Report of the Commission of Inquiry into the Management of the Investment Corporation of PNG – Part 2

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    REPORT of the COMMISSION OF INQUIRY into THE MANAGEMENT of the INVESTMENT CORPORATION of PAPUA NEW GUINEA and THE INVESTMENT CORPORATION FUND OF PAPUA NEW GUINEA and all matters relating to the CONVERSION of the INVESTMENT CORPORATION FUND 0F PAPUA NEW GUINEA to PACIFIC BALANCED FUND.

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  • 4.5 Terms of Reference 1(e) Tender Procedures

    4.5.1 Introduction

    In this part of the report, I will look into matters set out in TOR 1(e) which read:

    Whether, in the performance of its functions and the exercise of its powers,
    particularly in the management of the Investment Corporation Fund, the
    Investment Corporation failed to comply with the provisions of the Investment
    Corporation Act (Chapter 140), the Public Finances (Management) Act 1995 or
    any other Act and with relevant policies and directions from the National Executive
    Council between the years 1998 and 2002 concerning but not limited to the
    following:?

    whether there was any failure to comply with prescribed tender
    procedures in connection with

    The Y2K upgrade at the cost of about 700,000. 00 paid to Bank of
    Papua New Guinea in or around September 1999

    (ii) the engagement of Fiocco Possman and Kua as lawyers for the
    Investment Corporation;

    the acquisition in 1999 of a VX Toyota Station Wagon registration
    No BBE 585 for the Managing Director and his purchase and
    disposal of the vehicle less than a year latter;

    (iv) the acquisition in or around June 1999 of a VX Station Wagon
    registration No BBF 71 7 for the Managing Director and 3 units of
    Toyota Hilux for each for the Corporate Services
    Manager, the Investment Manager and the Fund Manager
    respectively; and

    the sale and disposal of properties including those commonly
    known as Sea Park Apartments, Credit House, Monian House and
    Ilimo Farm

    I will be examining and reporting on the manner in which contractors were engaged
    and how the assets of the Fund and the Corporation were disposed prior to and
    during
    the conversion of the Fund to the Paci?c Balanced Fund which occurred between
    the
    period of 1998 and 2002.

    There were complaints and allegations that proper tender procedures were not
    followed to procure certain services and dispose assets. This re?ects adversely on
    the
    management and Board of the Corporation who acted as both trustee and fund
    manager of the Fund. Considering the fact that the interest of unit holders in the

  • Page 2 of 181

  • Fund
    is paramount, any transaction or dealings was to have been conducted in View of
    that
    interest.

    41

    4.5.2

    It is imperative and prudent for any public body such as the Corporation to ensure
    that tender procedures are in place and are strictly adhered to so as to ensure
    accountability and transparency in the process to refute any possible suspicion or
    suggestions of mismanagement, abuse of power, imprudent management, breach Of
    ?duciary duties and so on.

    Under this TOR, 1 will report on my ?ndings on the allegation of whether or not
    established tender procedures had been observed and complied with by the
    management and Board of the Corporation in procuring services and disposing of
    assets.

    I do this by setting out the legislative framework for public tender procedures
    followed by the discussion of speci?c references under TOR I will discuss the
    TOR chronologically by highlighting the various contracts entered into and assets
    disposed during the term of both Mr Yamuna and Mr Ruimb.

    Legislative Framework for Tender Procedures

    The establishment and the operations Of the Corporation is governed by the Act. As
    a
    statutory corporation it quali?ed as a public body, and was therefore subject to the
    requirements of the PFM Act.

    In May Of 1987, Sir Kingsford Dibela, the then Governor General made a declaration
    under the now repealed PFM Act declaring that the Corporation is a public body to
    which the PFM Act 1986 applied. That declaration was gazetted on the 15th May
    1987 and is attached and marked as Exhibit ?94? in the Appendixes tO this report.

    The general scheme of tender procedures in which the Corporation was to have
    been
    guided by is set out under the PFM Act, the Act and the Financial Manuals.

    4.5.2.1 Investment Corporation Act

    The Act does not contain any speci?c provision on tender procedures. However,
    section 30(1) of the Act makes reference to the general application of the PFM Act,
    which provides that:-

    Subject to Subsection (3), the Public Finance (Management) Act
    applies to and in relation to the Investment Corporation

  • Page 3 of 181

  • However, section 30(3) of the Act sets out an exclusion provision with regard to the
    application of certain sections in the PFM Act, which reads:-

    Sections 51the Public Finances (Management) Act
    1995 do not apply to or in relation to the Investment Corporation

    Sections 51the PPM Act, dO not apply to the Corporation
    pursuant to section 30(3) of the Act. For the purpose Of this topic, section 61 Of the

    42

    PFM Act is the appropriate section that establishes the legal framework for public
    tender procedures that is applicable to all public bodies.

    The non?application of section 61 of the PFM Act as provided under section 30(3) of
    the Act will be further discussed under my discussion of the PPM Act.

    4.5.2.2 Investment Guidelines

    I have adequately covered discussion on Investment Guidelines of the Corporation
    under Chapter three of this Report. In summary the Board and Management must
    management the Corporation and Fund in accordance with ?sound business
    principles? as required by the Act.

    Apart from this general rule under section 10(1), there has been no specific policy
    issued by the Minister at any one time in relation to tender procedures for the
    Corporation. However, there was an internal Tender Committee established to
    oversee the tendering process.

    4. 5.2.3 Public Finances (Management) Act

    Certain provisions of the PFM Act applied to the Corporation. The relevant
    provisions relating to tender procedures are provided under sections 59 61 while
    section 60 provides for the policy directions on tendering.

    Section 59 of the PFM Act provides for contracts for works and services to public
    bodies in the following terms:?

    Subject to subsection (2), tenders shall be publicly invited and contracts
    taken by a public body to which this Act applies for all works, supplies
    and services the estimated cost of which exceeds such sum as is specified
    in its constituent law or declared by the Minister.

    (2) Subsection (1) does not apply to any works, supplies and services

    that are to be executed, furnished or performed by the State, or an
    arm, agent or instrumentality of the State approved by the Minister
    for the purposes of this subsection; or

    in respect of which the public body certifies that the inviting of

  • Page 4 of 181

  • tenders is impracticable or inexpedient?

    In essence, section 59 provides that as the Corporation is a public body, the PFM Act
    applies to it in mandatory terms to ensure that all tenders must be publicly invited
    and
    any contract entered for all works, supplies and services must be so invited and
    contract entered if the cost for that work, supply or service exceeds an amount
    speci?ed in the Act or declared by the Minister. The only exceptions where section
    59 of the PFM Act does not apply are in cases where such works, supplies and

    43

    services are supplied or performed by the State or its agent or if the process of
    inviting public tenders is not practical or expedient under certain circumstances.

    Section 61 of the PFM Act provides the requirement for the approval for certain
    contracts in the following terms:-

    The provisions of this section apply to and in respect of all public bodies
    notwithstanding any provision to the contrary in any other law and
    notwithstanding and without regard to any exceptions, limitations,
    conditions, additions or modi?cations contained in any other law.

    (2) Subject to subsection (3), a public body shall not, except with the approval
    of the Minister, enter into a contract involving the payment or receipt of
    an amount, or of property to a value, (or both) exceeding

    100,000.00; or

    In the case of a public body declared by the Head of State, acting on
    advice by notice in the National Gazette, to be a public body to
    which this paragraph applies K5 00, 000. 00

    (3) The provisions of subsection (2) do not apply to a contract relating to
    investments by a public body (including a subsidiary corporation) the
    subject of a declaration under section 5 7(3

    The Act at section 30(3) states that sections 59 and 61 of the PFM Act does not
    apply
    to the Corporation while the PFM Act states otherwise:?

    In such cases Where there appears to be inconsistencies between the provisions of
    the
    PFM Act and any other legislation relating to a subject matter, the provisions of the
    PFM Act overrides in so far as the inconsistency is concerned.

    This position stems from section 48(4) of the PFM Act which provides:?

    ?Where any provision in this Part (Part ?Public Bodies) is stated to apply
    to all public bodies notwithstanding any contrary provision in any other law,

  • Page 5 of 181

  • then such provision shall apply, notwithstanding any provision to the contrary
    and notwithstanding and without regard to any exceptions, limitations,
    conditions, additions or modifications in any other law?

    Section 61 (1) also reinforces section 48(4) of the PFM Act.

    This goes to say that regardless of the exclusion provision in section 30(3) of the Act,
    the combined reading and effect of section 48(4) and 61(1) of the PFM Act is clear, in
    that, all provisions of the PFM Act applies to all public bodies including the
    Corporation irrespective of What its constituent law, in this case, the Act says.

    44

    Following from the above interpretation, Section 61(2) of the PPM Act further
    provides that subject to subsection (3), a public body shall not, except with the
    approval of the Minister, enter into a contract involving the payment or receigt of an
    amount, or of property to a value, or both) exceeding:-

    ?Kl 00, 000. 00; or

    In the case of a public body declared by the Head of State, acting on advice, by
    notice in the National Gazette, to be a public body to which this paragraph
    applies –

    In the case of the Corporation, any payment or receipt of monies exceeding K500,
    000.00 requires the Finance Minister?s approval.

    Pursuant to Section 61(3) of the PFM Act, the provisions of subsection (2) do not
    apply to a contract relating to investments by a public body (including a subsidiary
    corporation) the subject of a declaration under Section 57(3).

    Section 57 makes provision for Investments. Section 57(3) of the PFM Act provides
    that:?

    ?The Minister may, by notice in the National Gazette, declare a public body
    (including a subsidiary corporation) to which this Act applies to be a public
    body which may, without the approval of the Minister, invest its moneys that are
    not immediately required, provided that each investment, whether a sale or a

    purchase, does not exceed a maximum level 0f3% ofits total asset?.

    Section 61(3) of the PFM Act does not apply to the Corporation as there was no
    declaration under Section 57(3) of the PFM Act. There was also no equivalent
    provision to Section 61(3) in the repealed 1986 Finance Act.

    Section 61(4) of the PFM Act empowers the Minister to permit a public body to enter
    into a contract or class of contracts without obtaining his prior approval and to
    impose
    conditions for such permission. This sub?section (61.4) was repealed in 1998.

  • Page 6 of 181

  • Section 60 of the PFM Act deals with policy directions on the tendering process and
    states:-

    ?The provisions of this section apply to and in respect of all public bodies and
    subsidiary corporations notwithstanding any provision to the contrary in any
    other law and notwithstanding and without regard to any exceptions,
    limitations, conditions, additions or modifications contained in any other law.

    The Minister may, from time to time, issue directions to public bodies and
    subsidiary corporations on policy to be followed in relation to the viewing of
    preference to national tenderers and local manufacturers in relation to tenders
    invited and contracts taken by public bodies.

    45

    4.5.3

    A public body and a subsidiary corporation shall be bound by directions issued
    under Subsection (2)

    Section 60(1) again reinforces sections 48(4) and 61(1) as to the application of the
    PFM Act while subsection (2) of section 60 empowers the Minister from time to time
    to issue directions to public bodies and subsidiary corporations on policy to be
    followed in relation to the giving of preference to national tenderers and local
    manufacturers in relation to tenders invited and contracts taken by public bodies.

    Section 60(3) of the PFM Act renders any direction issued by the Minister binding on
    a public body and a subsidiary corporation.

    I have found that no policy had been issued pursuant to section 60(2) of the PFM
    Act.
    Section 62(1) of the PFM Act provides that:-

    Subject to Subsection (2), a public body or a subsidiary corporation to
    which this Act applies shall cause to be kept proper accounts and records
    of its transactions and a?airs, and shall do all things necessary to ensure
    that all payments out of its moneys are correctly made and properly
    authorized (my emphasis) and that adequate control is maintained over its
    assets, or assets in its custody, and over the incurring of liabilities by it.

    (2) In the case of a public body or a subsidiary corporation that is declared
    by a constituent law or by the Minister to be a trading enterprise for the
    purpose of section 62, the accounts and records required by Subsection
    (1) must be kept in accordance with the accounting principles generally
    applied in commercial practice

    Section 62 stipulates that all public bodies which include the Corporation must
    ensure
    that all transactions involving the payment of monies must be authorized and must
    be

  • Page 7 of 181

  • accounted for and records kept. This provision requires public bodies to ensure that
    there is adequate control over payments made; assets in its custody; and over
    liabilities incurred.

    I have found that proper records of accounts and records of the affairs of the
    Corporation and the Fund were not properly kept and this has made my task during
    this inquiry somewhat dif?cult in tracing evidence in support or otherwise in respect
    to allegations raised in the TOR.

    The Corporation?s Board and Management
    There were two separate Managing Directors and Boards who were responsible for

    the affairs of the Corporation and the Fund over the period under inquiry (1998-
    2002).

    46

    4.5.3.1 The Board of Directors

    Section 9(1) of the Act establishes the Corporation?s Board of Directors. The Board
    is
    responsible for the proper management of the affairs of both the Corporation and the
    Fund.

    Section 12 of the Act provides for the composition of the Board of Directors and
    theses included the following:-

    I the Managing Director

    . an of?cer of the Rural Development Bank appointed by the Minister through
    gazettal ?notice

    an of?cer of the Department of Finance appointed by the Minister through
    gazettal notice

    I a minimum of 5 and maximum of 9 members of whom 4 or more are citizens
    who ?-are appointed by the Minister through gazettal notice.

    Under section 14 of the Act, the members of the Board of Directors are required to
    make a declaration of of?ce and declaration of secrecy before performing duties on
    the Board.

    The chairman and deputy chairman of the board are appointment by the Minister
    who
    also determines their term on the board under section 18 of the Act.

    The meetings of the Board can be called or set by the Board or as the Chairman or
    the
    Deputy Chairman directs and six members of the board can form a quorum.

  • Page 8 of 181

  • The Board considers submissions and recommendations prepared and put forward
    by
    the management of the Corporation and makes decisions for both the Fund and the
    Corporation if a matter requires the board?s input or approval.

    The Board of Directors can authorize and exercise ?nancial discretion up to
    while any transaction involving the receipt or payment of money over
    K5 00,000.00 requires ministerial approval from the Treasury Minister.

    4. 5. 3.2 The Management

    The operations of the Corporation and the Fund were managed by the managing
    director and the deputy managing director who are required to act in accordance with
    the policies of the Corporation and with the directions from the Board of Directors
    pursuant to section 16(4) of the Act.

    According to the PFM Act as discussed, the management?s financial limit is K100,
    000.00 which can be exercised by the Managing Director.

    47

    4.5.4

    Evidence given by Mr. Enoch PokaIOp confirmed (Transcript page 208) that:

    or contract values up to K100, 000. That is at the discretion of the managing
    director; contracts up to ?ve hundred thousand, the board, and anything beyond
    that goes to the minister for approval

    Mr. Ruimb also con?rmed Mr. Pokarop?s evidence.

    In practical terms it is the management that recommends to the Board to approve
    monies within the Board?s limit and if the amount exceeds the Board?s limit the
    management advises the Board of the need to obtain ministerial approval and seeks
    the approval once the Board approves the recommendation.

    To appreciate when the allegations Specified under the TOR 1(e) transpired, it is
    important to identify the management team and the Board of Directors who were
    party to decisions for or on behalf of the Comoration and the Fund in terms of whose
    services were engaged contractually, which assets were disposed, and the manner
    in
    which those services were obtained and assets were di5posed.

    There were two different boards of directors and management team between
    February
    1998 and January 2002 when the allegations raised under this TOR unfolded.

    From period February 1998? mid 1999, the Comoration and the Fund was guided
    under the management of Wandi Yamuna and a separate Board of Directors. From
    August 1999 January 2002 John Ruimb and his management team managed the

  • Page 9 of 181

  • affairs of the Corporation and the Fund under a different Board.

    Management under Wandi Yamuna

    The management of the Corporation and the Fund under the leadership of Wandi
    Yamuna as managing director was from February 1998 to mid 1999. Wandi
    Yamuna?s management was responsible for the following matters referred to under
    TOR

    I the Y2K upgrade at the cost of about K700, 000.00 paid to the Bank of Papua
    New Guinea in or around September I 999;

    I the engagement of Fiocco Possman and Kua as lawyers for the Investment
    Corporation; and

    i the sale and diSposal of properties including those commonly known as Sea
    Park Apartments, Monian House and [limo Farm.

    4. 5. 4.1 The Management from February 1998 to I 999

    The following individuals formed the Corporation?s management team during Mr
    Yamuna?s tenure as Managing Director:-

    48

    The Senior Executive Management Team

    Mr. Wandi Yarnuna – Managing Director

    Mr. Lincoln Taru Deputy Managing Director

    Mr. Stephen Mokis Manager Personnel Administration
    Mr. Chris Gideon Corporate Secretary

    Mr. Kris Bongare Investment Manager

    Mr. Fred ‘Angoman – Financial Controller

    Mr. Gerald Senapali Board Secretary

    Mr. Enoch Pokarop Senior Investment Analyst

    Mr Alu Tongia Fund Administrator

    4.5.4.2 The Board of Directors from February 1998 – 1999

    The following individuals formed the Board of Directors of the Corporation during
    Mr Yarnuna?s tenure as Managing Director.

    Sir Dennis Young Chairman (removed in August 1999)

  • Page 10 of 181

  • Mr. Napolean Liosi Deputy Chairman

    Mr. Robert Seeto Director (removed in March 1999)
    Mr. Jack Patterson Director (removed in August 1999)
    Mr. Demas Kavavu Director (removed in August 1999)
    Mr. Michael Varapik Director (removed in March 1999)
    Mr. Joseph Kumgal Director (removed in June 1999)
    Mr. Ben Pokanau Director (replaced in August 1999)
    Mr. Ted Taru – Director (removed in June 1999)

    Mr Peter Jabri, Mr Peter Kopunye, Mr Rarua Gamu, and Mr Klei Kera were
    appointed in about May/June 1999 and were removed in October 1999.

    There was no appointee from the Rural Development Bank. This was contrary to law
    under section 12 of the Act.

    The ICPNG Accounting Policies and Procedures Manual comprehensively covered
    procedures for public tender and complimented the PFM Act. Strict adherence to the
    established tender process was lacking when Mr Yamuna was appointed the
    Managing Director of the Corporation and during his tenure the use of public tender
    system was abolished (Transcript page 208 to 209).

    49

    4.5.4.3 Internal Tender Procedures

    Prior to Wandi Yamuna?s appointment as managing director, the tenders system use
    was guided by the PFM Act and complimented by the ICPNG Accounting Policies
    and Procedures Manual. A copy of the manual is attached and marked as Exhibit
    ?95? in the Appendices to this report. The relevant captions of the manual relating to
    the tender process is set out below:

    ORPORA I 0N OF PAP UA NEW GUINEA
    A OUN TIN POLICIES AND PROCEDURES MANUAL
    4.4 PROCEDURES FOR TENDERS
    AREA OF INTEREST: Procurement by Tender

    OBJECTIVES: 0 provide guidelines that will ensure the most prudent

    manner of ?nding the right samplier for goods and
    services required, by inviting tenders.

    SCOPE: These guidelines will provide the correct policies
    procedures to be followed in Regard to,

    Invitation of Tenders

    – Handling of the Tender documents
    Approval of the Tenders

  • Page 11 of 181

  • The Tender Committee

    Responsibiligz: The Tender Committee members listed in subsection
    below are jointly and severally responsible for the
    above objectives.

    FUNCTIONS
    Invitation to Tender
    Receiving and Opening Tenders
    Approval of Tenders

    The Tender Committee
    GUIDELINES:

    (A) INVITATION TO TENDER

    50

    All Tenders should be allocated a unique tender number and this number
    should appear on all tender documents

    For Contracts under K5 0,000 suitable suppliers may be invited to tender.
    The invitation should be restricted to suppliers with the necessary
    capabilities and financial viability to carry out the contract.

    The possibility of getting a local supplier should be fully explored before
    extending invitations to foreign companies operating in Papua New Guinea,
    or to overseas supplies, to conform with the policy of the Government of

    Papua New Guinea.

    possible a minimum of three suppliers should be invited to tender for
    every contract.

    For contracts over 50,000 the invitation to Tender should be by press
    advertisement, calling interested parties to register their interest, providing
    details about their background, experience in similar contracts and
    expertise of their sta?r members where appropriate.

    The following information should be provided to interested parties along with the
    Tender documents.

    (C)

    (8)

    Full description of the Corporation ?5 requirements.

  • Page 12 of 181

  • Other specific requirements such as delivery/completion time.
    Closing Date and time for the submission of Tenders

    Name and Title of Contract Officers.

    Amount of deposit required at the time of lodgement. (Refundable on return
    of documents if Unsuccessful).

    The tender documents should be initialled by the tenderer in order
    that the initialed copies become the contract copies should the
    tender be successful.

    The tender documents given to all tenderers should be identical.
    – Changes to tender documents, if absolutely essential, may be made

    by the Tender Document and all the changes should be
    communicated in writing to all tenderers.

    All tenderers should be instructed that the tenders should be submitted in sealed
    envelopes with the following information clearly shown on the envelope.

    (ii) The Name and Address of the Tenderer.

    51

    Tender Number

    (iv)A Brief description of the contract.

    The closing date and time.
    RECEIVING AND OPENING OF TENDER
    Tender Period

    Tender periods should be of adequate duration to suit both the Corporation and
    the tenderers.

    – Ideally no extension of the tender period should be granted. However, under
    exceptional circumstances extension may be considered and if granted all
    interested parties should be noti?ed and confinned in writing.

    The time for closing tenders should not be earlier than 3.00 pm on a working day
    other than Mondays and days immediately a?er a public holiday. 0n the closing
    date the Corporation?s Post O?ice Box should be checked shortly before the
    closing time of the tender.

