9.7% as compared
  to either IBRD or ADB at 7.9% and 6.7% respectively.

  comparison to financing the proposed project through
  World Bank or ADB
  financing. It is also understood that the World Bank has
  indicated that they
  maybe able to fund the project at a lower total project
  estimated cost of around
  US$45 million”
  [EXHIBIT 199, at page 2, emphasis added]

  In the same report, it was estimated that, if the Kinhill
  Kramer financing

  proposal was adopted, the total cost to the State over the
  life of the loan

  would exceed K90 million.

• Page 391 of 397

• [28.19] REPORT GIVEN TO THE ACTING MINISTER FOR FINANCE AND
  PLANNING

  This report was presented to Acting Secretary Mulina on the
  morning of

  29 April 1992, ie the day on which the National Executive
  Council was due
  to approve the contract.

  Soon after this the report was given to the Acting Minister
  for Finance and
  Planning, Hon. Karl Stack, MP. He faxed a copy of the report
  to the

  Secretary for Transport on the following day, 30 April 1992.
  [EXHIBIT 213]

  Chapter 28

  350

  [28.20] DID THE DEPARTMENT OF FINANCE AND PLANNING ACT SOON
  ENOUGH?

  The Department of Finance and Planning report of 29 April
  1992 was
  straightforward:

  Kinhill Kramer’s turnkey financing was expensive.

  The project might be able to be implemented for K20
  million
  i than what Kinhill Kramer had quoted.

• Page 392 of 397

• The total project cost of the project over a
  thirteen year
  period was in excess of K90 million.

  This report was of critical importance to the whole project
  and the
  Ombudsman Commission is amazed that it was not prepared much
  sooner.

  It seems that by the time they met on the afternoon of 29
  April 1992, a
  majority of the members of the National Executive Council
  had made up
  their minds to approve the Kinhill Kramer/Curtain Bros
  contract.

  Perhaps, if the Department of Finance and Planning report
  had been
  available sooner, it may have had some impact.

  It is a matter of concern to the Ombudsman Commission that,
  though the
  Department of Finance and Planning had serious reservations
  about this
  project quite early in the contract negotiations, nothing
  tangible was done
  until the last minute. Like the Department of Attorney-
  General, the
  Department of Finance and Planning failed to give its advice
  promptly –
  when it would have had a much greater chance of being
  accepted.

  Chapter 28

  351

  [28.21] CONCERNS HAD TO BE RAISED AT A HIGH LEVEL

  We accept that the Department’s concerns were raised at the
  steering
  committee meetings. The Secretary for Finance stated to the
  Ombudsman
  Commission that, though his Department failed to follow up
  these matters
  in writing, they expected the Department of Transport and
  the Knhill
  Kramer/Curtain Bros consortium to respond to the requests at
  subsequent
  meetings. [EXHIBIT 255]

  In the opinion of the Ombudsman Commission this is simply

• Page 393 of 397

• not good
  enough. The Department of Finance and Planning should have
  raised its
  concerns at a much higher level: the Secretary for Finance
  should have
  thoroughly briefed the Minister for Finance in writing. And
  this should have
  been done very early in the negotiating period.
  Alternatively, the Secretary
  for Finance could have raised the matter formally in writing
  with the
  Secretary for Transport.

  [28.22] ALTERNATIVE FUNDING SOURCES SHOULD HAVE BEEN THOROUGH Y
  EXPLORED

  The Ombudsman Commission is also concerned that the
  Department of
  Finance and Planning was not more enterprising in
  investigating the
  possibility of concessional funding for the project, through
  the Office of
  International Development Assistance (01DA).

  Chapter 28

  352

  [28.23] RESPONSE BY THE DEPARTMENT OF FINANCE AND PLANNING TO
  THE OMBUDSMAN COMMISSION’S ALLEGATIONS

  The Ombudsman Commission put the above findings to the
  Secretary for
  Finance, Mr G Aopi MBE, in our preliminary report. He
  responded as
  follows:

  The report correctly states that DFP was not involved in
  the project (Le.
  contract negotiations) until after the NEC Decision in
  February 1992. Prior to
  this, all discussions were undertaken by the Department
  of Transport.