    – Tender submissions by Fax or Telex should not be accepted under any
    circumstances.

    Late submission should be returned to the senders unopened.
    2. OPENING OF TENDERS

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  • All Tenders received should immediately be put in the tender box.

    The tender box should be in the custody of the Secretary of the Tender
    Committee.

    Tenders Opened in error shall be rescaled by the Secretary of the Tender
    committee, initialed and put in the Tender box.

    – At the time of opening the Tender box, at least three members of the
    Committee shall be present and all three members shall initial each and
    every tender.

    A summary of all tenders received together with the relevant documents will
    be forwarded to the appropriate division/section or consultants for
    evaluation and subsequent return to the tender committee with their
    recommendation along with the summary.

    – The tender may if necessary call upon the persons involved in the evaluation
    to assist thefinal decision.

    52

    3. APPROVAL OF TENDERS

    Contracts under K1000 will be approved by the appropriate authority as
    per the delegation of authority issued by the Managing Director.

    Contracts over K5, 000 and under 00, 000 shall be approved by the
    Managing Director.

    – Contracts over K100, 000 but under should be submitted to the
    Board of Directors of the Corporation along with the recommendations of
    the Tender Committee for approval.

    Contracts over [?300,000 or over should be referred to the Minister for
    approval with the endorsement of the Board of Directors.

    The awarding of the tender to the successful bidder should ideally happen
    within 30 days of the opening of the tenders.

    Unsuccessful bidders should be notified accordingly.

    – The successful bidder will be issued a purchase Order specifying relevant
    details as per the tender documents.

    THE TENDER COMMITTEE
    The tender committee members will include:
    The Managing Director
    The Deputy Managing Director
    The Financial Controller

  • Page 14 of 181

  • The Personnel and Administration Manager
    The Property Manager
    The Investment Manager
    For contracts below K100, 000 the Deputy Managing Director will chair the
    committee.

    For Contracts over K100, 000 the Managing Director shall be the Chairman of the
    Committee.

    Any one of the Committee members, other than the Managing Director and the
    Deputy

    Managing Director, may serve as the Secretary of the Committee as directed by the
    Managing Director?

    53

    There is evidence that strict adherence to the established tender process changed
    when Wandi Yamuna was appointed the Managing Director of the Corporation and
    during his tenure the use of public tender system was abolished.

    4.5.4.4 The Tender Committee

    The establishment of the Tender Committee dates back to 1993 when the
    Corporation
    opted to outsource the management of its prOperties which were then managed in-
    house. Initially the property portfolio was managed in-house but due to very poor
    performance attributed to lack of pro?cient in?house management services, the
    Corporation resolved in late 1993 to have the balance of its properties still managed
    in?house, to be contracted out to professional property management ?rms to provide
    management services.

    To implement the board?s resolution and in order to ensure a credible selection
    process was in place with tender provisions, a management team was established
    as a
    sub?committee called the Tender Committee. The establishment and ?inctions of the
    tender committee was guided by the PFM Act and the ICPNG Accounting Policies
    and Procedures Manual. This Tender Committee was also the Tender Committee for
    the Fund.

    The composition of the Tender Committee comprised of the following management
    members:-

    The Managing Director

    The Deputy Managing Director

    The Financial Controller

    The Personnel and Administration Manager

  • Page 15 of 181

  • The Property Manager

    The Investment Manager

    Under the Accounting Policies and Procedures Manual, contracts valued below
    required the Deputy Managing Director to chair the committee. For
    contracts over the Managing Director shall be the Chairman of the
    committee. Any one of the committee members, other than the Managing Director
    and the Deputy Managing Director, may serve as the Secretary of the Cormnittee as
    directed by the Managing Director

    The Tender Committee?s functions included drawing up the tender documents and
    selection criteria which were both approved by the Managing Director. The
    Committee then screens all tender submissions and makes its ?nal recommendation
    to the Managing Director for approval and the managing director then recommends
    to
    the Board of ICPNG to implement.

    54

    The committee deliberated on the screening for bids for sale of properties and
    considered the selection process in terms of tenders for property management,
    security services, cleaning services and others. The decisions reached by the Tender
    Committee would be presented as part of the submissions during board meetings for
    the board to consider and make its resolution in respect of those tenders. (Transcript
    page 332)

    I noted from records that in actual practice after February 1998, there was no strict
    compliance as to who formed the tender committee. An example of this is noted from
    Board Submission?dated 07/06/ 9 Swhere a submission was presented from the
    tender
    committee who comprised of the following management team:

    Investment Manager – Chairman
    – Personnel Administration Manager Member
    – Financial Controller – Member
    Property Administrator Member
    Senior Investment Analyst Member

    A copy of the Board Submission referred to is attached and marked as Exhibit ?96?
    in the Appendices to this report.

    I ?nd from Exhibit ?66? and evidence heard from Enoch Pokarop (Transcript page
    number 207) that the following persons fonned part of the Tender Committee when

    it existed:?
    Wandi Yamuna (Managing Director) Chairman
    Gerard Senapili (Executive Of?cer) – Tender secretary
    Fred Anogoman (Financial Controller) – Member
    Kiis Bongare (Investment Manager) Member

  • Page 16 of 181

  • – Enoch Pokarop (Senior Investment Analyst) Alternate member

    4,504.5 Abolition of the Tender System

    According to Enoch Pokarop?s evidence, he never attended any of the tender
    committee meetings, he was only named as an alternate member in the event the
    investment manager (Kris Bongare) was not available.

    Mr Pokarop in his written statement dated 26th November 1999, said that the
    standard
    practice was not followed. He stated:

    55

    ?Note that as a standard practice in addition to the tender procedure, the
    Managing Director has always excluded himself from the tender committee in
    order to do an independent and impartial final decision on the tender
    committee?s recommendation. The rationale was to avoid any conflict of interest
    in the decision making of the tender committee.

    However, when the new Managing Director Mr. Wandi Yamuna) took over in
    February 1998, a circular was issued to the Divisional Managers advising that
    the following personal form the members of the tender committee:?

    Managing Director Wandi Yamuna (Chairman)
    – Financial Controller Fred Angoman (Member)
    – Investment Manager Kris Bongare (Member)

    /Enoch Pokarop (Alternate Member)

    Executive O?icer Gerald Senapili ??ender Secretaty)

    The removal of the Deputy Managing Director is in contravention of the
    accounting manual and tender procedure. The change was also not submitted
    to the Board for approval.

    Not that the applicable law in relation to the approval of contracts is the
    ?Public Finance (Management) Act 1995 as amended. In addition, ICPNG
    accounting manual also apply.viz,

    Contract Value Approval Authority
    Contracts up -to K100, 000?00 Managing Director
    Contracts up to 5 00, 000?00 Board

    Contracts over K5 00, 000-00 Minister for Finance

    A copy of Mr. Pokarop?s written statement is attached and marked as Exhibit ?66? in
    the Appendices to this Report.

  • Page 17 of 181

  • Mr. Gideon who also gave evidence said (Transcript page 333), that the system of
    having the tender committee deliberate on public tenders was not working well and
    procedures were not followed. By April 1998 the tender committee ceased to operate
    effectively.

    The management at the time failed to follow procedures or utilize the tender
    committee and eventually the committee ceased functioning.

    56

    4.5.5 Management under John Ruimb

    Mr Ruirnb who initially held the position of Senior Investment Analyst and one time
    as acting Deputy Managing Director was appointed. He was appointed as acting
    Managing Director of the Corporation on or around the 26th August 1999 when the
    Management and Board of the Corporation was suspended following controversies
    relating to the sale of properties and allegations of mismanagement at the

    Corporation.

    Mr Ruirnb?s acting appointment was confirmed four (4) months latter in December
    1999, and he held that position up to 31St January 2002 when he was retrenched.

    The following engagements of professionals and sale of properties took place during
    John Ruimb? tenure as Managing Director.

    I the engagement of Fiocco Possman and Kua as lawyers for the Investment
    Corporation;

    I the acquisition in 1999 of a VX Toyota Station Wagon registration No BBE
    585 for the Managing Director and his purchase and disposal of the vehicle
    less than a year latter;

    I the acquisition in or around Jane 1999 of a VX Station Wagon registration No
    BBF 717 for the Managing Director and 3 units of Toyota Hilux for
    each for the Corporate Services Manager, the Investment
    Manager and the and Manager respectively;

    4.5. 5.1 The Management from August 1999 to January 2002

    The Corporation?s management team lead by Mr Ruimb as Managing Director also
    comprised of some of the staff under Mr Yarnuna?s tenure and included the following
    individuals:?

    The Senior Executive Management

    Mr. John Ruimb – Managing Director (acting as from August 1999
    until con?rmed in December 1999)

  • Page 18 of 181

  • Mr. Lincoln Taru – Deputy Managing Director

    Mr. Chris Gideon Board Secretary

    Mr. Enoch Pokarop – Investment Manager

    Mr. Nelson Wilson Senior Investment Analyst

    There was no Financial Controller under Mr Ruirnb?s tenure. The former ?nancial
    controller, Fred Angoman, was administering the ?nancial division of the
    Corporation through Kincorp who were engaged to manage the ?nance division

    57

    4.5.5.2 The Board of Directors from:

    4.5.6

    when the Corporations accounting function was outsourced following the board and
    management?s decision to downsize the operations of the Corporation.

    August 1999 January 2002

    The following individuals formed the Board of Directors of the Corporation during
    Mr Ruimb?s tenure as Managing Director:-

    Mr. Rex Augwi

    Mr. Napolean Liosi
    Mr. Abraham Tahija
    Mr. Toffamo Mionzing
    Mr. Ambeng Kandakai
    Mr. John Tari

    Mr. Mete Kahona

    Mr. Puliwa Mapikon
    Sir Pato Kakaraya

    Y2K Upgrade

    Chairman

    Deputy Chairman

    Director

    Director

    Director (resigned in November 2000)

  • Page 19 of 181

  • Director

    Director

    Director (appointed in November 2000)
    Director (appointed in October 2001)

    Whether there was any failure to comply with prescribed tender procedures in

    connection with

    he Y2K upgrade at the cost of about 700,000.00 paid to the Bank of Papua
    New Guinea in or around September 1999

    Enoch Pokarop gave evidence (Transcript page 213) that the Central Bank issued a
    direction to all statutory bodies and departments to ensure their information and
    computer data base were compliant in response to the global Y2K scare. Mr.
    Pokarop?s evidence is also continued by record of the Corporation?s board meeting
    133/99 (Exhibit held on the 17th December 1999:?

    ?133/99/ 2(d) Y2K Computer Upgrade

    Board was infomed that its resolution of the previous meeting was not pursued
    as the Bank has exercised its powers under the Banks and Financial
    Institutions Act to take control of the tqagrading works. As a result of this new
    development, the Bank has appointed its Y2K Consultant Mr. Jack Bar?T or to
    review and institute immediate remedial actions to attain Y2K Compliance by

    the rollover date.

    Mr. Bar?T or has come up with three approaches that will run simultaneously to
    achieve compliance. The estimated total cost of this is 000, which falls
    within the previous approval given by the Board.

    58

    In view of the timing constraints, directors resolved to commend management
    for the pro?active steps taken to execute agreements with the Bank of PNG
    project team and the positive developments that have been attained since the
    last meeting.

    Moved: A.Kandakasi Seconded: T. Mionzing?

    The Y2K compliance computer upgrade was ?rst mentioned by the Corporation?s
    Board in board meeting number 128/98 tendered as part of Exhibit ?61? held on 11th
    September 1998 as agenda 3(a) but the board resolved to defer that paper. There
    are
    no further records from which I could ascertain if the Board did consider the paper on
    the Y2K compliance and approved C?Vision?s engagement to address the
    compliance

  • Page 20 of 181

  • issue.

    From the evidence on this aspect, I ?nd that the Tender Committee did consider and
    recommend to the Board to approve and award the contract to C-Vision. There were
    12 tender applications received following publication. This is evidenced from an
    internal memorandum from the Financial Controller, Fred Angoman to the Managing
    Director, Mr Yamuna dated 15111 October 1998 the purpose of the memorandum
    was
    to brief the Chairman, Sir. Dennis Young on the Y2K project:

    CPNG BOARD CHAIRMAN BRIEF
    YEAR 2000 BUG COMPLIANCE PROJECT
    I. PURPOSE

    The purpose of this paper is to brief the ICPNG Board Chairman Mr.
    Denis Young on the year 2000 compliance (Y2K) project.

    2. PROJECT

    The Y2K project is the replacing of the Share Register System (SRS) and
    the Pay Deduction Scheme (PBS) with year 2000 compatible softwares
    and the acquisition of appropriate software to run the Pension Fund.

    The current systems are not year 2000 compatible and they are corrupt.
    The memory available has also run out and there is only 10% capacity
    left. This is enough to operate the system for a few months only. The
    above problems have caused the computer to produce incorrect reports
    and the frequent system failure. We have no lucky so far to keep the
    system operating. This will not be long and it will collapse any time.
    Installing of additional hard disk will not fix the problem.

    Further the current system is not user friendly meaning the data entry can

    not be done on line. This has caused the delays in producing required
    customer and management information and end products.

    59

    The complete system (software hardware) must be replaced as soon as
    possible before it collapses. The software required must be o? the shelve
    meaning they can be upgraded when current version is superseded, must
    be user friendly and its performance must be similar to current system.
    The hardware must have the maximum hard disk capacity, maximum
    operating capacity, must be user friendly and must be able to integrate
    with the accounting so?ware and the printers must perform all required
    prints (edit reports, cheques, certi?cates, statements, inquiry information
    etc.)

    CALL FOR BID

  • Page 21 of 181

  • Twelve interested ?rms sent their bids for the project. The complete list of
    the bidders is attached as Appendix J.

    Quotation and tender were called between July and October 98 for the
    supply and installation of appropriate software and hardware. The twelve
    bidders were screened by the Tender Committee on Tuesday the
    October 98 as follow;

    PMSC good of the shelve software, no hardware, price in
    SA UD too high.

    3.2 Computer Spot pr0pose to rewrite SRS PDS, of the shelve
    Pension Fund software, no hardware. Does not meet
    requirements.

    3.3 Concept Software Propose to convert the current SRS
    PDS, write/develop a Pension Fund, can not provide
    Hardware, cost too high.

    3.4 Computers Communication Proposed two options for
    hardware, hardware not comprehensive, can not provide
    software.

    3.5 Able Computing Price for hardware only, they can not
    provide software.

    3.6 Data General Price for hardware only, they can not provide
    software.

    3.7 C?Vision quoted for of the shelve software and hardware,
    they spent more time studying the existing system and inquire
    on the proposed Pension Fund. Their hardware proposal is
    also very comprehensive. Their proposal includes two
    additional software a Property database and Investment
    Analysis Tool. Their price is reasonable.

    60

    3.8 Datec PNG Propose both software and hardware, they
    supplied the current SRS PDS software and hardware.
    Propose to convert SR8 PDS, supply of the shelve Pension
    Fund software. Price too high.

    3.9 Award Technologies Propose both software hardware,
    though off the shelve programs for SRS PDS they are not
    quite certain if the software will perform all required ?tnctions,
    can not quote for Pension Fund. No details of hardware to
    provide.

    3.10 Daltron Electronics Propose to provide hardware only, not

  • Page 22 of 181

  • comprehensive.

    3.11 PNG Micro Computers Propose for both software

    hardware, propose software too cheap, some good hardware
    included.

    3.12 Workers Mutual Proposed for both software hardware,
    propose to develop software, hardware not comprehensive.

    BIDDER RECOMMENDED

    The bidder recommended by the Tender Committee for approval by the
    Board is the Vision. They are Australian based company. They have a
    branch in PNG located at Pacific View Place. Their tender amount is
    K397, 998.l8.

    FUNDING

    The budgeted amount for computer related cost is K255, 000. About a
    1000.00 ofthis was spent sofar. The rest ofthefund is to comefrom the
    K500, 000 budgeted for the repair and maintenance of the Investment
    House now that the property was sold.

    COMPLETE OF PROJECT

    The project will take three months from the date of award of contract to
    complete. Once the date is transferred to the new system the entry to data
    will be done on line by the Fund Division and Accounts section.

    The Accounting information from the SRS, PBS and Pension Funds will be
    imported direct. Further the property data and valuations of investments
    will also be imported direct. This means a lot of time saving, error
    omissions, reduction in manual labor and efficient periodical management
    accounts-

    61

    Further more the outstanding matters such as the Share Spilt and Bonus
    Issues can be a?ected

    A copy of the internal memo from Mr. Angoman to Mr. Yamuna referred to above is
    attached and marked as Exhibit ?97? in the Appendices to this report.

    C-Vision?s engagement was rushed given the urgency to ensure the Corporation?s
    computers were Y2K compliant before January 2000. The Corporation?s Board on
    the
    30:11 October 1998 during its special board meeting number 2/98 (Exhibit
    considered the proposal which was sanctioned by the Tender Committee and
    resolved

  • Page 23 of 181

  • that the work be awarded to C?Vision for a fee of and that the
    required work be completed within three (3) months.

    75% of the total cost (K397, 998.18) was paid up front on a contract however,
    Vision failed to complete the contract work. During the Commission?s hearing Enoch
    Pokarop and John Ruimb both gave evidence (Transcript page 214 410-411) to
    the effect that C?Vision failed to deliver the services it was engaged to provide.
    Consequently, on the 28th October 1999, the Board in meeting number 132/99
    (Exhibit resolved to re?award the contract to Datec who also bided for the
    tender at a cost of K1 .5 million. The Board minutes reads:-

    ?I32/99/2(c) Y2K Compliance Program

    Board noted the unsatisfactory progress made by C-Vision and resolved to re?
    award the project to Datec Limited for million and approved
    K5 00, 000 which was within its authority for Datec to start the upgrading work
    and that management make a submission to the Treasurer for his approval of
    the full amount to comply with the Public Finances (Management) Act.

    Moved: A. Kandakasi Seconded: TMionzing

    John Ruimb through his statement tendered as Exhibit (a copy is attached in
    the Appendices to this report) gave evidence that:?

    ?The company called Vision Limited was engaged to undertake the
    Computer systems upgrade to Y2K compliant at the beginning of I 999 by the
    previous management to be delivered by March 1999. At the time of my re?
    appointment on or about 26th August I999, not much work was done and
    delivered despite some upfront payment already made. This company was
    unknown in the market place at the time and neither was there any contract
    outlining the terms. The management at the time left this matter to the
    Investigation team to examine considering the urgency of time to 31? December
    1999, and recommended to the Board the appointment of Datec PNG Limited to
    undertake the Systems up grade to Y2K Compliant. Before arrangements for
    the engagement of Datec could be ?nalized, Bank of PNG undertook an
    inSpection on the .28? October 1999 which revealed that in the assessment of the
    Bank of Papua New Guinea, the Investment Corporation does not meet the
    minimum preparatory requirements necessary to address the risks brought

    62

    about by the Millennium Bug and that the Bank of PNG was concerned that
    depositors funds might be at risk. The Bank of Papua New Guinea wrote to
    ICPNG on 015I November 1999 advising their inspection result and further
    advised that in accordance with section 18(2) of the Banks (.9: Financial
    Institutions Act, the Bank of Papua New Guinea has decided to engage Mr.
    Yaacov (Jack) Bar?Tor, a Y2K Consultant to review the existing systems and
    related Y2K issues) and o??er expert advise on ways to address identi?ed
    problems, at the cost of Investment Corporation. As a licensed financial
    institution at the time, ICPNG was subject to the regulatory supervisory

  • Page 24 of 181

  • control of the Bank of Papua New Guinea, hence this was taken as a lawful
    regulatory direction and ensuring arrangements were made to cooperate with
    the Bank of PNG to make the systems Y2K compliant including the payment of
    AUD 350,000.00 to Bank of Papua New Guinea Trust Account in December
    1999 and not in or around September 1999 as stated in the Terms of Reference.
    Funds were controlled and disbursed by Bank of Papua New Guinea?

    Due to intervention Datec was not allowed to complete its engagement.

    1 also noted from an assessment from in 2002 that a sum of K700, 755.00 was
    paid into an account opened with the Bank of PNG in 1999. The account was
    managed by designated of?cers of the Bank of PNG for the sole purpose of paying
    expenses that would be incurred by consultants engaged to work on the Y2K
    compliance requirements. This full amount was paid to the Bank of PNG for the Y2K
    compliance consultants to commence work.

    A copy of PwC?s report is attached and marked as Exhibit in the Appendices to
    this report.

    My investigations of the Bank of PNG records show that the said Bank utilized
    almost all of the money by paying the consultant it engaged. Only a small portion of
    it was returned to the Corporation.

    The amount paid by the Corporation was in excess of K500, 000.00 which required
    ministerial approval at the time. There is no evidence to suggest that there was
    compliance with section 61(2) of the PFM Act. I therefore ?nd that the payment
    of 700,755.00 to the Bank of PNG, while it may have been paid in line with lawful
    direction, was done without obtaining the mandatory approval from the Minister for
    Treasury. This rendered the payment unlawful and in breach of the public tender

    procedure set out under the PFM Act.

    I should also add that the Board on the 13th December 2001, in its meeting number
    137/2000 (?Exhibit resolved and directed that the Corporation?s Management
    continue to pursue the recovery of moneys paid to the Y2K Team with the Bank of
    PNG. Whether that has eventuated is a matter for further investigation.

    63

    4.5.7

    I have noted in this section of my report on the proposed K37 million write off that
    this amount has been proposed for write off. However, the amount is recoverable
    and
    should not be written off.

    Engagement of Lawyers

    Whether there was any failure to comply with prescribed tender procedures in
    connection with

  • Page 25 of 181

  • (ii) the engagement of Fiocco Possman and Kna as lawers for the
    Investment Corporation;

    Posman Kua Aisi Lawyers was one of the law ?rm engaged to provide necessary
    legal opinions and advises to the board and management of the Corporation.
    According to Lincoln Taru?s Final Report on ICPNG dated 22nd July 2005 (a copy of
    which is marked and attached as Exhibit ?12? to the Appendices to this report), that
    ?rm was principally engaged from 1998 – 2004. According to that report, advice and
    opinions provided by FPK Lawyers covered the controversial purchase/sale
    agreement of Ilimo Poultry Products to Athmaize and Peak Performance Feed of
    Australia as well as conveyancing on the sale of all institutional houses sold under
    the
    Corporation Home Ownership Scheme.

    Evidence was also given by Managing Directors, Mr Ruimb in his written statement
    dated 8th November 2006 and Mr Yamuna in his written statement dated 4thl
    December 2006 that the Corporation did not engage any one particular law firm on a
    retainer basis but opted to engage various law ?rms to provide legal services for
    different legal work and these ?rms include:-

    I Carter Newell Lawyers;

    I Young Williams Lawyers;

    I Pato Lawyers;

    I Mawa Lawyers;

    I Peter Pena Associates;

    I Thirwall, Aisi Koiri Lawyers;
    I Parua Lawyers;

    I FPK Lawyers;

    I Mai Lawyers;

    I Liosi Lawyers; and

    64

    . Parua Lawyers

    My investigation revealed that there was nothing improper or unlawful about the
    engagement of FPK Lawyers. There was no need for tender process, and in any
    case
    there is no evidence to suggest that their engagement were unlawful or improper.

    A copy of Mr. Ruimb? statement dated 8th November 2006 is marked Exhibit

  • Page 26 of 181

  • and Mr. Yamuna?s statement dated 4th December 2006 is marked Exhibit
    both exhibits are attached in the Appendices to this report.

    4.5.8 Purchase and Disposal of Vehicles

    4.5.8.1 VX Toyota Station Wagon BEE 585

    Whether there was any failure to comply with prescribed tender procedures in
    connection with

    the acquisition in 1999 of a VIX Toyota Station Wagon registration No
    BBE 585 for the Managing Director and his purchase and diSposal of
    the vehicle less than a year latter;

    In respect to this the Commission heard on the 9th November 2006 the evidence
    of Mr. John Ruimb, who gave evidence by his statement dated 8th November 2006
    refer to Exhibit attached to the Appendices to this report) by making the

    following statement:

    ?The Toyota VX Station registration number BBE 585 was not acquired in 1999
    as per the Terms of Reference. This vehicle was purchased for the previous
    Managing Director Mr. Wandi Yamuna some time on or about 24: March
    1998. Upon Mr. Yamuna?s suspension and my appointment, I assumed use of
    this vehicle in September 1999. I later purchased this vehicle some time in the
    year 2000 by choosing to utilize the motor vehicle provision of my contract of
    employment where I had an option to purchase at a sum of or
    written down value which ever was lower. 1 elected to utilize that provision by
    paying K45, 000. 00 to ICPNG

    According to John Ruimb?s evidence, he purchased the subject vehicle two (2)
    years
    after it was purchased in March 1998. At the time of his purchase no valuation was
    done to the vehicle to determine its market value.

    Prior to the purchase of the of?cial vehicle, John Ruimb was using an of?cial issue of
    the Investment Corporation?s vehicle.

    This Commission does not have a copy of Mr. Ruimb?s second contract of
    employment despite requests to his lawyers to provide a copy. Hence, my ?ndings in
    relation to this TOR will be reserved as I have not had the bene?t of perusing Mr.
    Ruimb?s second contract of employment.

    65

    4. 5. 8.2 VXStation Wagon BBF 717 and Toyota Hilux

    Whether there was any failure to comply with prescribed tender procedures in
    connection with

  • Page 27 of 181

  • (iv) the acquisition in or around June 1999 of a VX Station Wagon
    registration No BBF 717 for the Managing Director and 3 units of
    Toyota Hilux for each for the Corporate Services Manager,
    the Investment Manager and the Fund Manager respectively;

    The Corporation?s former corporate secretary, Chris Gideon, gave evidence
    (Transcript page 334-335) that those four (4) vehicles referred to in 1(e) (iv)
    were obtained from Credit Corporation through a three (3) year lease arrangement
    and due to the retrenchment exercise which commenced in the beginning of 2002
    the
    operations of the Corporation were scaling down so the Board approved the sale of
    those vehicles through public tender. The Board also approved the tender prices. Mr.
    Gideon also gave evidence that he did not acquire any of the Toyota hilux referred to
    in the when the Corporation decided to tender the sale of the vehicles.

    John Ruimb also gave evidence that the vehicles were purchased as normal
    replacement vehicles from Credit Corporation for the Corporate Services Manager,
    Investment Manager and Fund Manager respectively. By 31St January 2002 when
    the
    retrenchment exercise at the Corporation became effective all those vehicles were
    locked away and the Board of the Corporation in September 2002 approved that
    they
    be sold through public tender.

    1 found that none of the management team of the Corporation was successful in the
    bid for all four vehicles.

    The following are records of the sale of the vehicles:
    Sale of VX Toyota Station Wagon, Registration Number BBF 717

    With respect to the tender of Toyota VX BBF 717, the Board in meeting number
    141/2002 held on the 30th August 2002, considered 6 short listed bidders from a
    total
    of 86 bidders after notice of public tender was made. There were two bidders who
    bided for the Toyota Land Cruiser; Leonard Tale and Tourism
    Promotion Authority. Those two bidders both bided which was the
    highest bid. The Board noted the recommendation that the vehicle Toyota Land
    Cruiser BBF 717 ?be sold to any of the short Zisted bidder ?rst to come up with the
    cash?. A copy of the board meeting minute 141/2002 is attached and marked as
    Exhibit ?98? in the Appendices to this report.

    There were two payments made by a Leonard Tale to purchase the Toyota Land
    Cruiser, BBF 717 for 150,000.00. The ?rst payment was the 10% deposit made by
    a Westpac bank cheque dated 3rd September for under cover letter dated
    2’1d September 2002 for which an of?cial receipt No 11419 was issued on 3rd
    September 2002:

    66

    The letter of 2nd September 2002 reads:?

  • Page 28 of 181

  • ?Dear Sir,
    RE: ICPNG TENDER TOYOTA VX (BLUE) 717

    Reference is made to my tender dated 26/06/02 in relation to the above motor
    vehicle.

    As per your telephone advise of today that the Board of ICPNG has accepted
    my above tender, attached herewith is a Bank Cheque for the amount of Fifteen
    Thousand Kina

    being 10% deposit on the accepted tender price.
    I shall arrange to pay the balance K135, 000?00 within 30 days.
    Please acknowledge receipt of this payment by way of a receipt or letter.

    Yours faith?dly,

    Leonard Tale?

    A copy of the letter referred above and the copy of the of?cial receipt issued by the
    Corporation is attached and marked as Exhibit ?99? in the Appendices to this report.

    A further payment of was received from Leonard Tale by another
    Westpac bank cheque dated 17th September 2002. An of?cial receipt from the
    Corporation numbered 11425 and dated 17th September 2002 was issued as receipt
    of
    the payment.
    The letter of 17th September 2002 reads:?

    ?Dear Sir,

    RE: ICPNG TENDER ACCEPTANCE TOYOTA VX (BLUE) BBF 717

    Further to my letter of 02/09/02 together with a bank cheque being 10%
    deposit,

    Attached herewith is another bank cheque being for further payment of
    as part payment of the remaining balance of 135,000?00.

    After this payment, A balance of 50, 000?00 remains to complete the purchase
    of the above vehicle.

    Please acknowledge receipt of this payment by way of a receipt or letter.

    Yours faith?tlly,

    67

    Leonard Tale?

  • Page 29 of 181

  • A copy of this letter referred to and a copy of the receipt issued by the Corporation is
    attached and marked as Exhibit ?100? in the Appendices to this report.

    From the PEIL Final Corporate Managers Report on the Corporation to IPBC dated
    May 2004, (a copy is marked and attached as Exhibit to the Appendices to this
    report) at page 6 I noted that:

    ?The Corporation disposed of its four (4) leased motor vehicles for a total
    consideration of during 2002 where proceeds of [080,000 was
    received. The balance of the proceeds of K5 0, 0000 was received in early 2003.
    The sale of these vehicles was approved by the ICPNG Board following Public
    Expressions oflnieresi in the local newspapers

    From the evidence before me, I ?nd that was received from Leonard
    Tale as part payment for the subject vehicle. But I have no evidence to verify if Mr.
    Tale in fact paid the balance of or not.

    There is no further record in this Commission?s possession to con?rm this
    uncertainty. Hence, the issue of whether or not Mr. Leonard Tale completed payment
    for the tender of Toyota VX BBF 717 is a grey area that remains unresolved.

    For purposes of con?rming if pr0per tender procedures were followed in the diSposal
    of this subject vehicle, I ?nd that the Board did approve the disposal of this vehicle
    for in its meeting number 141 142 of 2002. 1 also ?nd that public
    tender was called for the disposal of this vehicle of which Mr. Leonard Tale was the
    successful bidder who ?rst came up with the funds by way of a deposit to purchase
    the Toyota VX.

    I ?nd also that the amount approved by the Board was Within its ?nancial limit and
    there was no breach of public tender procedures under the PFM Act.

    Sale of 3 Units of Toyota Hilux

    The evidence from Mr. Ruimb, Transcript page number 412) show that the three
    units of Toyota Hilux were purchased sometime in 2001 as replacement ?eet and not
    in or around June 1999 as stated in the Those vehicles were sold through public
    tender with the Board?s approval sometime in September 2002.

    The three units of Toyota Hilux referred to are not speci?ed by classifying them
    under their registration numbers which made my task dif?cult, as there were a
    number of Toyota hilux vehicles comprising the Corporation?s ?eet which were sold
    through public tender as shown in the Board Meeting Minute 140/2002 held on the
    8th
    March 2002. A copy of this minute is attached and marked as Exhibit ?101? in the
    Appendices to this report.

    68

    The Board submission prepared by the Corporation?s Corporate Services dated 5th

  • Page 30 of 181

  • March 2002 and for purpose of this TOR, agenda item: 140/02/2(i) refers to the sale
    of
    Motor Vehicles.

    1.

    PURPOSE

    inform the Corporation?s Board on the progress of selling the
    motor vehicle fleet.

    BA CK GROUND

    The Corporation has a ?eet of eight (8) motor vehicles comprising:?
    a) One Toyota Landcruiser s/wagon

    b) Four Toyota Hilux 4wd utes

    c) One Toyota Hilux 2 wd ute

    d) One Toyota Carina Sedan

    e) One Toyota 15 seater bus

    The landcruiser and three (3) white hilux 4wd are currently under lease
    ?nancing with Credit Corporation at repayments of K18, 300.00 per
    month for the remainder of the term of twenty (20) months to June 2003.

    The rest of the vehicles are now owned by the Corporation having been
    bought through leasing arrangements with various financiers.

    STATUS

    The four (4) Corporation owned vehicles were valued and sold by tender
    to outgoing sta? of the CorporatiOn early this year. The maroon Toyota
    hilux 4wd ute was sold for K20, 000. The Carina sedan was to have been
    transferred to the new owner on 7?!1 February 2002 but was discovered
    missing from the Pacific Place carpark. The loss is now the subject of an
    insurance claim.

    The Toyota ute 2wd will be sold for K3, 000 while the bus is being
    transferred to the Fund for K9, 000.00. Market valuations are appended.

    Tenders were called for the four leased vehicles and the short listed bids
    form part of this paper for the Board?s deliberations.

    TENDER
    Tender notices were published in the two daily newspapers for three (3)

  • Page 31 of 181

  • days from 27fh February to 15: March. Fifty ?ve (5 5) bids were received of

    69

    which six (6) have been selected as genuine bids on the basis that the
    prices are close to the payout price quoted by Credit Corporation.

    As of this month, the payout price for the four vehicles will be
    broken down at landcruiser two hilux utes at
    K68, 000. 00 each and the last one at 72,000. 00.

    5. GENUINE BIDS

    Six bidders appear to be genuine are listed hereunder:?

    Mdej Landcruiser 1117M

    Sir Pato Kalcaraya K190, 000.00 K70, 000 each for all

    Amon Nelson K190, 000. 00 K70, 000 each for all

    Robert Enga 70, 000. 00

    Waimen Kwale 70, 000. 00

    Jim Kendi – K65, 000 each for two
    only

    Chris Kopyoto K65, 000 each for all

    6. RE OMMENDA I 0N

    That the Board note this paper and authorize the Corporate Manager to
    sell the four (4) leased motor vehicles at the best price obtainable to
    whoever that comes up with the ?nance first

    A copy of the submission is attached and marked as Exhibit ?107? in the Appendices
    to this report.

    The following may be the registration of the three Toyota Hilux utes referred tothe
    unavailability of records, I am unable to ascertain or con?rm information
    as to the registration of the vehicles or as to which persons the three Toyota utes
    were
    sold to, or if public tender procedures were observed. However in general, I have
    heard evidence from John Ruimb and Chris Gideon that the vehicles referred to in
    this TOR were sold through public tender with Board approval.

    70

  • Page 32 of 181

  • 4.5.9

    In the absence of any evidence to the contrary, I ?nd that proper public tender
    procedures were followed to in the sale of the three Toyota Hilux Utilities.

    Sale of Properties

    Whether there was any failure to comply with prescribed tender procedures in
    connection with

    Sale and disposal of properties including those commonly known as Sea
    Park Apartments, Credit House, Monian House and Ilirno Farm.

    The sale of properties and Ilimo are covered under Chapters 4.6 and 4.7 respectively
    of my Report.

    4.5.10 Other Cases of Tender Procedures not followed

    4. 5.1 0.1 The Engagement of Property Managers: Port Moresby First National Real

    Estate.

    By the time Mr Ruimb was re?appointed as Managing Director of the Corporation in
    August 1999, the Corporation had disposed of all its major investment properties
    while the Fund retained four (4) of its major properties.

    A Board submission dated September 2000 was prepared by the Deputy Managing
    Director regarding contracts on property management awarded to revealed
    that this real estate company was also contracted to manage other properties
    belonging to the Fund and the Corporation and that due process was not followed in
    most cases. The submission read as follows:-

    BACKGROUND

    As at the end of 1997, the Investment Corporation of Papua New Guinea
    (ICPNG) and the Investment Corporation Fund ofPapua New Guinea
    the Fund) owned the following commercial and residential investment
    properties either directly or through wholly owned subsidiary companies:

    a) Investment Corporation ofPapua New Guinea

    Property Description Owned By
    ANG House 12 Level O?ice Complex ICPNG
    (ii) Cascade Apts 6 Level 15 Unit Apts Cascade
    Apts

    Investment Hans 10 Level O?ice Complex ICPNG

    b) Investment Corporation Fund ofPapua New Guinea

  • Page 33 of 181

  • 71

    Property Description Owned By
    (2) Mana Matana Apts 12 Level Off Complex

    (ii) Paci?c Building O?ice Complex Nowra No.8 td

    Sea Park Apartments Residential Sea Park td

    (iv) Sunset Apartments Residential Sunset Apts

    Yandama Townhouses Residential Yandama dg
    Co.

    During the year 1998 and first half of 1999, all of the properties listed
    under above as owned by ICPNG were sold.

    Only one?) property listed under is owned directly by the Fund being
    Mana Matana Apartments, which was sold in April 2000.

    The Corporation has no major investment property in its portfolio now
    whilst the Fund has four (4) investment properties.

    PROPERTY MANA GEMEN CONTRA

    Prior to the sale of some properties, the property management contracts of
    all properties listed above under (1) were awarded to Port Moresby First
    National Real Estate Limited.

    The tendering procedure and selection appears highly questionable. All of
    the remaining commercial investment properties are managed by Pom
    First National Real Estate Limited. These prOperties are

    1. Pacific Building
    2. Sea Park Apartments
    3. Sunset Apartments

    4. Yandama Townhouses

    Pacific MMI and Sea Park Apartments have separate property
    management Agreements between the respective property owning
    subsidiary companies and Pom First National Real Estate Limited.

    The Agreements are for a term of three (3) years commencing in May
    1999. The ICPNG executed another Agreement on 26th May 1999 between
    itself and Porn First National Real Estate Limited in an e??ort to
    consolidate and strengthen the respective Agreements between the

    72

  • Page 34 of 181

  • respective property owning subsidiary companies and Pom First National
    Real Estate Limited.

    ICPNG was required under that Agreement to cause its subsidiaries to
    observe the terms of the Agreement as if they themselves had executed it.

    Sunset Apartments Limited and Yandama Trading Limited do not have
    separate property management Agreements as the other two mentioned
    above. They are not even specifically mentioned in the Agreement with
    ICPNG.

    There however, exists a one (1) page endorsement, which purports to give
    management rights to Pom First National Real Estate Limited.

    On the basis of that endorsement, Pom First National Real Estate Limited
    manages the two (2) properties.

    LEGAL AD VISE

    Following the change of Board and Management at I CPNG in September
    1999, a legal review of the contracts were sought from Blake Dawson
    Waldron Lawyers. Refer copy of Acting Managing Directors letter of 26th
    November attached herewith

    Blake Dawson Waldron Lawyers provided the review advise through their
    letter of 9m December 1999 to be tendered separately A copy of which
    is attached herewith.

    In summary, Blake Dawson Waldron Lawyers advise that:

    Property Management Contracts relating to pacific MMI Building
    and Sea Park Apartments may be legally binding.

    (ii) The endorsement for the Management of Yandama and Sunset
    Apartments is no; effective (void).

    There is therefore no Agreement in relation to the Management of Sunset and
    Yandama.

    CON CL USION

    The awarding of all property management contracts to only one property
    management company is without proper justifiable basis.

    The tendering procedure and selection remains questionable. The process

    appears to have been rushed and contracts executed prior to the eminent
    change of’Government in July 1999.

    73

  • Page 35 of 181

  • Whilst the review of the Agreements were undertaken in December 1999,
    Management opted to shelf his matter for a while in view of ongoing
    investigations and considering the high number of legal matters being run
    by I CPN at that time. The I CPN Board was advised accordingly.

    The Board at its meeting held on Wednesday 19th July 2000 resolved to
    consider the legal review on the property management contracts at its next
    meeting, hence this paper discusses the review.

    Since the contracts relating to Pacific Building and Sea Park
    Apartments may be legally binding, they should remain as is.

    However, legal advise is that the endorsement for the management of
    Sunset and Yandama is n_ot e??ective.

    ICPNG has two (2) options:

    Option 1 Advise Pom First National Real Estate Limited that the
    endorsement for the management of Sunset and Yandama is n_ot
    e?ective (void) and that there is no contract, hence they should
    cease providing property management services and vacate
    premises.

    Option 2Initiate legal proceedings to get the Court to declare the
    endorsement not e?ective (void) and that there is no contract.

    RE OMMENDA I 0N

    It is recommended that the Board consider and resolve to approve either
    of the above two (2) Optional course of action

    A copy of Board Submission dated 1St September 2000 is attached and marked as
    Exhibit ?102? in the Appendices to this report.

    In board meeting number 136/2000 held on the 8th September 2000 (Exhibit
    the Board noted that legal advise was obtained advising that the property
    management
    contract awarded to for the management of Sunset and Yandama
    Apartments were void and could be terminated. The Board then resolved to
    terminate
    the service of as the property manager from Yandama and Sunset
    Apartments.

    On the 1311? December 2001 the Board met again in meeting number 137/2000
    (Exhibit in which the minutes capture the following:

    ?13 7/00/3 Property Management Contracts

    Investment Manager presented the paper where he informed the Board that

  • Page 36 of 181

  • based on legal advise, Management has since mid November, 2000 terminated

    74

    the services of the contract property manager for the Fund?s four (4)
    properties. This function is now brought in?honse and Management is now
    recruiting a Building Manager for the Pacific MMI Building. The three (3)
    residential properties will continue to be managed

    Accordingly I ?nd that the following properties, prior to their disposal between 1998
    and 2000, were managed by

    Investment Haus 10 level of?ce complex
    ANG Haus 12 level of?ce complex
    Cascade Apartments 6 level unit apartments

    Mana Matana Apartments 12 level of?ce complex

    I have found that public tender procedures were not followed in awarding the
    management contract of these properties to

    The following investment preperties of the Fund were also managed by as
    evidenced from a Property Management Agreement.

    NIC Hans

    Sea Park Apartments
    Sunset Apartments

    Yandama Apartments

    On the 26th May 1990, the Corporation executed a Management Agreement with
    That agreement was for the management of Sea Park Apartments and NIC
    Haus for a term of three years respectively. The same agreement also had an
    endorsement for the agreement to cover Sunset Apartments and Yandama
    Apartments
    which was to be effective as of 15t of August 1999. However, there appears to be
    serious legal implications in regard to the applicability and the validity of the
    endorsement.

    No proper tender procedures were followed by the Management and Board of the
    Corporation in calling for public tenders and screening of bids for the management of
    the four (4) Fund properties.

    There is no record of a Board Submission recommending the engagement of
    There are also no Board minutes in relation to awarding of management
    contracts to I ?nd therefore that there was no Board approval for the
    engagement of

    ’75

  • Page 37 of 181

  • A copy of the Property Management Agreement referred to which was executed on
    the 26Lh May 1990 between and the Corporation is attached and marked as
    Exhibit ?103? in the Appendices to this report.