• Page 394 of 397

• However, our comments on the project were consistent –
  the project was
  expensive and that alternatives should be pursued. In
  addition, from a planning
  perspective, while this project was in the Transport
  development plans in terms
  of priorities, consideration should have been given to
  developing the rural
  infrastructure which is in dire need of improvement.

  In view of DOT not providing the information
  requested„ we could not provide
  a detailed brief for the Minister for Finance and
  Planning, NEC and RMC.
  Chapter 28 of the report supports this. However, it is
  unfair on the part of the
  Commission … to be critical of the Department’s action
  when other parts of the
  report state that information requested by the
  Department from DOT was never
  received.

  I would like to place once again on record that we did
  not receive any formal
  offer of financial assistance from the Consortium for
  financing of the Freeway.
  We were also not in a position to realistically and
  accurately advise the Minister
  for Finance and Planning on the implications of
  financing the project either
  through concessional sources or those proposed by the
  Consortium. The
  financial analysis _ was done just before NEC met on the
  29th April. This
  analysis was done on the basis of terms and conditions
  prevailing at that time
  and on information obtained through informal
  discussions.

  If the Department had been provided with a formal offer
  of finance for
  financing of the project, we would have provided a
  detailed analysis for the
  Minister’s consideration and other interested parties
  well in advance. The
  Minister was however, verbally briefed on several
  occasions of the Department’s
  position on the project…

  — The procurement of goods and services by Government
  agencies is dearly
  set out in the Public Finances (Management) Act, and
  senior government
  officials should be aware and understand these and other

• Page 395 of 397

• administrative
  procedures.

  The Department of Transport also, during various
  discussions, knew the
  Department’s position together with those of the State
  Solicitor, and these
  should have been reflected in various submissions to the
  National Executive
  Council. The Department may have been deliberately left
  out in a lot of the
  discussions because of its strong views against this
  project.

  Chapter 28

  353

  As for finding alternative sources of funds, there are
  certain laid-down
  procedures which must be followed to secure concessional
  funds. Projects
  should be submitted through the normal budgetary process
  and evaluated prior
  to negotiating the financial package. Obviously the
  process is too slow and
  cumbersome for some people, hence the turnkey
  proposal.’ [EXHIBIT 255]

  [28.24] UNSATISFACTORY EXPLANATION BY DEPARTMENT OF FINANCE AND
  PLANNING

  The reasons advanced by Mr Aopi for his Department’s failure
  to provide
  a prompt analysis of the cost of the project are not
  convincing.

  We appreciate the Department was not in a position to carry
  out a precise
  analysis, because of the unavailability of the exact terms
  of the EFIC
  financing package. But there was nothing to stop the
  Department

• Page 396 of 397

• estimating the cost of the EFIC finance – which is what, in
  fact, was done
  on the eve of the National Executive Council meeting of 29
  April 1992.

  The estimate could have been based on the terms of the
  financing
  package proposed by Kinhill Kramer Pty Ltd in February 1992
  and
  considered by the National Executive Council (see Chapter
  22, Exhibit
  151). And this financial analysis could, and should, have
  been done as
  soon as the National Executive Council decision was
  announced.

  It is not a good excuse for the Department of Finance and
  Planning to say
  it did nothing because it never received a formal financing
  proposal. We
  do not believe any Department of the State is entitled to
  sit back and
  make no comment on a major financial commitment by the State
  because
  it was not formally approached for advice or not given all
  the information
  it wanted.

  Chapter 28

  [28.25] CONCLUSION AS TO CONDUCT OF DEPARTMENT OF FINANC AN D
  PLANNING

  The Ombudsman Commission concludes that the Department
  of Finance
  and Planning was remiss in its duty to ensure that
  prompt advice was
  given to the National Executive Council, via the
  Minister for Finance, on the
  financial implications of the Kinhill Kramer turnkey
  proposal.

  * * * * * * * * * *

• Page 397 of 397

• Chapter 28