    On engagement of an amount of was paid as commission to
    for the purported sale of Ilimo. However, I have noted in my report on Ilimo that
    was not involved in the negotiation and there was no sale of llimo.
    Therefore I have found that the payment made to be improper and illegal. I
    recommend that the IPBC should persue recovery. For further details refer to
    Chapter
    4.7 of my Report.

    4. 5.10.2 The Engagement of Kincorp

    During the restructuring phase of the Corporation, the Board resolved to abolish the
    Finance and Personnel Administration Division and retrenched all staff in that
    division. The management and Board opted to outsource the Corporation?s
    accounting functions. This resulted in the idea of the forming of Kincorp. This was
    ?rst considered by the Board in meeting number 130/99 (Exhibit held on the
    18th March 1999. The Board made a resolution to refer the outsourcing of the
    accounting function as a matter for the sub-committee to consider with the intention
    to create a subsidiary company called Kincorp.

    The establishment of Kincorp was purposely to takeover the accounting functions
    of the Corporation and the Fund which was initially performed by the Corporation?s
    ?nance division.

    Kincorp commenced operations in May 1999 by subleasing of?ce space within the
    Corporation?s of?ce. The contracted cost of the outsourcing was per
    annum for three (3) years with the option to renew. The decision to outsource was
    considered sound in view of the annual cost of envisaged to be saved. A
    copy of the Board Submission containing the information paper on Kincorp dated
    22? June 1999 is attached and marked as Exhibit ?104? in the Appendices to this
    report.

    The report ?om PEIL Final Corporate Managers Report on the Corporation to IPBC
    dated in May 2004 (Exhibit at page 13) reports that:

    ?Kincorp was appointed by the Wandi Yamana management team in 1999
    to provide accounting services to the Corporation following the outsourcing of
    the in?house accounting ?mctions.

    The decision to outsource the ICPNG accounting ?mction was part of the
    Corporations? rationalization programme. However, the appointment of
    Kincorp Limited was not done through the normal public tender as required.

    Mr. Fred Angoman, former Financial Controller for ICPNG, prepared and
    submitted a submission to the Board in its meeting No 13 0/99 seeking approval
    to establish Kincorp Limited to provide accounting services to ICPNG.

  • Page 38 of 181

  • 76

    The company was set and the shareholders of the company were and are as

    follow:

    Shareholder #Shares Held
    Fred Angoman

    Associates 35, 000 35%
    Philip Eludeme 35,000 35%
    Wandi Yamuna 29,999 29%

    I CPN 1

    100, 000 100%

    A company search at IPA showed that ICPNG holds only I share in Kincorp

    In the late 1999, the Corporation ?5 board reviewed the appointment and
    decided to terminate it and appointed Price Waterhouse Coopers to provide the
    service.

    The termination ofKincorp was on the basis that the manner in which it was set
    was improper and illegal. In fact the former managing Director, Mr. Wandi
    Yamuna had arranged to incorporate Kincorp and executed a 3 year contract to
    provide accounting services for ICPNG for a total contract value of
    K975, 000.00. This was done without the Board and Ministerial approvals.

    Kincorp then instituted Court action against the Corporation for its termination
    claiming Klmillion in damages.

    The case went to trial in 2002 and the National Court dismissed it. Plainti? has
    appealed the decision to the Supreme Court and the high Court is yet to make
    its ruling.

    The appeal, however was dismissed by the Court on 29th April 2004 on grounds
    of failure to obtain the Section 61 approval under the Public Finance
    Management Act and that the advertisement for tender was a sham.

    It is interesting to observe that the Corporation had only 1% shareholding in Kincorp
    while 99% was held by private individuals. Evidence was given by Mr. Fred

  • Page 39 of 181

  • Angoman on the 7th November 2006 that Mr.Wandi Yamuna held shares on behalf
    of
    the Corporation in trust and that trust instruments were drawn and executed.
    Mr.Yamuna also gave evidence that he held shares in trust for the Corporation and

    77

    that he had signed instruments (Transcript page 1011). However, I have not found
    documentary evidence of the trust instruments to support the evidence of Mr.
    Yamuna and Mr. Angoman.

    The engagement of Kincorp was terminated ahnost three (3) months after it was set
    up when there was a change in the management with John Ruimb as the new acting
    Managing Director. The termination of Kincorp was primarily based on the ground
    that the three principals of Kincorp Ltd: Fred Angoman; Mr Yamuna; and Philip
    Eludeme were non?registered practicing public accountants at the time as required
    under the Accountants Registration Act of PNG.

    Thereafter, the Board in meeting number 132/99 held on the 28’11 October 1999
    (Exhibit noted the termination of Kincorp?s services and resolved to accept the
    management?s recommendation to award the Accountancy Support Services Tender

    to Pricewaterhouse Coopers for an initial term of twelve (12) months from
    November 1999, for a fee of K187, 000.00.

    The engagement of Kincorp was for a three year period and for an annual retainer
    fee of K305, 000.00 bringing the value of that contract in excess of 900,000.00.
    This amount was beyond the Board?s approval limit under section 61 of the PFM Act
    and therefore required mandatory approval from the Minister. The Board overlooked
    this aSpect and consequently no ministerial approval was obtained prior to Kincorp?
    s
    engagement.

    I therefore find that proper tender procedures were not followed in the engagement
    of
    Kincorp and as such the engagement was improper and unlawful. There was also no
    ministerial approval. The engagement of Kincorp was in all the circumstances
    unlawful and imprOper.

    I have reviewed accounting work performed by Kincorp under Chapter 6.2 of my
    report. Refer to this section for further details.

    4.5.11 Summary of Findings in respect of Terms of Reference 1(e)

    I I would like to point out that of?cial records of the Corporation were not fully
    available to assist me to fully address and make ?ndings on some of the TOR
    under This was attributed by the fact that some of the records
    summonsed by this Commission of Inquiry were not legible or were not
    properly kept to be presented to the Commission.

  • Page 40 of 181

  • Consequently, I ?nd that the management of the Corporation?s failure to cause
    to keep proper records breaches section 62(1) of the PFM Act, which among
    other things provides that: .. a public body or a subsidiary corporation to
    which this Act applies shall cause to be kept proper accounts and records of
    its transactions and

    78

    The members of the Corporation?s Board of Directors under the management
    of both Wandi Yamuna and John Ruimb were not strictly appointed following
    the criteria set out under section 12 of the Act, hence the composition of
    directors on the Board was unlawful.

    The Board and Management under Mr Yamuna failed to exercise prudent
    management practice in the disposal of assets and engagement of services.
    There was failure to observe the general policy under section 10(1) of the Act
    to ensure that performance of functions of the Corporation were in
    accordance with sound business principles which included the strict
    compliance of tender procedures under the PFM Act and the Corporation?s

    Accounting Policies and Procedures Manual.

    In general I ?nd that tender procedures were followed during the term of John
    Ruimb apart from the payment of 700,755.00 to the Bank of Papua New
    Guinea which was not approved by the Treasury Minister.

    The IPBC consider engaging experienced professionals such as lawyers to
    investigate and take recovery action to recover the properties that were sold
    unlawfully.

    IPBC take action against Mr Yamuna and recover the fees paid to

    79

    4.6

    Sale of Properties

    4.6.1 Introduction

    This section of my report considers 1(e) (V) where I am obligated to inquire into
    and report on whether there was any failure to comply with prescribed tender
    procedures in connection with the sale and disposal of prOperties between 1998 and
    2002, including those commonly known as Sea Park Apartments, Credit Haus (AN
    Hans), Monian Haus (Monian Tower) and Ilimo Farm.

    The sale of Ilimo farm has been considered under Chapter 4.7 of my report.

    It would appear that reference to Credit Haus relates to AN Haus. Monian Haus
    refers to Monian Tower in downtown Port Moresby and was previously called

  • Page 41 of 181

  • Invesmen Haus when the Corporation was the owner.

    As at the beginning of 1998 the Corporation either directly or through its wholly
    owned subsidiaries owned four commercial properties. These properties were all
    located in or within the surrounds of the Port Moresby central business district. By 31
    December 2002 these properties were all sold except for the old Papua Hotel land.

    The Corporation also owned institutional houses. As at the beginning of 1998 the
    Corporation owned institutional housing comprising about 20 houses and 6
    duplexes.
    It appears that most of these properties were disposed to staff under the
    Corporations
    Home Ownership Scheme (HOS) by 31 December 2002.

    The Fund on the other hand owned no institutional houses. As at the beginning of
    1998 the Fund owned either directly or through its wholly owned subsidiaries a total
    of five commercial properties. By 31 December 2002 all Fund properties were sold
    except for Yandama Apartments.

    This section of my report considers the manner in which the prOperties of the
    Corporation and Fund were disposed in the period 1 January 1998 to 31 December
    2002 as required by 1(e) (V).

    In particular I consider a number of key issues as follows:?

    I Whether there was any professional advice sought in respect of the disposal of
    a property?

    Was adequate assessment of the decision to dispose made?
    I Was an open and transparent tender procedure applied?
    . Was there adequate disclosure of professional advice, management

    assessment of the decision to dispose, and were tender results disclosed to the
    Board of the Corporation for their assessment?

    80

    I Was Board approval for the sale obtained?

    I Was PFM Act approval obtained?

    I Was the price offered re?ective of the market?
    I Was the proceeds from the sale received?

    I Did the Board of the Corporation properly discharge its responsibilities and
    ?duciary duty? Was there any lack of ?good faith??

    I Was there any indication of conflict of interest?
    I Did any entity or person breach any regulations?

  • Page 42 of 181

  • 4.6.2 Commercial Properties

    4. 6.2.1 The Corporation ?5 Commercial Properties

    According to the records available to me as at the beginning of 1998 the Corporation
    had the following commercial properties:-

    I Cascade Apartments on Port Road, Port Moresby. Cascade Apartments was
    owned by the Corporation?s wholly owned subsidiary, Cascade Apartments
    Limited

    I ANG Haus on the corner of Douglas and Hunter Street, Port Moresby
    described as Section 8 Allotment 8 Granville.

    I Invesrnen Haus on Douglas Street, Port Moresby described as Section 3
    Allotment 4 Granville

    I Old Papua Hotel land located opposite former Port Moresby on the
    corner of Douglas and Musgrave Street consists of a number of allotments.

    By 31 December 2002 all the above properties were sold except for the old Papua
    Hotel land.

    There were a number of attempts made in the period covered by the to sell the
    Old Papua Hotel land. The records available to me indicate that the prospective
    buyers did not meet the price sought by the Corporation. The Old Papua Hotel land
    is
    as of today still owned by the Corporation. Given that this property has not been sold
    it is not worth the effort to investigate into the attempted sales.

    What follows is a review and assessment of properties that have been sold

    concentrating mainly on the important questions raised earlier in the introductory
    section of this report.

    81

    Cascade Apartments Ptj/ Limited

    Cascade Apartments is a ?ve storey building housing ten three bedroom units
    situated
    on Allotment 17 Section 18, Port Road Granville, Port Moresby. According to the
    copy of titles obtained from the Department of Lands Physical Planning, the land
    was granted to Cascade Apartments Limited under a 99 year lease in August 1981.
    A
    00py of the title of this property is attached and marked as Exhibit ?108? in the
    Appendices to this report.

    According to the property pro?le maintained by the Corporation, Cascade
    Apartments was recorded at a cost of A valuation by The

  • Page 43 of 181

  • Professionals in June 1996 placed the value of the property at The
    historical performance of the property is not pleasing where pro?ts for the years
    1992
    to 1996 was below 20% of gross income. The reason for the poor returns appears to
    be high upkeep and maintenance costs and low tenancy rates. A copy of the
    property
    pro?le of Cascade Apartments is attached and marked as Exhibit ?109? in the
    Appendices to this report.

    The records available to me indicate that the Board and management were
    contemplating the sale of the property as opposed to the sale of the company. The
    records available to me do not show the approval of the Board of the change.

    It is not clear from the records available to me the basis for the decision to sell
    Cascade Apartments. The only record available to me is a memo dated 11 March
    1998 from Mr Fred Angoman (Financial Controller) to Mr Yamuna setting out his
    concerns and assessment of the cash generated from the properties. In his memo
    Mr
    Angoman recommended for the Investment Division of the Corporation to evaluate
    the prOpeities and based on this produce a Board paper for the meeting which was
    scheduled on 25 March 1998. A copy of Mr Angoman?s memo is attached and
    marked as Exhibit ?110? in the Appendices to this report.

    A handwritten note on the memo, believed to have been authored by Mr Yamuna,
    indicates that the Investment Manager was tasked to consider the memo of Mr
    Angoman.

    At Board meeting number 126 held on 25 March 1998 the Investment Division
    prepared a Board submission for the Board to consider an offer of purchase of the
    Cascade Apartments by Lease Rite Real Estate Limited for a sum of K1, 810,000.00.
    Lease Rite Real Estate Limited appears to be owned by Mr Johnson Tia, a
    businessman from Tari in the Southern Highlands Province. The letter of offer dated
    16 December 1997 addressed to Mr Ruimb attached to the Board paper indicates
    that
    Lease Rite Real Estate Limited had earlier made an offer of which Mr
    Ruimb declined.

    82

    The Board paper indicated the following:-

    I The property was performing poorly due to high operational costs and low
    tenancy. It appears that only in 1997, tenancy improved after improvements
    in services such as security services, standby generator and reserve water.

    I The offer of was below the valuation of
    On the basis of earnings the management attributed a value of

    I The Investment Division considered that the offer was reasonable and given

  • Page 44 of 181

  • the poor performance of the property recommended the Board sell the
    property at a price of and above to interested parties including
    Lease Rite Real Estate Limited.

    A copy of the Board paper is attached and marked as Exhibit ?111? in the
    Appendices to this report.

    The minutes of the Board meeting of 25 March 1998 record that the Board resolved
    to sell the Cascade Apartments at or above through public tender. A
    copy of the Board Minutes is attached and marked as Exhibit ?112? in the
    Appendices to this report.

    On 30 March 1998 the Investment Analyst wrote a memo to Mr Yamuna seeking
    approval to obtain quotes for valuation of all properties identi?ed for sale in the
    Board meeting of 25 March 1998. A hand written note dated 8 April 1998 on the
    memo believed to be penned by Mr Yamuna, reminded the Investment Manager not
    to drag on and to proceed with sale of the properties. A copy of the memo is attached
    and marked as Exhibit ?113? in the Appendices to this report.

    A valuation of the properties identi?ed for sale was never conducted. In my view the
    increase in the property prices in Port Moresby require that fresh valuations were
    necessary. Instead, it appears that on Mr Yamuna?s directions the valuation of June
    1996 was relied on to assess the offers made. Mr Yamuna?s action was imprudent
    and not in the interest of the Corporation and Fund.

    On 1 April 1998 Mr Yamuna sought Ministerial approval for the sale of Cascade
    Apartments, Invesmen Haus and ANG Haus via two page letter to the Honourable
    Iaro Lasaro, Minister for Treasury. A cepy of the letter is attached and marked as
    Exhibit ?114? in the Appendices to this report.

    Mr Yamuna gave the following reasons for the sale of these properties:-
    I Low returns and high maintenance costs and further upkeep costs required due

    to old age and competition from the NPF Tower (Deloitte Tower) which was
    under construction.

    83

    . The need to add liquidity and to venture into more pro?table investments.
    I Plan to pay dividend to the State in 1998.

    In my View the information set out in the letter to the Minister was de?cient and
    inappropriate for an informed decision. A proper submission would have included a
    detailed analysis of the performance of the properties, copies of recent valuations,
    analysis of expected major repair and upkeep costs, and a detailed submission
    setting
    out the speci?c pro?table investments the Corporation was considering from the
    proceeds of the property sales.

    The Department of Treasury ?les available to me indicate that no prOper

  • Page 45 of 181

  • assessment
    by the Commercial Investments Division of the Department of Treasury was done
    nor
    is there any evidence of receipt of Mr Yamuna?s letter. There are also no records of
    Ministerial approval for the sale of Cascade Apartments, Invesmen Hans and ANG
    Haus. I ?nd that the Board and management especially Mr Yamuna acted improperly
    in this respect.

    On 4 May 1998, Mr Maurice Sullivan of Port Moresby First National Real Estate
    Limited wrote to Mr Gerald Senapili of the Corporation thanking the
    Corporation for appointment as sole agents for the disposal of the
    Corporation?s properties. A copy of Mr Sullivan?s letter is attached and marked as
    Exhibit ?115? in the Appendices to this report. According to the records available to
    me, invitations for sole agency were also made to Century 21 Real Estate and The
    Professionals.

    The signed sole agency agreement dated 7 May 1998 indicates that a sale
    commission
    of 2% was agreed between and the Corporation. A copy of the signed
    agency agreement is attached and marked as Exhibit ?116? in the Appendices to
    this
    report.

    According to the records available to me, it appears that the sale of Cascade
    Apartments, lnvesmen Hans and ANG Haus were advertised in the two daily
    newspapers. A copy of the advertisement in the Post Courier dated 1 June 1998 is
    attached and marked as Exhibit ?117? in the Appendices to this report.

    On 10 June 1998, in response to the newspaper advertisements, Mr Tia of Lease
    Rite
    Real Estate wrote to Mr Yamuna expressing an offer of K1.8 million for Cascade
    Apartments. A copy of Mr Tia?s letter is attached and marked as Exhibit ?118? in the
    Appendices to this report.

    On 12 June 1998, the tenders for the properties were opened and considered by the
    Board of the Corporation. It is not clear whether strict administration of the tender

    was followed.

    The minutes of the Board meeting of 12 June 1998 record that in respect of Cascade
    Apartments, Balimore Pty Limited offered the highest at K2025 million. The next

    84

    was Sek no. 35 Pty Limited with K138 million followed by Constatinou Group with
    K1046 million. The Board resolved to accept the tender by Balimore Pty Limited
    (Exhibit 61).

    On 18 June 1998, Mr Sinepali wrote to informing of the results of the
    tender and the decision of the Board and directed to inform the prospective

  • Page 46 of 181

  • buyers of the Board?s decision. A copy of Mr Sinepali?s letter is attached and
    marked
    as Exhibit ?119? in the Appendices to this report.

    On 19 June 1998, having received notice of success of its tender, Mr Garth
    of Balimore Pty limited wrote to informing inability to proceed with the
    purchase. A copy of Mr letter is attached and marked as Exhibit ?120?
    in the Appendices to this report.

    On 29 June 1998, Balimore Pty Limited made a revised offer of K1.4 million. This
    was refused by the Corporation. On 7 July 1998, a circulation resolution of the Board
    was arranged for Cascade Apartments to be sold to the next highest bidder, Lease
    Rite Real Estate Limited. A copy of the circular resolution and the covering letter
    written to the Chairman of the Board of the Corporation is attached and marked as
    Exhibit ?121? in the Appendices to this report.

    On 13 July 1998, Mr Tia was informed by Mr Yamuna of the Corporation?s
    acceptance of Lease Rite Real Estate?s tender. A copy of Mr Yamuna?s letter is
    attached and marked as Exhibit ?122? in the Appendices to this report.

    Following instructions from Mr Yamuna, on 23 July 1998 Mr Senapili wrote to Mai
    Lawyers to undertake all legal requirements for the transfer of the property. A copy
    of Mr Senapili?s letter is attached and marked as Exhibit ?123? in the Appendices to
    this report. The records available to me indicate that no tenders were sought in
    respect of the engagement of Mai Lawyers. It also appears that the terms, including
    fees for the engagement of Mai Lawyers was not agreed.

    A letter dated 28 July 1998 from Mr Tia to Mr Yamuna indicates that Mr Yamuna
    and Mr Tia had discussed the change from the sale of the property to that of the sale
    of the company, Cascade Apartments Limited. A copy of Mr Tia?s letter is attached
    and marked as Exhibit ?124? in the Appendices to this report.

    This arrangement took effect leading to Mai Lawyers preparing a contract of sale of
    shares from the Corporation to Mr Tia.

    On 17 August 1998, the Corporation and Mr Tia signed the contract of sale of
    shares.
    Mr Yamuna signed on behalf of the Corporation. On the same day Mr Yamuna and
    Mr Tia signed a deed of indemnity between the Corporation and Mr Tia which
    indemni?ed Mr Tia for a period of one year after the completion of the contract of
    sale of shares against all liabilities and claims. A copy of the contract of sale of
    shares and deed of indemnity is attached and marked as Exhibit ?125? and ?126?
    respectively in the Appendices to this report respectively.

    85

    The purchase price according to the signed agreement indicates an amount of K928,
    625 representing issued shares of 143,750 at a price per share of K645.86. The
    records available to me show that there were no subsequent adjustments to the
    contract to re?ect the agreed amount of The contract of sale is silent

  • Page 47 of 181

  • on the difference.

    A stamp duty of was paid to the Internal Revenue Commission on 17
    August 1998 representing 1% of the agreed purchase price. A copy of the cheque
    paid to the IRC and supporting letter is attached and marked as Exhibit ?127? in the
    Appendices to this report. Correspondence from Mai Lawyers indicates that the
    share
    transfer form furnished to the IRC contained the purchase price of on
    which the stamp duty was assessed.

    It is not clear whether a due diligence was carried out by the purchaser. The latest
    audited ?nancial statement at the time of the sale appears to be that for the year
    ended
    31 December 2005. Given that an indemnity was issued by the Corporation it would
    have been prudent to have the accounts audited to the time of sale and the quantum
    of
    liabilities determined.

    The audited ?nancial statements for the year ended 31 December 1997 recorded net
    assets of The major asset was Cascade Apartments which was recorded at
    Its major liabilities were the loans received from the Corporation.

    The sale of company and sale of property are two different matters and would have
    required the Board?s approval for the change. There is no evidence that such
    approval was obtained.

    Mr Yamuna and the management of the Corporation failed to carry out the duties
    required of them where the following occurred:-

    Board approval was not sought for the change in the item sold from that of the
    property, Cascade Apartments to shares in Cascade Apartments Limited.

    I An indemnity was issued to the purchaser without any assessment of the
    quantum of liabilities of Cascade Apartments Limited.

    I The contract of sale was de?cient in that the correct purchase price of
    was not recorded.

    On 31 August 1998 sent its invoice for sales commission of 141.37.080.00 to
    Mai Lawyers representing 2% plus sales tax of A copy of the invoice is attached
    and marked as Exhibit ?128? in the Appendices to this report.

    On 8 September 1998 Mai Lawyers raised an invoice for the sum of for

    the engagement. A copy of Mai Lawyers invoice is attached and marked as Exhibit
    ?129? in the Appendices to this report.

    86

    On 8 September 1998 a Bank of South Paci?c bank cheque for the sum of

  • Page 48 of 181

  • was paid to Mai Lawyers Trust Account representing the balance of
    the purchase price. A copy of the bank cheque is attached and marked as Exhibit
    ?130? in the Appendices to this report.

    On 8 September 1998 settlement occurred. The proceeds of the was
    disbursed as follows:?

    Investment Corporation 1,528,041.23
    Mai Lawyers 93,850.00
    Lease Rite Real Estate Limited 41,028.77
    37,080.00
    Balanced withheld for completion costs 100 000.00
    Total 1 800 000.00

    On 9 September 1998 Mai Lawyers wrote to Mr Yamuna informing of the settlement
    and the disbursement of the proceeds. It appears that the disbursements to external
    parties was completed via bank cheques. The Corporation?s cheque of
    was paid through ANZ Port Moresby Bank cheque on 9 September 1998. A copy of
    Mr Mai?s letter including the copies of the bank cheque raised is attached and
    marked
    as Exhibit ?131? in the Appendices to this report.

    On 11 September 1998 at the Board meeting of the Corporation the management
    presented a Board paper on the status of the sale of the commercial properties. It
    was
    reported in the paper that Cascade Apartments was sold to Mr Tia through the
    transfer
    of shares for the sum of A copy of the Board paper is attached and
    marked as Exhibit ?132? in the Appendices to this report. The minutes of this
    meeting record that the Board took note of the Board paper (Exhibit

    I am unable to determine from the records available how the withheld

    by Mai Lawyers was utilised. I recommend that the IPBC should investigate the

    On 28 December 2000, just over two years later Cascade Apartments was sold to
    Kwila Insurance Corporation Limited for a sum of A copy of the
    transfer is attached and marked as Exhibit ?133? in the Appendices to this report.

    Invesmen Haas

    Invesmen Haus is a nine storey of?ce complex situated on Allotment 4 Section 3,
    Douglas Street Granville, Port Moresby.

    87

  • Page 49 of 181

  • According to the property pro?le produced by the Corporation, Invesmen Haus was
    recorded in the accounts at a cost of A valuation by The
    Professionals in June 1996 placed the value of the property at The
    historical performance of Invesmen Haus compared to the other pr0perties of the
    Corporation is pleasing where the pro?t for the years 1992 to 1996 were more than
    40% of gross income and occupancy was at the 80 to 90% level. The Management
    assessed this property as a very good investment and recommended that the
    Corporation retain the property. A copy of the property pro?le of Invesmen Haus is
    attached and marked as Exhibit ?134? in the Appendices to this report.

    Again it is not clear from the records available to me the basis for the decision to sell
    the ANG Haus except for Mr Angoman?s memo of 11 March 1998 to Mr Yamuna
    concerning the poor cash ?ow generated from the properties (Exhibit The
    sworn statement of Mr Pokarop for the Suba Mawa investigation indicates that Mr
    Yamuna initiated the sale. A copy of Mr Pokarop?s statement is attached and
    marked
    as Exhibit ?135? in the Appendices to this report.

    It appears that Mr Ruimb was looking to sell the Invesmen Haus in 1997. Two letters
    from Ray White Real Estate dated 17 and 20 November 1997 addressed to Mr
    Ruimb
    indicates that Monian Holdings Limited had made an offer of K65 million for the
    Invesmen Hans. A c0py of the two letters are attached and marked as Exhibits ?
    136?
    and ?137? in the Appendices to this report respectively.

    It appears that Ray White was persistent in its offer until on 16 March 1998 a letter
    refusing the offer was sent by Mr Yamuna. A copy of this letter is attached and
    marked as Exhibit ?138? in the Appendices to this report.

    At Board meeting number 126 held on 25 March 1998 the Investment Division
    presented a Board paper for the Board to consider the sales of the Invesmen Hans
    and
    ANG Haus.

    In respect of the Invesmen Haus there were no credible arguments presented by the
    management for the prOperty to be sold. The Board paper presented contained
    information which revealed that the property was in a very good condition with high
    tenancy and very pro?table. The only reason given was that the Corporation needed
    to divest its prOperty investment and use the proceeds to invest in other good
    investment opportunities. The board papers did not contain any information as to
    what these more pro?table investments were, nor were there speci?c details as to
    the
    application of the proceeds of the sale of the properties.

    The investment division?s recommendation was that the Board approve the sale of
    the
    properties at no less than the prevailing market valuations.

  • Page 50 of 181

  • A copy of the Board paper is attached and marked as Exhibit ?139? in the
    Appendices to this report.

    88

    The minutes of the Board meeting of 25 March 1998 record that the Board resolved
    as the Investment Division recommended (Exhibit

    On 30 March 1998 the Investment Division sought Mr Yarnuna?s approval to obtain
    quotation for the valuation of the properties designated for di5posal (Exhibit

    According to the records available to me, it appears that no valuation of Invesmen
    Haus was carried. For the reason stated earlier, in my View fresh valuations of the
    property were necessary. Instead, it appears that on Mr Yamuna?s directions the
    valuation of June 1996 was utilised to asses the offers made. Mr Yamuna?s action
    was highly imprudent and not in the interest of the Corporation and Fund.

    As set out earlier, Ministerial approval for the sale of Cascade Apartments, Invesmen
    Haus and AN Haus was sought at the same time through Mr Yamuna?s two page
    letter dated 1 April 1998 (Exhibit The de?ciency in the information
    provided to the Minister for Section 61 approval and the failure in seeking that
    approval has been documented in my assessment of the sale of Cascade
    Apartment.

    On 7 May 1998 a sole agency agreement for the sale of the Invesmen Haus was
    also
    signed between the Corporation and for a commission of 2% of the gross
    sales price. A copy of the Agency agreement is attached and marked as Exhibit
    ?140? in the Appendices to this report.

    On 29 May 1998, Mr Taru communicated his concerns to Mr Yamuna through a
    memo pointing out the urgent need for review of the cost structure of the Corporation
    as the sale of the properties, especially Invesmen Haus would result in cash
    de?ciency of This memo is indicative of the adhoc, unplanned and
    unilateral manner in which the Management of the Corporation was conducted under
    the stewardship of Sir Dennis Young and Mr Yamuna. A copy of Mr Taru?s memo
    is attached and marked as Exhibit ?141? in the Appendices to this report.

    The public tender for the sale of Invesmen Haus was published in the daily
    newspapers on 1 June 1998 along with Cascade Apartments, ANG Hans, and the
    old
    Papua Hotel site land (Exhibit

    At the 12 June 1998 Board meeting, the Management reported that Credit
    Corporation and Monian Group were the only bidders with an offer of K5.025 million
    and K605 million respectively. The minutes of this meeting indicate that the Board
    resolved to refuse both tenders and directed Management to ask the bidders to
    increase the bid to at least K65 million (Exhibit

    were informed of the Board?s decision on 18 June 1998 to take appropriate

  • Page 51 of 181

  • action (Exhibit

    On 23 June 1998, wrote to the Corporation upon receipt of a letter from

    Monian Group increasing their offer to K655 million. In the same letter PMFNE
    informed that Credit Corporation would not increase its bid. A copy of

    89

    letter and Monian Group?s letter is attached and marked as Exhibit ?142? in the
    Appendices to this report.

    On 24 July 1998, the Corporation and the purchaser, Nusaum Holdings Limited
    signed the contract for the sale of Invesmen Haus for a sum of Mr
    Yamuna signed on behalf of the Corporation. A copy of the contract of sale is
    attached and marked as Exhibit ?143? in the Appendices to this report.

    On 31 July 1998 a court order was obtained by the Papua Club (who were located
    on
    the 9th floor of the Invesmen Haus) restraining the Corporation from proceeding with
    the sale of Invesmen Haus. A copy of the court order and related documents are
    attached and marked as Exhibit ?144? in the Appendices to this report.

    According to the records available to me, the Papua Club owned the land on which
    the Invesmen Hans was built. As part of the sale agreement the Corporation agreed
    to
    lease the entire 9th ?oor to the Papua Club at nil rental. As to legal proceedings that
    ensued, they fall beyond the scope of my investigations. Nonetheless, the settlement
    of the sale proceeded.

    On the same day the court order was obtained, settlement occurred. According to
    the
    settlement statement, after allowing for rental bonds of Kl36,080.32, Eda Ranu bills
    of and payment to carter Newell Trust account of an amount of
    and purchasers allowance of for land rentals paid, the
    Corporation would have been paid an amount of A copy of the
    settlement statement is attached and marked as Exhibit ?145? in the Appendices to
    this report.

    On the day of settlement, an ANZ Bank cheque for the sum of was
    raised in favour of the Corporation, and an AGC Paci?c Limited cheque for the sum
    of was raised in favour of the Fund. Copies of the cheques are
    attached and marked as Exhibit ?146? in the Appendices to this report.

    The two cheques with a combined value of were deposited on the
    same day into the Corporations? bank account number 600226 held at the
    Port Moresby branch. A copy of the bank statements showing the deposit is attached
    and marked as Exhibit ?147? to the Appendices to this report. The shortfall in the
    amounts paid to the Corporation was the deposit of

  • Page 52 of 181

  • The deposit plus the withheld by Carter Newell were in the control of
    Carter Newell. Though the records of Carter Newell were summonsed through its
    successor ?rm Paci?c Legal Group, the ?les were not furnished.

    On the basis of the agency agreement, PMFN RE would have been paid
    from? the monies withheld by Carter Newell. A letter from Carter Newell to the
    Corporation dated 28 July 1998 indicates that Carter Newell?s fees would not
    exceed
    On the basis of this information, after allowing for the sale commission
    and legal fees, was required to be paid to the Corporation. A copy of the

    90

    Carter Newell?s letter dated 28 July 1998 setting out their estimated fees is attached
    and marked as Exhibit ?148? in the Appendices to this report.

    On 21 August 1998 Mr Yamuna wrote to Carter Newell approving the payment of
    their fees from the funds held in trust and for the balance of funds to be paid to the
    Corporation. A copy of Mr Yamuna?s letter is attached and marked as Exhibit ?149?
    in the Appendices to this report.

    The Board was informed of the sale of Invesmen Hans for the sum of
    on 11 September 1998 (Exhibit –

    I am unable to determine whether or not the deposit of K65 5,000 and the
    withheld by Carter Newell Lawyers were received by the Corporation. 1 recommend
    that the IPBC should liaise with Paci?c Legal Group to ascertain the position on
    these
    funds.

    In conclusion, while it appears that proper tender procedures were followed in the
    sale of lnvesmen Haus, there were a number of failures and breaches on the part of
    the management and Board of the Corporation as follows:?

    I A recent valuation of the property was necessary. The Board and
    management failed to obtain fresh valuation. As a result it is not clear
    whether the amount received was a fair consideration on the property.

    . The sale of the Invesmen Haus was carried out without any proper investment
    analysis.

    I Section 61 of the PFM Act was breached because no Ministerial approval was
    obtained for the sale of the Invesmen Hans.

    ANG Hans

    ANG Haus is the twelve storey of?ce complex situated at the corner of Hunter and
    McGregor Street, Port Moresby. ANG Haus was the ?rst high rise building built in
    the city of Port Moresby. According to the title of this property, the Corporation
    purchase it in 1979. By 1997 it was 27 years old. A copy of the title is attached and

  • Page 53 of 181

  • marked as Exhibit ?150? in the Appendices to this report.

    Expressions of interest to purchase the ANG Haus were received by the Corporation
    in 1997 during the management of Mr Ruimb. Mr Ruimb rejected the offers on the
    basis that none of the prospective buyers offered a price equal to or over the value of
    101,377,000 determined by The Professionals in October 1996.

    Again it is not clear from the records available to me the basis for the decision to sell

    ANG Haus except for Mr Angoman?s memo of 11 March 1998 to Mr Yamuna
    (Exhibit ?110?) concerning the poor cash flow generated from the properties.

    91

    In the Board paper presented by the Investment Division at the 126th Board meeting
    on 25 March 1998, the historical performance of the ANG Haus for the last ?ve years
    was very poor with expenses accounting for over 70% of the gross income (Exhibit
    The Board, as I have noted, along with Cascade Apartments and Invesmen
    Haus, resolved to sell the ANG Haus at a price no less than market value (Exhibit

    Internal workings of the Corporation indicate that the value of AN Haus on an
    earnings basis was not more than Kl million. A copy of the working is attached and
    marked as Exhibit ?151? to the Appendices to. this report.

    As with the sale of Cascade Apartments and Invesmen Haus, a sole agency
    agreement
    was signed between and the Corporation on 7 May 1998 for the sale of the
    ANG Haus.

    At the 12 June 1998 Board meeting, the management reported that no tenders were
    received for ANG Haus (Exhibit

    On 27 July 1998, wrote to Mr Yamuna informing that one of their clients
    who had earlier offered K27 million had increased the offer to K3 million following
    the rejection of the ?rst offer. A copy of the letter is attached and marked as Exhibit
    ?152? in the Appendices to this report.

    A handwritten note on the letter from believed to have been authored by
    Mr Yamuna expressed that the offer of K3 million should be accepted to develop
    stage II of the NIC Haus. That is the land between the Paci?c MMI Building and
    Port Moresby Fire Station.

    The disposal of AN Haus at a time when high interest rates were prevalent, and the
    position of the Corporation then meant serious ?nancial rami?cations. This was
    again brought to the attention of Mr Yamuna by Mr Taru in a memo dated 13 August
    1998. Mr Taru?s memo is worth noting and is as follows:-

    ?Reference is made to a letterfrom Port Moreshy First National Real Estate
    Pty dated 29 July 1998justi?/ing an o?er from a client to purchase the

  • Page 54 of 181

  • ANG Hausfor K3 million.

    Wilst you may have your own views, I am strongly of the view that we should
    not dispose of this property for the time being because of the following

    reasons.??

    1. the management has not made any de?nite decision to move to an
    alternative o?ice accommodation;

    2. it is very expensive or costly to put up an o?ice building at this time
    because of the very high interest rates;

    92

    3. the will spend about K2 70, 000 per year in rental if it is to look for
    the similar office space. This is the average rentals it is forgoing per year
    for occupying AN Haus;

    4. high risk of getting locked out from rented premises for non?payment of
    rentals thereby disrupting services to shareholders; and,

    5. a ball park valuation using the annual rental income from ANG Haus of
    and capitalised by gross and net capitalisation rates of 15%
    and 12% respectively gives a value of:?

    a) K4, 389,907
    b) K5, 487,383
    Conclusion

    It is my considered view that the ICPNG defer considering any o?ers for the
    time being and consider options when the market improves?.

    A copy of Mr Tara?s memo is attached and marked as Exhibit ?153? in the
    Appendices to this report.

    It is obvious that given the problems at Ilimo, cash ?ow concerns of the Corporation,
    and very high interest rates, the construction of the second stage of NIC Hans was
    something which was unachievable.

    On 21 August 1998 Mr Taru again raised with Mr Yamuna the need to invest the
    proceeds from the sale of properties in well thought out and high return investments,
    or risk running into serious ?nancial problems. A copy of Mr Taru?s memo is
    attached and marked as Exhibit ?154? in the Appendices to this report.

    It appears that Mr Yamuna did not take any notice of Mr Taru?s concerns.

    At the Board meeting of 11 September 1998 the management reported that no
    serious
    offers were received for the AN Haus. The Board paper recorded that verbal

  • Page 55 of 181

  • enquiries and some interest was shown by both Travelodge PNG Group of
    companies
    and Motor Vehicles Insurance Trust (Exhibit

    On 30 October 1998 a special Board meeting was held where a total of six directors
    were present. The directors present were; Sir Dennis Young, Mr Yamuna, late Mete
    Kahona, Mr Seeto, Mr Tari and Mr Kumgal. The Board resolved at this meeting to
    accept an offer by Lease Rite Real Estate of K33 million, which was supported by
    the Bank of South Paci?c (Exhibit

    93

    On the same day Mr Yamuna informed Lease Rite Real Estate of the acceptance of
    its
    offer. A copy of the letter is attached and marked as Exhibit ?155? in the
    Appendices to this report.

    On 4 November 1998, Mr Kumgal wrote to Mr Yamuna expressing his objection to
    certain resolutions regarding investment and divestment proposals including the sale
    of ANG Hans. Mr Kurngal expressed that the full Board should decide on these
    transactions in the next Board meeting. The letter was cOpied to the Board and
    senior
    management. It is not clear why Mr Kumgal, who voted for the proposal to sell ANG
    Haus at the Special meeting of 30 October 1998, wrote this letter. A c0py of Mr
    Kumgal?s letter is attached and marked as Exhibit ?156? in the Appendices to this
    report.

    On 25 November 1998, again without any tender process, Mr Yamuna engaged Mai
    Lawyers for the sale of the ANG Hans. A COpy of the Mr Yamuna?s letter to Mai
    Lawyers is attached and marked as Exhibit ?157? in the Appendices to this report.

    On 15 December 1998 Mr Tia of Cascade Apartments Limited (the vendor) paid the
    10% deposit of K330, 000.00 to A copy of both the letter to
    and the cheque is attached and marked as Exhibit ?158? in the Appendices to this
    report.

    On 28 December 1998, the contract of sale of the ANG Haus was signed by. both
    parties. Mr Yamuna signed on behalf of the Corporation. A copy of the sale
    agreement is attached and marked as Exhibit ?159? in the Appendices to this report.

    During the negotiation for the sale Mr Yamuna and Mr Tia had verbally agreed to the
    inclusion of certain clauses in the contract which allowed for the incurring of
    additional expenditures by the Corporation prior to settlement.

    Mr Tia then requested that the relevant repair and maintenance work be carried out.
    Unbeknown to the verbal agreement, Mr Taru maintained an ?as is where is? basis
    position. This difference led to the deferral of the settlement twice. On 4 February
    1999, the parties agreed that the sales price would be reduced by to
    cater for these expenditures.

  • Page 56 of 181

  • On 15 February 1999 Mr Yamuna wrote to Mai Lawyers informing that he was under
    pressure from Sir Dennis to settle immediately. He instructed Mai Lawyers to serve
    notice on the vendor to settle immediately or risk losing the deposit. A copy of this
    letter is attached and marked as Exhibit ?160? in the Appendices to this report.

    011 25 February 1999, Mr Yamuna forwarded to an authority to release
    security documents letter signed by him for the discharge of a charge over the ANG
    Haus pr0perty. The letter of authority also contained details of overdraft accounts
    including debt arising from the Ilimo guarantee to be cleared from the proceeds of
    the
    sales of ANG Haus. A copy of this release letter is attached and marked as Exhibit
    ?161? in the Appendices to this report.

    94

    The discharge of the mortgage form for the purposes of the Lands Department was
    signed on 26 February 1999.

    On 1 March 1999, Mai Lawyers wrote to Mr Yamuna that settlement took place at the
    of?ce of on that date and included in his letter details of the disbursement of
    the proceeds as follows:-

    Mai Lawyers Trust account 1,815,977.12
    929,707.00
    Cascade Apartments Limited 176,359.75
    National Capital District Commission 56,740.71
    Eda Ranu 948.30

    2,979,732.88
    Sales Price
    Difference – 10% deposit with 320,267.12

    The difference should be exactly representing the 10% deposit with
    According to the settlement statement, the purchaser should have allowed
    an amount of K9, 732.88 for Eda Rana bills paid in advance by the Corporation. This
    was not deducted from the amount paid to Cascade Apartment Limited.

    A copy of the letter from Mai Lawyers, including the settlement statement and the
    copies of the cheques raised at settlement are attached and marked as Exhibit ?
    162?
    in the Appendices to this report.

    Also on 1 March 1999 Mai Lawyers raised an ANZ bank cheque of in
    favour of the Corporation after deducting its fee of and a sum of
    for further costs’ associated with the sale. A c0py of the bank cheque is
    attached and marked as Exhibit ?163? in the Appendices to this report.

    On 2 March 1999, Mr Yamuna wrote to acknowledging receipt of
    representing the 10% deposit less sales commission. Based on the
    agreed sales commission of 2% and after including a sales tax of the commission

  • Page 57 of 181

  • would have been This meant that would have paid the
    Corporation It would appear that had improperly obtained an
    amount of from the sales.

    A copy of Mr Yamuna?s acknowledgement letter is attached and marked as Exhibit
    ?164? in the Appendices to this report.

    95

    4. 6.2.2

    The bank statements of the Corporation?s account number 600226 show that
    the and were deposited on 2 March and 3 March 1999
    respectively.

    The records available to me do not indicate how the retained by Mai
    Lawyers was disbursed. Furthermore, there is no record to indicate that Cascade
    Apartments Limited and returned the monies owed to the Corporation.

    Again as with the sale of the Invesmen Hans and Cascade Apartments, there were a

    number of failures and breaches on the part of the Management and Board of the

    Corporation in the sale of the ANG Hans as follows:?

    I A recent valuation of the prOperty was necessary. The Board and
    management failed to obtain a fresh valuation. As a result it is not clear
    whether the amount received was a fair consideration on the property.

    I The sale of the ANG Hans was carried out without any proper investment
    analysis.

    I Section 61 of the PFM Act was breached were no Ministerial approval was
    obtained for the sale of Invesmen Haus.

    I The Management did no raise any concern, nor did they attempt to obtain the
    monies owed by Cascade Apartments Limited of and of

    Unless evidence to the contrary is provided, it would also appear that Cascade
    Apartments and actions would amount to theft of the funds of the
    Corporation.

    Fund Commercial Properties
    The Fund had the following commercial properties at the start of 1998:-

    I Mana Matana Apartments Le Hunter Road, Port Moresby which was owned
    by the Corporation.

    I Sea Park Apartments on Portion 2030, Ela Beach, Port Moresby which was

  • Page 58 of 181

  • owned by the Fund?s wholly owned subsidiary, Sea Park Limited

    I Sunset Apartments on Port Road, Port Moresby which was owned by the
    Fund?s wholly owned subsidiary, Sunset Apartments Limited

    I NIC Haus on Champion Parade, Port Moresby which is now called the Paci?c
    MMI Building. The building was owned by the Fund?s wholly owned
    subsidiary, Nowra No 8 Limited. In 2003 the prOperty was sold to the Paci?c
    Property Trust in exchange for units in the trust.

    96

    I Yandarna Apartments on Korobosea Drive, Korobosea which was owned by
    the Fund?s wholly owned subsidiary, Yandama Trading Company Limited.

    By 31 December 2002 only the Yandama Apartments remained.

    According to the ?nancial statements, the Fund was in a healthy ?nancial position
    with investments in a number of very well established and solid companies in PNG.
    According to the evidence available to me, the major expenditure of the Fund was
    the
    management fee charged by the Corporation and the redemption of units.

    The sale of the properties generally was necessitated by the need to pay for the
    redemption of the shares.

    Marta Matana Apartments

    Mana Matana Apartments was the ?rst of the Fund?s properties to be sold. Mana
    Matana Apartments is a seven storey building consisting of twenty four apartments
    on
    land area described as Section 32 Allotment 18 situated on Le Hunter Road, Koki
    Point in Port Moresby.

    According to the title of this property, the Fund purchased it in December 1977. A
    copy of the title is attached and marked as Exhibit ?165? in the Appendices to this
    report.

    According to the property pro?le maintained by the Fund, the property showed
    reasonable results and with major re?irbishment the returns could be increased. A
    copy of the pro?le is attached and marked as Exhibit ?166? in the Appendices to this
    report.

    A valuation report dated 14 December 1998 by Graeme Dunnage Associates
    placed the Mana Matana Apartments at a market value of A copy of
    the valuation report is attached and marked as Exhibit ?167? in the Appendices to
    this report.

    Again it is not clear from the records available the reason for the sale of Mana
    Matana

  • Page 59 of 181

  • Apartments. On 7 January 1999 Mr Yamuna wrote to following a meeting
    with a representative of for to start advertising the sale of Mana
    Matana Apartments, Yandama Apartments and Sea Park Apartments. Mr Yamuna
    indicated in that letter that there was an urgent need for the Fund to sell these
    properties. Mr Yamuna stated further in the letter that the sales commission would be
    an increase of

    A copy of the letter is attached and marked as Exhibit ?168? in the Appendices to
    this report.

    it would appear that the need for the redemption of the units would have pressured
    the Fund into selling these properties.

    97

    I am unable to determine whether the Fund Trust Committee authorised the
    Management of the Corporation to sell these properties.

    A letter dated 12 January 1999 from indicates that sole agency agreements
    for the sale of Mana Matana Apartments, Yandama Apartments and Sea Park
    Apartments was signed on or before 12 January 1999. stated in that letter
    that sale by auction was scheduled on 23 February 1999 at the Port Moresby
    Travelodge. requested a sum of per property for advertisement. A
    handwritten notation by Mr Yamuna on the letter indicated direction to the Financial
    Controller to arrange payment.

    There are no records of minutes indicating the approval to sell the three apartments.
    A cepy of the letter from is attached and marked as Exhibit ?169? in the
    Appendices to this report.

    On the same day Mr Yamuna replied with a letter of acknowledgement to
    In that letter Mr Yamuna stated that the current rate of commission increase of 1.5%
    was proper and fair. There are no records to indicate
    that had requested an increase. It would appear improper of Mr Yamuna to
    increase the commission unilaterally and without any justi?cation. Mr Yamuna?s
    action was not in the interest of the Fund. A copy of the letter to is
    attached and marked as Exhibit ?170? in the Appendices to this report.

    A memo dated 8 February 1999 from the Corporation?s Property Manager to Mr
    Yamuna indicates that the Corporation had informed to use the valuations
    as the reserve prices for the sale of the Fund?s properties. A copy of the memo is
    attached and marked as Exhibit ?171? in the Appendices to this report.

    A letter from Mr Yarnuna to Mr Ken Baker of dated 26 February 1999
    indicates that the two top bids for the Mana Matana and Sea Park Apartments were
    below the reserve price and were to be referred to the Board of the Corporation for
    deliberation. Mr Yamuna?s letter indicated that the sale of Yandama Apartments was
    to be referred to the Corporation?s sub committee for assessment prior to the
    Board?s
    approval. . A cepy of the letter is attached and marked as Exhibit ?172? in the

  • Page 60 of 181

  • Appendices to this report.

    011 31 May 1999 Mr Yamuna wrote a one page letter to the Minister for Public
    Enterprises, Dr Fabian Pok seeking ministerial approval as the Minister responsible
    for the Corporation. The only reason given by Mr Yamuna in seeking the approval
    was that these properties were earning below the required rate of return of 12% and
    that an investment in treasury bills at the prevailing rate of 24% would be sound. A
    copy of this letter is attached and marked as Exhibit ?173? in the Appendices to this
    report.

    An informed, careful and independent assessment of the request would have
    revealed
    the following:?

    98

    I Mr Yamuna?s letter indicated lack of understanding of short term to long term
    investments, the risks and returns associated with such, and the concept of mix
    of portfolio. As time has proven, the high treasury bills rates which are short
    term and volatile no longer exist today, whereas returns on property
    investment has been constant or on the rise.

    I The Department of Treasury ?les do not contain any other information in
    respect of the sale of these properties. The information set out in the letter to
    the Minister was de?cient and inappropriate for an informed decision. A
    proper submission would have included a detailed analysis of the performance
    of the properties, copies of recent valuations, analysis of expected major
    repair and upkeep costs and a detailed submission setting out the speci?c
    pro?table investments the Fund was considering from the proceeds of the
    prOperty sales. Such a detailed examination would have indicated that in a
    youth?il real estate market such as Port Moresby with limited land available,
    real estate provided a safer and assured long term growth.

    The Department of Treasury ?les available to me indicate no assessment by the
    Commercial Investments Division of the Department of Treasury.

    On 1 June 1999, Dr Pok as Minister responsible for the Corporation gave approval.
    A cepy of the letter from Dr Pok is attached and marked as Exhibit ?174? in the
    Appendices to this report.

    On the same day Honourable Iaro Lasaro, Treasurer and Minister for Flaming wrote
    to Mr Yamuna approving the sale of Mana Matana and the Yandarna Apartments. A
    copy of Honourable Lasaro?s letter is attached and marked as Exhibit ?175? in the
    Appendices to this report.

    It appears that the Mr Yamuna was remiss of his duties where he failed to ?rrnish
    relevant and appropriate information to both Ministers for an informed decision. It
    also appears that both Minister Pok and Minister Lasaro were remiss of their duties
    where they failed to seek a detailed and relevant submission, including appropriate
    assessment by the Department prior to issuing the approval.

  • Page 61 of 181

  • On 23 June 1999 a contract of sale of land between the Corporation and Bluehaven
    No 42 Limited was signed for the sale of the Mana Matana Apartments for a sum of
    A copy of the contract of sale is attached and marked as Exhibit ?176?
    in the Appendices to this report.

    It is not clear from the records how Bluehaven No.42 limited offered the property.
    The records available to me indicate that Bluehaven No 42 Limited was not selected
    through a competitive tender process. Bluehaven No.42 Limited is believed to be
    owned by relatives of Mr Peter O?Neil.

    On 6 July 1999, the Secretary of Treasury Planning Mr Brown Bai wrote a brief to
    his Minister setting out widespread allegations of malpractice at the Corporation and

    99

    reported that he was setting up an investigation into the allegations as required by
    the
    PFM Act. The allegations included among others, the sale of the investment
    properties and the appointment of as the sole sales agent. A COpy of the
    minister?s brief is attached and marked as Exhibit ?177? in the Appendices to this
    report.

    In August 1999, Sir Mekere Morauta became the Prime Minister and Mr Yamuna was
    suspended as a result of the allegations of malpractice.

    On 8 September 1999, Mr Pokarop as the Investment Manager wrote to Fiocco
    Posman Kua Lawyers and sought legal opinion to rescind the contract of sale on
    the basis that the suspended management initiated the sale at a price below
    valuation.
    A copy of the Mr PokarOp?s letter is attached and marked as Exhibit ?178? in the
    Appendices to this report.

    On 9 September 1999, Fiocco Posman Kua Lawyers provided advice to the effect
    that the contract can only be rescinded by agreement of both the Corporation and
    Bluehaven No 42 Limited. A copy of the legal advice is attached and marked as
    Exhibit ?179? to the Appendices to this report.

    Bluehaven No 42 Limited?s lawyers, Young William continuously wrote to the
    Corporation to have the contract concluded. A completion date of 17 November 1999
    was issued by the purchaser but this was not honoured by the Corporation.

    On 1 March 2000 Mr Wilson Nelson, as acting Investment Manager, wrote a two
    page memo to Mr Ruimb, setting out the background and the possible
    consequences
    of the Corporation not honouring the contract of sale. Mr Ruimb agreed to the
    recommendation to honour the contract on the basis that the contract was binding,
    the
    sales price of K2 million was within the valuation range and court
    proceedings would only erode the sales proceeds. A copy of this memo is attached

  • Page 62 of 181

  • and marked as Exhibit ?180? in the Appendices to this report.

    Settlement was delayed due to issue over the applicability of Value Added Tax. On
    13 April 2000 settlement occurred. had 10% of the sales proceeds. This
    meant that an amount of K1 ,800,000.00 was to be paid by the purchaser at
    settlement.
    After an allowance by the purchase of an amount of for land rentals and
    Eda Ranu bills paid in advance by the vendor, an amount of Kl,810,076.97 was paid
    at settlement to the Fund. A copy of the settlement statement is attached and marked
    as Exhibit ?181? in the Appendices to this report.

    An amount of 10,076.97 was deposited into the Fund?s account number
    600365. A COpy of the bank statement showing the deposit is attached and marked
    as
    Exhibit ?182? in the Appendices to this report”.

    paid the 10% deposit less its commission of This
    was deposited to the Fund?s account on 3 May 2000. A copy of the bank

    100

    statement showing the deposit is attached and marked as Exhibit ?183? in the
    Appendices to this report.

    Sea Park Apartments

    Sea Park Apartments is a seven split level building consisting of 28 units situated on
    Portion 2030, Ela Beach, Port Moresby. Sea Park Apartments is owned by the
    Fund?s wholly owned subsidiary, Sea Park Limited

    According to the title of this property, Sea Park Limited was granted a 99 year
    residential lease on 28 September 1985. A c0py of the title is attached and marked
    as
    Exhibit ?184? in the Appendices to this report.

    According to the property pro?le maintained by the Fund, the property commands
    high demand because of its location and has consistently achieved high returns. The
    property was recorded in the accounts at a cost of K4.4 million. The Fund?s internal
    valuations placed the property at about K4 million. A valuation by Lokoloko Realty
    on 10 December 1998 placed a value of K6.7 million. A copy of the pro?le is
    attached and marked as Exhibit ?185? in the Appendices to this report.

    Despite that was paid to in January 1999 for the advertisement
    for the sale of Mana Matana, Sea Park and Yandama apartments, by the time of
    change of management in August 1999, only a contract of sale for Mana Matana was
    completed.

    While offers were received for the purchase of the Sea Park Apartments in the period
    after Mr Yamuna?s term, these were rejected mainly for failure to meet the valuation
    ?gure.

  • Page 63 of 181

  • At the special board meeting of the Corporation on 9 February 2001, the
    Management
    proposed to the Board to sell the Sea Park Apartments at the valuation of K6.7
    million by public tender, auction or both. The justi?cation for the disposal as
    contained in the board paper was as follows:-

    – Pressure was placed on the Fund by POSF for the redemption of their shares
    which at the prevailing buyback price amounted to K35 million.

    I The Operating account of the Fund had a balance of less than
    I Management anticipated that MV IL which at that time was in liquidation
    could require redemption of their shares. This required an amount of K113

    million.

    A copy of the board paper is attached and marked as Exhibit ?186? in the
    Appendices to this report.

    The Board considered the proposal and resolved for two updated valuations for an
    appropriate price to be determined (Exhibit

    101

    At the next special board meeting held on 23 February 2001, the Management
    presented the valuation from The Professionals of The Management
    reported that Greame Dunnage Associates were yet to provide a valuation. The
    Board resolved that once the Greame Dunnage Associates valuation was received a
    circular resolution should be arranged for the Directors to approve a price (Exhibit
    A copy of the valuation report of The Professionals is attached and marked as
    Exhibit ?187? in the Appendices to this report.

    The valuation of Grearne Dunnage Associates was received subsequently and a
    value of was attributed. A c0py of the valuation report is attached and
    marked as Exhibit ?188? in the Appendices to this report.

    It appears from a letter dated 2 March 2001 to late Kahona from Mr Ruimb that the
    circular resolution required by the Board was sent into motion. The letter to late
    Kahona indicates that the two valuation reports were attached. A copy of the letter is
    attached and marked as Exhibit ?189? in the Appendices to this report.

    After seeking comments from the Commercial Investment Division of the
    Department of Treasury, on 14 March 2001 late Kahona signed the circular
    resolution. The Board resolved via the circular resolution as follows:-

    . to accept the higher of the two valuations of
    I to sell at a price not less than and,

    I to authorise Management to make necessary arrangements to sell, subject to
    ministerial approval.

  • Page 64 of 181

  • A copy of the circular resolution of late Kahona and advice from the Commercial
    Investment Division is attached and marked as Exhibit ?190? in the Appendices to
    this report.

    On 2 April 2001, Mr Ruimb forwarded a submission to the Department of Treasury
    seeking ministerial approval under Section 61 of the PFM Act. The submission was
    assessed by late Kahona of the Commercial Investment Division of the Department
    of
    Treasury. On 5 April 2001 late Kahona?s brief to the Secretary recommended that
    the
    Department to advise the Corporation to comply with tender requirements prior to
    seeking ministerial approval. A copy of late Kahona?s brief to the Secretary is
    attached and marked as Exhibit ?191? in the Appendices to this report.

    On 9 April 2001, the Secretary of Department of Treasury, Koiari Tarata prepared a
    brief in the similar terms to the Treasurer. On the same day the Treasurer and Prime
    Minister, Sir Mekere Morauta wrote a letter to Mr Ruimb relaying his approval for
    the Fund to sell the Sea Park Apartments at a price not less than K53 million. Sir
    Mekere directed the Corporation to resubmit the request for ministerial approval after
    a potential buyer was identi?ed through a competitive bidding process. A copy of Mr

    102

    Tarata?s brief and Sir Mekere?s letter is attached and marked as Exhibit ?192? in
    the
    Appendices to this report.

    On 8 May 2001, the Senior Investment Analyst sent an internal memo to the
    Corporation?s tender committee chairman setting out the results of the tenders
    received. The memo indicated that four tenders were received. The Senior
    Investment Analyst proposed that the tender committee recommend one of the top
    two offers to Management for consideration. The highest bidder was Kwila Insurance
    Corporation Limited with followed by Tan Investments Limited with
    The next bidder was Nusuarn Holdings Limited with and
    the fourth was Three Goerges Investment Group with A copy of the
    memo is attached and marked as Exhibit ?193? in the Appendices to this report.

    The memo of 8 May 2001 indicates that the tender was advertised in the Post
    Courier
    and National over a period of two weeks.

    It appears that the Management accepted Kwila Insurance Corporation Limited?s
    tender of and on 8 June 2001 the contract for sale of land was signed.
    From the records available to me, there is no evidence that ministerial approval was
    sought after the potential buyer was chosen. It is not clear whether PFM Act is
    applicable to the Fund and its subsidiaries. A copy of the contract of sale is attached
    and marked as Exhibit ?194? in the Appendices to this report.

    The settlement of the contract occurred on 18 June 2001 at the of?ce of the

  • Page 65 of 181

  • Corporation. At settlement the balance of of the purchase price after
    10% deposit of K570, 000 was distributed. w-After allowances by the vendor and
    purchaser, the amount distributable, excluding the 10% deposit, was
    Of this was paid to Sea Park Limited, was paid to
    National Capital District Commission (NCDC) and the balance of was
    paid to Eda Ranu. A COpy of the settlement statement is attached and marked as
    Exhibit ?195? in the Appendices to this report. A copy of the cheque of
    17 paid to Sea Park Limited is attached and marked as Exhibit ?196? in
    the Appendices to this report.

    On 27 June 2001, Rageau Elemi Kikira Lawyers forwarded a cheque of
    to the Corporation representing the balance of the 10% deposit after
    payment of sales commission to Budget Real Estate of and fees. A copy of
    Rageau Elemi Kikira Lawyers letter is attached and marked as Exhibit ?197? in
    the Appendices to this report.

    It appears that the sale of Sea Park Apartments would be one of the few where
    proper
    processes were followed.

    103

    Sunset Apartments

    Sunset Apartments is a ?ve level building consisting of 15 residential units situated
    on Allotment 7 Section 9, Port Road, Granville, Port Moresby. Sunset Apartments is
    owned by the Fund?s wholly owned subsidiary, Sunset Apartments Limited.

    The title of this property was transferred to Sunset Apartments Limited in July 1985.
    A cepy of the title is attached and marked as Exhibit ?198? in the Appendices to this
    report.

    According to the pr0perty pro?le maintained by the Fund, the property commands
    high demand because of its location and has consistently achieved reasonable
    returns.
    The property was recorded in the accounts at a cost of K21 million. The Fund?s
    internal valuations placed the property at about K135 million. An external valuation
    on 10 December 1998 placed a value of K3.17 million. A cepy of the pro?le is
    attached and marked as Exhibit ?199? in the Appendices to this report.

    The property report presented at the Board meeting of 8 September 2000 showed
    that
    occupancy had increased to almost 90%. The estimated annual rental was around
    the
    mark. It was reported that improvement in electricity recovery and
    reduction in expense was required to achieve the potential of the property. A copy of
    the report is attached and marked as Exhibit ?200? in the Appendices to this report.

    The acceptable return in 2002 for a good property was about 7 years or 14%.
    Assuming proper cost control, costs can be kept to a level of 35 to 30% of gross

  • Page 66 of 181

  • income. On the basis of annual rentals of a rough valuation would
    produce an amount just about K2 million.

    On 12 February 2002 a contract of sale was signed between Sunset Apartments
    Limited and Kwila Insurance Corporation Limited for the sale of Sunset Apartments
    for a sum of Mr Gideon of the Corporation signed on behalf of
    Sunset Apartments Limited. A copy of the contract of sale is attached and marked as
    Exhibit ?201? in the Appendices to this report.

    On the same day the shareholders resolution under Section 110 of the Companies
    Act
    was also signed by Mr Gideon. A copy of the shareholders? resolution is attached
    and
    marked as Exhibit ?202? in the Appendices to this report.
    For the sale to take place the following should have happened:-
    . The Board of Sunset Apartments Limited should have approved the sale. In
    order for Board approval to be granted, a detailed analysis justifying the sale

    should have been presented by the Management.

    I The shareholder approval under Section 110 of the Companies Act should
    have been authorised by the Fund Trust Committee.

    I At the least, two recent valuations should have been obtained.

    104

    I A competitive tender process should have occurred leading to the selection of
    the buyer.

    Unless evidence to the contrary is produced, the information available to me
    indicates
    that no such process was followed and required approvals were not obtained. To the
    extent that there is no evidence to the contrary, I find that the Management and
    Board
    of Sunset Apartments Limited and the Corporation acted improperly in allowing the
    sale.

    On 20 January 2002 settlement occurred. At settlement the balance of of
    the purchase price after 10% deposit of was distributed. After allowances
    by the vendor and purchaser, the amount distributable excluding the 10% deposit
    was
    Of this, was paid to Sunset Apartments Limited,
    K24,9l2.38 was paid to NCDC, and the balance of Kl,071.84 was paid to Eda Ranu.
    A copy of the letter to the Corporation informing completion by Rageau Elemi
    Kikira Lawyers and settlement statement is attached and marked as Exhibit ?203? in
    the Appendices to this report.

    An ANZ bank cheque of was raised in favour of Sunset Apartments
    Limited on 20 February 2002. A copy of the cheque is attached and marked as

  • Page 67 of 181

  • Exhibit ?204? in the Appendices to this report.

    On 22 February 2002, Rageau Elemi Kikira Lawyers forwarded a cheque of
    to Sunset Limited from Budget Real Estate representing the
    deposit less their sales commission of 167,500.00.

    The bank statement of Sunset Apartments Limited indicates that the funds ?’om
    Budget Real Estate and the from settlement were deposited. A copy
    of the bank statements of Sunset Apartments is attached and marked as Exhibit
    ?205? in the Appendices to this report.

    Conclusion on Sale of Commercial Properties

    On the basis of the evidence available, except for ANG Hans, I find that the sales of
    the Corporations commercial properties were not justi?ed. It is also clear that
    proceeds of the sales of the Corporation?s commercial prOperties may not have
    re?ected the value of the properties because in all cases fresh valuations were not
    obtained. The PFM Act approvals given would be defective given the fact that
    relevant and full disclosure necessary for a proper assessment of the approval was
    not
    furnished by the Board of the Corporation.

    Perhaps the important question that needs to be answered is why were the
    Corporation?s commercial properties sold to ?nance Ilimo Poultry Products Limited?
    As explained in detail in Chapter 4.7 of my report, Ilimo Poultry Products Limited
    was insolvent. I strongly recommend that appropriate authorities should investigate
    the use of the funds advanced to Ilimo Poultry Products Limited during the term of
    Sir DennisYoung and Mr Yamuna.

    105

    On the other hand, except for Mana Matana Apartments, the sale of the Fund?s
    commercial properties were done out of the urgent need to ?nance looming

    redemptions. The sale of Mana Matana Apartments was not justi?ed.

    4.6.3 Institutional Houses

    As at the beginning of 1998 the Corporation owned institutional housing comprising

    about 20 houses and 6 duplexes.

    It appears that most of these properties were

    disposed to staff under the Corporations Home Ownership Scheme (HOS) by 31
    December 2002. Except for a few of preperties, the evidence available to me
    indicates that the properties were properly disposed.

    A summary of the status of the institutional houses as reported by an investigation by
    Mr Tarn for the IPBC dated July 2005 (Exhibit indicates the following.

  • Page 68 of 181

  • Sec Lot Location Description Sold to Buyer details Price

  • Page 69 of 181

  • Bagara Place, Low covenant 3 bedroom
    139 54 Tokarara house Tom Yanda ICPNG Staff 27,450
    Gabodubu Street, Low covenant 3 bedroom
    139 97 Tokarara house James Narisa ICPNG Staff 30,600
    Medium covenant 3
    Parani Crescent, bedroom house study Ex Member
    146 27 Tokarara room Jimson Sauk of Parliament 60.000
    Rakatani Street, Low covenant 3 bed room
    148 110 Tokarara house Mark lpuimu Staff 26,550
    Dikagari Street, Low covenant 3 bedroom
    238 57 Tokarara house Peter Pea Staff 26,100
    larogaha Street, Low covenant 3 bedroom Former
    231 18 Tokarara house John Paria Staff 10,000
    Low covenant 3 bedroom Isaac
    40 1 Gull Street, Waigani house McNerbai Staff 24,750
    High covenant 5
    21 6 Pine Street, Hohola bedroom house Not sold yet –
    Low covenant 2
    Sandpiper Street, bedroom, concrete
    103 22 Gordons construction Tony Hamule Staff 20,000
    Vaivai Avenue, East Medium covenant 3
    21 37 Boroko bedroom house Mr. Taru ICPNG Staff 102,000
    Vaivai Avenue, East Medium covenant 3
    21 38 Boroko bedroom house Kris Bongare ICPNG Staff 7
    Medium covenant 3
    10 6(1) Port Road, Granville bedroom house
    Medium covenant 3
    10 6(2) Port Road, Granville bedroom house John Ruimb Staff 117,000
    Gahunagaudi Drive, Medium covenant 2 External
    225 24 Gerehu bedroom house Pauline Kurum party 45,000
    Rainbow Estate, Medium covenant 4
    484 25 Gerehu bedroom house Ezekiel Isaac Staff 45,000
    Geboso Place, Medium covenant 3
    85 4 Korobosea bedroom house 60.000

    106

  • Page 70 of 181

  • High covenant Executive
    Eta Makana. House 3 bedroom Wendi
    33 3 Granville upstairsf2 downstairs Yamunai ICPNG Staff 90,000
    Executive residence, 3
    bedrooms, guest house, Baledonna
    Chesterfield Street, swimming pool staff Holdings
    24 11 Ela Beach quarters Limited 305,000
    Korobosea Drive. 4 Bedroom house for
    91 1 Korobosea executives Joyce Pato 120.000
    4 Bedroom executive
    14 18 Gordons 5 house Vincent Auali Vincent Auali 200,000
    Parani Crescent,
    146 29 Tokarara 2×2 bedroom duplex –
    Hibiscus Street, George
    35 28 Hohola 2×2 bedroom duplex Maraga Staff 36,000
    Spornbill Street, Stanley
    112 3 Gordons 5 2×2 bedroom duplex Moypoela Staff 46,500
    Maignai Cresent,
    258 15 Gerehu 2×2 bedroom duplex Lahui Rigana ICPNG Staff 38,250
    House 1×2 bedroom
    Mavaru Street, East upstairs I 2×2 bedroom
    21 2 Boroko downstairs Joseph Kiks Staff 79,650
    Gari Avenue,

  • Page 71 of 181

  • 139 14 Tokarara 2×2 bedroom duplex Mack Pakao ICPNG Staff 40.500
    Title issued on 141098-
    25 484 Hohola no records in ICPNG

    The Taru report indicated that while majority of the properties were properly disposed
    a few required closer assessment. The property with the most concern is the
    property
    located on Section 24 Allotment 11, Chester?eld Street, Ela Beach. This property
    was sold to a company alleged to be associated with Minister Pok called Baledorma
    Limited in late 1998. It was also alleged that no such company exists and no
    payment
    was received for the purchase of the property.

    According to the records available to the Commission the contract of sale was
    signed
    on 25 June 1998. The contract was between the Corporation and Baledonna
    Limited.
    A copy of the contract of sale is attached and marked as Exhibit ?206? in the
    Appendices to this report. Baledonna Limited changed its name to Murang
    Consultancy Limited on 3 April 1998. A copy of the certi?cate of incorporation of
    change of name of company is attached and marked as Exhibit ?207? in the
    Appendices to this report.

    It appears that Baledonna Limited borrowed funds from to pay for the
    property as indicated by the mortgage registered on the title of the property. The
    settlement statement indicates that an amount of was paid to the
    Corporation. A 00py of the settlement statement is attached and marked as Exhibit
    ?208? in the Appendices to this report.

    This was deposited into the staff Home Ownership Scheme bank account of the

    Corporation on 22 October 1998. A copy of the deposit slip indicating the deposit is
    attached and marked as Exhibit ?209? in the Appendices to this report. The bank

    107

    statement of the staff Home Ownership Scheme con?rms the deposit on 22 October
    1998. A COpy of the bank statement is attached and marked as Exhibit ?210? in the
    Appendices to this report.

    The records produced by Bank of South Paci?c Limited indicate the loan was given
    in the name of Baledonna and the mortgage on the property was discharged in May
    1999. A copy of the title of the property is attached and marked as Exhibit ?211? in
    the Appendices to this report.

  • Page 72 of 181

  • 4.6.4 Summary of ?ndings and recommendations

    The following provides a summary of my ?ndings and recommendations relative to
    the terms of reference concerning the sale of the Corporation?s and Fund?s
    prOperties.
    In particular 1(6) (V) which requires my assessment of whether there was any
    failure to comply with the prescribed tender proceduresare general and concerns all
    matters covered under to 8. As a
    result my ?ndings in respect of these TOR in reSpect of the sale of the properties are
    covered
    herein.

    4. 6. Terms of Reference 1(a) – Whether established administrative and ?nancial
    management procedures were followed generally in the management of the
    Investment Corporation Fund, the sale of institutional assets and investment
    properties of both the Investment Corporation and the Investment Corporation
    Fund and the receipt of the sale proceeds

    I In order to sell ANG Hans, Invesmen Hans and Cascade Apartments, fresh
    valuations were necessary. Mr Yamuna acted imprudently and not in the
    interest of the Corporation when he failed to obtain valuations of ANG Haus,
    Invesmen Hans and Cascade Apartments.

    I Mr Yamuna failed to carry out the duties required of him when he engaged
    Mai Lawyers in the sale of Cascade Apartments Limited and ANG Haus
    without any tenders and an opened ended fee arrangement.

    I Mr Yamuna failed to carry out the duties required of him where he engaged
    Carter Newell Lawyers in the sale of Invesmen Haus without any tenders and
    an opened ended fee arrangement.

    I Mr Yamuna and the Management of the Corporation failed to carry out the
    duties required of them in the sale of Cascade Apartments Limited where the

    following occurred:?

    – Board approval was not sought for the change in the sale of Cascade
    Apartments to that of the sale of shares in Cascade Apartments Limited.

    – An indemnity was issued to the purchaser without any assessment of the
    quantum of liabilities of Cascade Apartments Limited.

    108

    The contract of sale was de?cient in that the correct price purchase of
    was not recorded.

    Mr Yamuna was remiss of his duties when he failed to furnish relevant and
    appropriate information to the Minister for Public Enterprise and the Minister

  • Page 73 of 181

  • for Treasury Flaming for seeking relevant approval for the sale of the
    Fund?s properties

    Minister Pok and Minister Lasaro were remiss of their duties where they
    failed to seek a detailed submission including appropriate assessment by the
    Department prior to issuing the approval for the sale of properties belonging
    to the Fund.

    The Management acted imprudently when they did no raise any concern nor
    did they attempt to obtain the monies owed by Cascade Apartments Limited
    of 10,732.88 and of in respect of the sale of the ANG
    Haus.

    The Board and the Management of the Corporation and Sunset Apartments
    Limited failed to carry out the duties required of them in the sale of Sunset
    Apartments where the following occurred:?

    – The Sunset Apartment Limited Board did not approve the sale of the
    property

    The shareholder approval under Section 110 of the Companies Act
    required the approval and endorsement of the Fund Trust Committee.
    This was not done.

    Two recent valuations of the prOperty were not obtained

    – There is no record of the buyer being selected through a competitive
    tender process

    4. 6.4.2 Terms of Reference 1(c) Whether there was any inappropriate intervention,
    imprudent, illegal or improper conduct by any person, company, business, legal
    entity or other agency in relation to the expenditures or illegal or unsuitable
    investments or other improper or unauthorised action

    The Board and Management of the Corporation acted illegally when they did
    not obtain Ministerial approval in the sale of Cascade Apartments Limited,
    Invesmen Haus and ANG Haus.

    acted improperly in paying themselves sales commission in excess
    of in respect of the sale of the ANG Haus.

    109

    Mr Yamuna acted improperly when he increased the sales commission to
    from 2% to 3.5% unilaterally and without any justi?cation.

    The Board and Management of the Corporation acted illegally to the extent
    that the sale of Mana Matana Apartments occurred without the Fund Trust
    Committee?s approval.

  • Page 74 of 181

  • Unless evidence to the contrary is produced by Carter Newell Lawyers and Mr
    Yamuna, it would appear that of the proceeds from the sale of
    the Invesmen Haus deposited into the trust account of Carter Newell Lawyers
    were not accounted properly. Investigation into these monies by IPBC is

    Unless evidence to the contrary is produced by Mai Lawyers and Mr Yamuna,
    it would appear that of the proceeds from the sale of the Cascade
    Apartments Limited deposited into the trust account of Mail Layers were not
    accounted properly. Investigation into these monies by IPBC is recommended.

    4. 6.4.3 Terms of Reference 1 – Whether there was any failure to comply with
    prescribed
    tender procedures in connection with the sale and disposal of properties including
    those commonly known as Sea Park Apartments, ANG ans, Monian Tower and
    Ilimo Farm

    The Board and Management failed to carry out the duties required of them
    Where Mana Matana Apartments were sold without any competitive tender
    process.

    The Board and Management of Sunset Apartments Limited and the
    Corporation failed to carry out the duties required of them where Sunset
    Apartments was sold without any competitive tender process.

    4.6.4.4 Terms of Reference 9 – Whether, in relation to the Investment Corporation,
    Investment Corporation Fund and Pacific Balanced Fund, the responsible
    Government agencies, including the Department of Finance, the Bank of Papua
    New Guinea and the Auditor General, failed to carry out their regulatory,
    supervisory or reporting responsibilities under any applicable Act, and what was
    the extent of this failure

    Department of Finance

    The Department of Treasury and the Minister failed to perform the duties

    required of them when having knowledge of the sale of Cascade Apartments,
    Invesmen Haus and ANG Haus, did not seek from the Corporation appropriate
    submissions for the purposes of Section 61 approval.

    110

    4.6.4.5 Terms of Reference 11 – Whether any person or corporate party should be
    referred
    to relevant authorities for investigation with the view of criminal prosecution or
    other action.

    Referrals to the Royal Papua New Guinea Constabulary

    I The non repayment of of the funds held in deposit with in

  • Page 75 of 181

  • respect of the sale of the ANG Hans warrants referral of to the
    Police for investigation for misuse of ?mds.

    4.7

    4.7.1

    Sale of Ilimo Poultry Products Limited

    Introduction

    This report covers TOR where I am tasked to assess whether there was any
    irregularity and illegality in the disposal of Ilimo Farm (Ilimo).

    TOR reads as follows;

    Whether, in the performance of its functions and the exercise of its
    powers, particularly in the management of the Investment Corporation Fund,
    the Investment Corporation failed to comply with the provisions of the
    Investment Corporation Act (Chapter 140), the Public Finances
    (Management) Act 1995 or any other Act and with relevant policies and
    directions from the National Executive Council between the years 1998 and
    2002 concerning but not limited to the following:

    whether there was any failure to comply with prescribed tender procedures
    in connection with

    the sale and disposal of properties including those commonly known as
    Sea Park Apartments, Credit House, Monian House and Ilimo Farm

    In this report I will look at Ilimo, speci?cally the circumstances surrounding its
    ?nancial position and eventual disposal. In the ?rst part of this report I will look at
    the loans obtained by Ilimo and in the second part I will look at the diSposal of its
    assets.

    In particular I will consider the following issues;

    a)

    b)

    C)

    d)

    Who were the directors and managers tasked with prudent management of
    Ilimo?

  • Page 76 of 181

  • What were the trading results of Ilimo from 1998 to the point of disposal of its
    assets?

    What due diligence was performed by the Corporation when it continued to lend
    and solicit loans on behalf of Ilimo from Papua New Guinea Banking
    Corporation

    Did the Corporation seek Ministerial approval regarding the advances to Ilimo?

    Whether Ilimo was insolvent when it continued to trade?

    What offers for purchase of Ilimo was received and what happened to these
    offers?

    112

    4.7.2

    g) Why was paid a sales commission of when there was no
    sale?

    h) What were the circumstances that forced to exercise its rights to
    dispose the farm?s land and buildings?

    Background on Ilimo Poultry Products Limited

    Information contained in this section will help one to understand the poor
    performance of Ilimo over many years resulting in eventual disposal of company
    properties in particular the farm, land, and buildings.

    According to company records maintained by the Registrar of Companies, Ilimo had
    5,600,000 shares in issue. The Corporation owned 1 share while another 100%
    owned subsidiary of the Corporation, Toutu No. 37 Limited owned 5,599,999 shares.
    The ultimate holding entity of Ilimo was the Corporation.

    A c0py of the records maintained by the Registrar of Companies is attached and
    marked as Exhibit ?254? in the Appendices to this report.

    Ilimo owned the following subsidiary companies;

    Egg Wholesalers Pty Limited

    Ilimo Park Service Station Pty Limited
    Stock Poultry Feeds Pty Limited

    Ilimo Pastoral Company Pty Limited

    Paci?c Panels Pty Limited.

    Apart from the Service Station, there is no evidence available to the Commission to

  • Page 77 of 181

  • suggest that that the other subsidiaries commenced operations. By January 1998
    these subsidiaries were dormant.

    According to an Information Memorandum on Capital Raising dated April 1997
    prepared by Coopers Lybrand, Ilimo operated a farm at 14 1/2 mile Sogeri Road in
    the Central Province.

    A copy of the Information Memorandum on Capital Raising is attached and marked
    Exhibit ?212? in the Appendices to this report.

    Ilimo was incorporated on 5 April 1966 and commenced operations thereafter. The
    company has been owned by the Corporation since 1973. The company?s principle
    activity was breeding chickens for meat and eggs. In addition to that, Ilimo operated
    a
    feed mill to manufacture feed meals for its own livestock. The company at its peak
    produced 80-90 tonnes of chicken meat per week.

    113

    4.7.3

    Ilimo was managed over the years by various management teams including two
    management companies.

    Since the ?re on 11 August 1996, Ilimo has not been able to operate at its
    capacity. Various interim general managers managed Ilimo while the shareholder
    tried to raise capital to re?build the processing plant.

    The shareholder failed to raise the required capital and has since pursued the Option
    to
    sell Ilimo.

    The creditors placed Ilimo into liquidation and the land and buildings were eventually
    taken over by who had registered mortgage over it.

    I will look in detail at what had transpired against this backdrOp to answer the

    Requirements of Companies Act

    As a company incorporated under the Companies Act, Ilimo?s conduct and
    operations
    must be carried out within the rules and con?nes set out by the Companies Act and
    its
    constitution. The directors are responsible for the business and affairs of Ilimo. The
    responsibilities and actions of the Board of Ilimo are governed by the Companies Act
    and its constitution.

    Ilimo has borrowed signi?cant sums of money over the years from the Corporation
    and and has been unable to repay these monies.

  • Page 78 of 181

  • Therefore it is important that the Board and shareholders of Ilimo complied with the
    requirements of the Companies Act in their conduct of company business of
    particular concern are trading while insolvent and whether appropriate approvals
    were
    obtained in respect of major transactions.

    4. 7.3.1 Solvency Test

    The solvency test will clearly indicate whether Ilimo was solvent when the
    Corporation and its Board continued to lend monies as well as soliciting loans on
    behalf of Ilimo from

    Section 4 of the Companies Act de?nes solvency test as follows;

    For the purpose of this Act, a company satis?es the solvency test where;
    the company is able to pay its debts as they become due in the ordinary course
    of business; and the value of the company ?s assets is greater than the value of
    its liabilities including contingent liabilities.

    (2) Without limiting Section 50 and 53(3), in determining for the purposes of
    this Act (other than Section 234 and 235 which relate to amalgamations)
    whether the value of a company ?s assets is greater than the value of its
    liabilities including contingent, the directors:?

    114

    shall have regard to

    the most recent ?nancial statements of the company that comply with
    Section 179

    (ii) all other circumstances that the directors know or ought to know
    a?ect, or may a?ect, the value of the company ?s assets and the value
    of its liabilities including its contingent liabilities; and

    may rely on valuation of assets or estimate of liabilities that are
    reasonable in the circumstances.

    The Companies Act is also quite clear with respect to directors? responsibilities in
    ensuring that their company can pass a solvency test.

    4. 7.3.2 Liability where failure to prevent insolvent trading

    Section 348 of the Companies Act is quite clear in respect of penalties prescribed for
    Directors for their failure to prevent insolvent trading. The Act provides for directors
    to be personally responsible for debts incurred by the company while insolvent.

    4. 7.3.3 Liability of company for insolvent trading of the subsidiary

    Section 349 of the Companies Act also prescribes penalties for holding company that

  • Page 79 of 181

  • permits its subsidiary to trade while insolvent. The penalty provided is assumption of
    debts incurred by the subsidiary while insolvent. While the Corporation is not a
    company, this may apply if it is found that the Corporation deliberately allowed llimo
    to trade insolvent.

    4. 7.3.4 Directors to act in good faith and in the interest of the company

    4.7.4

    Section 112 of the Companies Act requires the directors to act in good faith and in
    the
    best interest of the company.

    In each year under review, I will not only apply the solvency test, but also determine
    whether the directors acted in good faith and in the best interest of the company.

    Board of directors of the Corporation, llimo Toutu No. 37

    In any commercial organisation especially companies, the shareholders appoint a
    Board of Directors to manage the company on their behalf. The Board then reports
    to
    them on a yearly basis through the annual general meeting. The shareholders
    expect
    the Board to manage their investment in a prudent manner to enhance their
    investment value either by way of increased dividends or share price.

    The Board then delegates these day?to?day powers to management to manage the
    business on their behalf and report to them on a periodic basis, usually The
    Board would then consider the performance of management, review the results and
    set appropriate direction for management to pursue.

    115

    In respect to Ilimo, one needs to understand who the individuals that constituted the
    Board as well as the Boards of the two shareholder companies, namely the
    Corporation and Toutu 37 at the relevant times.

    It is important to bear in mind that Section 10 of the Act requires the affairs of the
    Corporation to be conducted on sound business principles and this extends to both
    Toutu No. 37 and Ilimo.

    4. 7.4.1 Board of the Corporation

    The Board of Directors of the Corporation has been covered in Chapter 4 of my
    Report. It is worth pointing out that the Board of Sir Dennis Young loaned more
    money to Ilimo than any other Board of the Corporation.

    4. 7.4.2 Board of Ilimo

    According to records maintained by the Registrar of Companies the Directors of

  • Page 80 of 181

  • Ilimo and the Corporation in of?ce between the years 1998 to 2001 are crucial given
    that during that period more funds were borrowed and also the company went into
    liquidation and eventually began disposing its? assets.

    The directors in 1998 were as follows

    I John Ruimb
    I Alu Tongia
    Eno Daera
    I Leo Hannett

    I Shankar Mahadavan

    After Mr. Ruimb was removed as managing director of the Corporation he ceased to
    be a director ofllirno as of 26 March 1998.

    When Mr. Yamuna replaced Mr. Ruimb as Managing Director of the Corporation, a
    new board came into existence. The Board comprised of the following individuals;

    I Sir Dennis Young

    I Wandi Yamuna

    I Fred Agoman

    I Vai Reva

    I John Nilkare

    I Meakoro Opa

    116

    After the Board of Sir Dennis Young was removed and Mr. Yamuna terminated as
    Managing Director of the Corporation, another new Board came into existence. The
    new Board comprised of;

    I John Ruimb
    I Enock Pakarop

    I Lincoln Taru

    Mr. Ruimb was then back at the helm of the Corporation as Managing Director.
    These Board members remained in of?ce until the company went into liquidation
    around September 2001.

    A copy of records maintained by the Registrar of Companies of Directors of Ilimo
    from 1998 to 2001 is attached and marked as Exhibit ?255? in the Appendices to this
    report.

  • Page 81 of 181

  • 4. 7.4.3 Board of Toutu No. 3 7

    According to the records maintained by the Registrar of Companies, the directors
    were as follows;

    I Leo Hannett 18/12/85 10/04/91
    I John Linsley 18/12/85 10/04/91
    I Evelyn Rapola 14/06/85 10/04/91
    I Miria Ikupu 19/07/93 10/04/96
    I Lincoln Taru 10/04/91 10/04/95
    I Vai Reva 19/04/95 to date
    I John Ruimb 10/04/96 to date
    I A111 Tongia 10/ 04/ 96 to date

    There are no records available to indicate whether there were any changes in the
    respect of the above directors.

    4. 7.4.4 Controlling Board The Board of the Corporation

    It is worth pointing out that although there were separate Board for Ilimo and Toutu,
    the actual Board that controlled activities of Ilimo was the Corporation Board. This is
    evident from Board papers and other information available to the Commission.

    Many decisions in reSpect of Ilimo were deliberated on by the Corporation Board
    which does not comply with the Companies Act. Even though the Corporation was
    the ultimate shareholder, its Board did not have any legal right to deliberate on
    decisions relating to Ilimo.

    117

    4.7.5

    Except for those provided by the constitution of Ilimo and the Companies Act, all
    decisions relating to operations of Ilimo should have been deliberated by the Ilimo
    Board, instead of the Corporation Board.

    Management of Ilimo Poultry Products Limited
    Ilimo at various stages was managed by management companies or individual
    general
    managers over the years.

    According to a chronology of events since January 1994 compiled by Mr. Enoch
    Pokarop, the following were the managers of Ilimo;

  • Page 82 of 181

  • Manager Start Period i End Period
    Broker Tate International unknown 31/12/93
    Agridev (Israel based) 01/04/94 09/08/96

    Mr. David Compton 09/08/96 23/03/98

    Mr. Peter Blake 24/03/98 25/05/1999
    Peak Performance Feeds Pty 25/05/99 27/09/2001

    Rob Southwell of KPMG 27/09/01 In liquidation

    A copy of Mr. Pokarop?s chronology of events since January 1994 is attached and
    marked as Exhibit ?256? in the Appendices to this report.

    It appears that Broker Tate managed the business up to end of 1993. The
    Corporation
    Board then appointed Agridev of Israel to manage the business.

    Agridev management contract was prematurely terminated in early August 1996
    amid
    allegations of mismanagement. The reasons cited for the termination of
    management
    contract according to Mr. Pakarop?s chronology of events were as follows;

    I Bad management

    I Capital expenditure of K2.5million without Board approval

    I Excessive and unauthorised advances to Agridev staff.

    A c0py of Mr. Pokarop?s chronology of events is attached and marked as Exhibit

  • Page 83 of 181

  • ?257? in the Appendices to this report.

    118

    A letter written by the Managing Director of Agridev gives some indication of the
    circumstances surrounding the termination of the contract and the rates paid to
    Agridev. The letter is as follows;

    refer to your letter of 29? July 1996 concerning the termination of the Management
    Agreement between Ilimo Poultry Products Pty {?Ilimo and A gridev.

    For the sake of good order, please permit me to make the following observations.

    (61)

    (C)

    The rating of the quality of the management rendered by our team is a matter of
    opinion. I will therefore merely state that I strongly reject the conclusion of your
    outside consultant that the performance standard of our team was below par.
    However, in view of Agridev?s agreement in principle to comply with your
    apparent wish to end the Management Agreement and to amicably end our
    relationship, no practical bene?t may be derived from ?trther debating this
    subject.

    I think other reasons then ?Imprudent ?nancial management by the Management
    team? may properly and justly be attributable to the loss in 1995, but again at
    this point it is impractical to further discuss the point.

    I have been acting as Agridev?s Managing Director for many years. I do not
    recall any occurrence even remotely similar to the position Agridev finds itself in
    the wake of your letter which took us by utter surprise we have never received
    notice by Ilimo of any material dissatisfaction with the services rendered by our
    team and even the Investment Corporation?s letter of 2? July I 996 failed to alert
    us to the magnitude of your unfavourable estimate of our services. Needless to
    say, we very much regret the unhappy circumstances which gave rise to your
    letter.

    Formally speaking, your reliance on clause 19(b) of the Agreement seems wrong:
    under that clause, the party giving notice must specijfv in full and in detail the
    purported default and to allow 21 days for correction. This has not been done.
    It therefore follows that termination by you can only be effected under clause
    19(a) of the contract by 6 months? prior written notice, even if we overlook the
    fact that the Investment Corporation itself is not a direct party to the Agreement.

    However, as a matter of policy, Agridev wishes to invest e??ort and expertise only

  • Page 84 of 181

  • where the same are fully appreciated. Accordingly Agridev will not dispute your
    attempt to terminate the Agreement provided of course thatAgridev is paid in
    full all amounts due it as follows:

    (I) Agridev must pay its experts the amounts due to them under the respective

    contracts between them and Agridev for the 30 days period immediately
    following the 20? August, 1996.

    119

    (2) To date, there is due Agridev payment for the months of May, June, July,
    August and the first 20 days of September, 1996 i.e. a total mount of

    (3) Under clause 13(a) of the Agreement there is due Agridev a bonus for the year
    1994. Ilimo ?s boolcs re?ect K60, 08 7 as Agridev?s commission for 1994. Out of
    this amount, K12, 724 were paid to Messrs Recanati Bregman and Farhat. he
    balance of [(47,363 is due Agridev in accordance with the rate of exchange
    between the Kina and the US Dollar prescribed under Clause 13(c) of the
    Agreement, namely the rate of exchange prevailing on 31 December, 1994.

    Agridev has been debited with with respect to a ?private leave? of Dr.
    Koerner, Dr. Koerner indeed took a special leave, the reasons for which was a
    sad family event, but this was within the framework of the annual leave due Dr.
    Koerner under the employment contract between him and Agridev, and under
    clause of the Agreement between Agridev and Ilimo. Accordingly,
    Agridev should never been debited with the said

    You are therefore kindly requested to see to the prompt payment to Agridev of the
    aforesaid plus (2) the aforesaid with which Agridev was
    wrongly debited, plus (3) the aforesaid amount in US Dollars of the balance of
    Agridev ?5 bonus for the year 1994.

    Agridev?s acceptance of what Agridev regard as obviously an ill?founded
    termination
    of Agridev ?5 Agreement with Ilimo, is motivated by Agridev?s desire to circumvent a
    potential issue between the respective Governments of Papua New Guinea and
    Israel
    concerning the rights ongridev, which as you know is on Israel government company
    and is also based on the assumption that payment to Agridev of the aforesaid
    amounts
    due it, is e?ected prior to the departure of Dr. Koerner from Papua New Guinea.

    A copy of the above letter is attached and marked as Exhibit ?233? in the
    Appendices to this report.

    It is worth pointing out at this juncture, two days after the Agridev contract was
    terminated, at around 2am on the morning of 11 August 1996, a ?re swept through
    the processing plant, blast freezer and the sales of?ce, completely destroying these

  • Page 85 of 181

  • facilities.

    Ilimo did not recover from that ?re despite millions of Kina being injected by way of
    loans from direct funding and on?lent loans by the Corporation.

    After Agridev, Mr. David Compton was appointed General Manager and thereafter
    Mr. Peter Blake.

    On 10 June 1999, Mr. Yamuna executed the contract to sell Ilimo to Athmaize and as

    part of that sales process, appointed a subsidiary company of Athmaize to manage
    Ilimo. A letter written by Mr. Yamuna to Athrnaize is as follows;

    120

    con?rm my discussion with you regarding the Investment Corporation of
    Papua New Guinea (ICPNG) Board of Directors decision to approve Peak
    Performance Feeds (PPF) bid to acquire 85% of the assets of Ilimo Poultry
    Products Pty Ltd.

    We would like PPF to take control and manage Ilimo for a period of three (3)
    months during the transitional period, where both ICPNG and PPF discuss
    details of the share purchase and ?nalising the purchase agreement.

    As agreed PPF will take management control of Ilimo e?ective 31 March
    1999.?

    A copy of the above letter is attached and marked as Exhibit ?235? in the
    Appendices to this report.

    Peak Performance Feeds managed Ilimo until the liquidation of the company; based
    on the understanding the company would eventually buy Ilimo. This appears to have
    been part of the sale agreement. During their management, a signi?cant amount of
    money was advanced and this is discussed later in this section of my report.

    Mr. Robert Southwell of KPMG was appointed after a creditor petitioned the
    National Court under the Companies Act to liquidate Ilimo when Ilimo failed to meet
    its commitment when it fell due. Mr. Southwell sold the plant and equipment, except,
    the land and buildings which were mortgaged to

    4. 7.5.1 Management of Ilimo by Peak Performance Feed

    Peak Performance Feeds was part of the Athmaize group of Australia who were
    negotiating with the Corporation to buy Ilimo. It appears that as part of the sales
    agreement they were allowed to manage Ilimo. Their presence at Ilimo was during
    the
    time of Sir Dennis Young as Board Chairman and Mr.Yamuna as Managing Director
    of the Corporation.

    It appears that Peak Performance Feeds managed Ilimo at the invitation of Mr.

  • Page 86 of 181

  • Yamuna without Board approval based on a letter written by MLYamuna dated 22
    March 1999.

    A copy of the letter by Mr Yarnuna is attached and marked as Exhibit 236 in the
    Appendices to this report.

    An extract of a letter written by Mr. John Ruimb dated 12 February 2001 commenting
    on the validity of the management agreement is as follows;

    121

    ?Management Agreement

    maintains that the executed Share Sale Purchase Agreement dated

    10 June 1999 is invalid. Furthermore, the Management Agreement dated 25
    May 1999 is in valid.

    Mr. Yamuna acted beyond his ?nancial powers when he executed the
    Management Agreement. [limo was/is a separate legal entity and had/has its
    own Board; ICPNG was/is only a shareholder.

    We have allowed management to continue in view of attempted negotiated
    settlement. This has taken much longer then anticipated. There has been no
    Ilimo Board meeting since June 1999.

    Athmaize has failed in its capacity as Manager of [limo to furnish management
    reports and other operational and financial reports to ICPNG over the last
    eighteen (18) months.

    I have directed the Company Secretazy to convene a Board Meeting soon to
    consider the above reports and review the management arrangement.

    A copy of the above letter is attached and marked as Exhibit ?241? in the
    Appendices to this report.

    Mr. Ruimb alleges that Mr. Yamuna signed a contract which was beyond his powers.
    I have not been able to locate that contract, however for my purpose I have
    established that Mr. Yamuna acted illegally without Board approval. At the time he
    was not a member of the Ilimo Board.

    A further letter written by Mr. Ruimb dated 22 March 2001 provides a status report of
    Ilimo under the management of Peak Performance Feeds which states as follows;

    OFILIMO LIMITED

    1 write to you as the Chairman of Ilimo Poultry Products Ltd, with reference to
    your operations and Ilimo ?s ?nancial reports presented at the Board of
    Directors meeting on February 2001.

  • Page 87 of 181

  • Following the site visit, the Board wish to express its concern on the following:

    I. General Status of the Farm

    The general status of the Farm appears to be very deteriorated despite the
    upgrading of a few poultry sheds.

    Please provide the funding details (cost) of asset upgrade since July 1999.

    122

    2. Financial Report

    Whilst the Board appreciated the improvement in the loss situation, the net
    balance sheet position has not improved.

    The Board is particularly concerned on the overall overseas creditors totalling
    [(6.588 million. A large portion of this amount would obviously be the feed cost
    supplied by Athmaize. Thus loss appears to be excessive within the period of
    one (1) year without proper approval by the Board.

    Please provide a break?up of the following since Athmaize took over
    Management in July 1999.

    Total cost of stock feed supplied by Athmaize to date
    Break up of amount of current overseas creditors

    Costs of ?tnds spent on asset purchases and upgrade both by [limo and
    Athmaize.

    Despite almost K6 million worth of stock feed supplied to Ilimo, this is not
    re?ected on output of production. Indication in the Port Moresby market
    indicate that [limo is only supplying about I 0, 000 birds or less per week.

    This is contrary to your information ofllimo supplying over 25,000 to 30,000
    birds per week, which is indicated, will increase to 50,000 to 70, 000 per week.

    Sale 0 Assets

    It appears that a lot of unused assets have disappeared. Any say of unused
    assets without the Board ?5 approval is illegal. These include:

    Unused equipment and machinery
    Old motor vehicles

    Board approval must be obtained prior to sale of unused or excess assets.
    Please provide details of all assets sold since July 1999.

    4. Management Agreement

  • Page 88 of 181

  • The Board has reviewed the two (2) page Management Agreement signed
    between Peak Performance Feeds Pty and the fonner Managing Director of
    ICPNG, Mr. Wandi Yamuna.

    There is a need for a more detailed and defined agreement to be in place. In
    addition, the terms of the agreement is one sided, one of which is the

    123

    management fee of 7% of sales which is considered for too high given the
    current cash?ow situation at I limo.

    A revised agreement is to be drawn up in due course.
    5. Financial Proiections

    The Board needs to satis?/ itself that Ilimo?s future is viable as per the
    requirements of the Companies Act.

    It is disappointing to note that the ?nancial projections for the next three (3)
    years requested have not been provided.

    You are hereby given seven (7) days from the date of this letter to provide the
    ?nancial projections.

    As you will appreciate, the Directors of any company are subject to the
    penalties of the Companies Act for allowing an insolvent company to continue
    to trade.

    You are hereby directed to respond to the above matters by close of business
    20?? March 2001?

    A copy of the above is attached and marked as Exhibit ?242? in the Appendices to
    this report.

    A signi?cant item on this letter is K6 million in stock feed costs which were supplied
    by Athrnaize itself. The amounts purportedly spent on the stock feed did not translate
    to the number of birds slaughtered per week. It appears that Peak Performance
    Feeds
    did not respond to this letter.

    4.7.6 Trading Results of Ilimo Poultry Products Limited

    It is important to know how Ilimo performed under the guidance of the directors and
    management mentioned earlier. I will review the results of the company to determine
    how effective the Board and management were in managing the affairs of the
    company.

    Section 10 of the Act requires the Board to manage the affairs of the Corporation in a
    prudent business manner to enhance value of the shares for the shareholders.

  • Page 89 of 181

  • The Auditor General?s 2003 Report to Parliament on his audit of all State owned
    entities on 30 August 2004 indicated that Ilimo accounts were not yet audited. An
    extract of page 107 of this report is as follows;

    ?Ilimo Poultry Products Limited Status of Financial Statements

    124

    At the time of preparing this Report, the audit of accounts and records and the
    examination of the financial statements of the Company and its subsidiaries for
    the year ended 31 December 1998, were in progress. The delay in ?nalising this
    audit was due to the inability of the Company ?5 management to provide the
    necessary documentation for the finalisation of the audit.

    The ?nancial statement for the year ended 31 December 1999, has been
    submitted for my inspection and audit and the audit ?eldwork associated with
    the audit of the accounts and records will commence shortly. The financial
    statements for the years ended 31 December 2000 and 200] had not been
    submitted for my inspection and audit.

    Since the Company was forced into liquidation by its creditors in 200], my
    report on the financial statements for 200] will be my last report for the
    Company to the Parliament.

    A copy of the above extract is attached and marked as Exhibit ?226? in the
    Appendices to this report.

    The Auditor General reported that no audited accounts exist for Ilimo since 1997.
    The
    records available to the Commission indicate that no properly prepared statutory
    ?nancial statements exist for the company in respect of the years 1998 to date.

    Given that Ilimo went into liquidation and all its assets disposed, I am not con?dent
    that any ?nancial statements would be prepared and audited by the Auditor General.

    My analysis of trading results and ?nancial position that follows are based on various
    management accounts and board information available from ?les submitted to the
    Commission by the IPBC.

    The accuracy of this information cannot be guaranteed.
    4.. 7.6.1 I997 Trading Results Net Assets Position

    1997 seems to be the only year in which proper accounts were prepared and
    audited.
    A set of audited ?nancial statements shows that the company made a net loss of
    K25
    million in that year and the accumulated losses as at end of 1997 were a staggering
    K8.8 million. The ?nancial statements are as follows;

    Profit loss statement

  • Page 90 of 181

  • 1997 1996

    Turnover 7,463 10,466
    Operating 1035 (2,525) (3,178)
    Losses brought forward (6,323) (3,135)
    Accumulated losses (8,837) (6,312)

    125

    Balance sheet

    1997 1996

    Capital 5,600 5,600
    Reserves 2,637 2,637
    Accumulated losses (8,837) (6,312)
    Total equity (600) 1,924
    Fixed assets 9,335 10,258
    Current assets
    Cash at bank 7 20
    Stock on hand 1,494 1,765
    Trade debtors 513 379
    Other debtors 267 336

  • Page 91 of 181

  • 2,280 2,500
    Current liabilities
    Bank overdraft 3,393 3,126
    Provision 275 299
    Trade creditors 914 619
    Other creditors 6 6
    5,376 4,647
    Net de?cit in current assets (3,096) (2,147)
    Non-current liabilities
    Shareholders loans 3,793 3,139
    Bank loan – secured 3,047 3,047
    6,840 6,187
    Net assets (600) 1,924

    A copy of 1997 audited ?nancial statements is attached and marked as Exhibit ?
    230?
    in the Appendices to this report.

    In 1997 Ilimo had a net current assets de?cit of K3 million, which indicates that the
    company had severe cash ?ow problems. The actual cash on hand was only
    and this was insuf?cient. The company was reliant on the bank overdraft and cash
    advance from its shareholder, the Corporation.

    The company in 1997 had a total net assets de?cit of This compounded

    with the cash ?ow problem indicates to me that the company was insolvent back in
    1997.

    126

    4. 7.6.2 1998 Trading Results Net Assets Position

    I have not found any ?nancial statements in respect of the year ended 31 December
    1998. I have, however, among the Commission documents identi?ed management
    accounts for the period ended 30 September 1998.

    A copy of management accounts for period ended 30 September 1998 is attached
    and
    marked as Exhibit ?222? in the Appendices to this report.

    Profit loss statement

    1998

    Turnover 4,268
    Operating loss (3 ,498)
    Losses brought forward (8,837)
    Accumulated losses 12,335)

  • Page 92 of 181

  • Balance sheet
    1998

    Capital 5,600
    Reserves 13 ,799
    Accumulated losses (12,335)
    Total equity 7,064
    Fixed assets 20,164
    Current assets
    Cash at bank 45
    Stock on hand 2,937
    Trade debtors 558
    Other debtors 123
    3,663
    Current liabilities
    Bank overdraft 3,764
    Trade creditors 322
    Other creditors 2,536
    6,622
    Net de?cit in current assets (2,95 9)
    Non-current liabitz?ties
    Shareholders loans-ICPNG 7,097
    Bank loan secured 3,047
    10,144
    Net assets 7,061 I

    127

    llimo?s net assets position in 1998 has improved dramatically compared to the de?cit
    noted in 1997. The main reason for this increase was due to the fact that the
    directors
    re?valued the ?xed assets in October 1996 with an additional value of K11.162
    million. This amount is speci?cally stated in the note 3 of 1997 ?nancial statements. I
    have not been able to locate the independent valuations of the company assets
    commissioned by the directors on which they based their valuation.

    A copy of Note 3 of the 1997 ?nancial statements is attached and marked as Exhibit
    ?231? in the Appendices to this report.

    This valuation has increased the value of ?xed assets by K11.162 million, and
    corresponding increase in capital reserves thus improving the balance sheet of the
    company. The company, as indicated by the pro?t and loss statement, continued to
    make losses in 1998. The accumulated loss at September 1998 was more then K12
    million.

    Despite Directors? attempts to make the company balance sheet look good, Ilimo
    still
    had cash flow problems as indicated by the net current assets de?cit of K2959
    million.

  • Page 93 of 181

  • This ?nancial position has driven Ilimo to borrow to sustain its operations as the
    company was not able to generate suf?cient cash.

    In my View Ilimo was insolvent in 1998, however the Board of Directors of the
    Corporation continued to advance money to Ilimo.

    4. 7. 6.3 1999 Trading Results Net Assets Position

    I have not been able to obtain any statutory ?nancial statements or management
    accounts in respect of 1999. I am of the view that the cash ?ow problem continued
    and Ilimo was dependent on the Corporation to source funds for its existence.

    4. 7. 6.4 2000 Trading Results Net Assets Position

    In reSpect of year 2000, no statutory ?nancial statements exist, however, a set of
    management accounts for the period ended 31 August 2000 is as follows.

    Pro?t loss statement

    2000

    Turnover 7,347
    Operating loss (2,972)
    Losses brought forward (19,330}
    Accumulated losses (22,302)

    128

    Balance sheet

    1998

    Capital 5,600
    Reserves 13,799
    Accumulated losses (22,108)
    Total equity (2,709)*
    Fixed assets 19,088
    Current assets
    Cash at bank 17
    Stock on hand 4,047
    Trade debtors 1,463
    Other debtors 2,328
    7,855

    Current liabilities
    Bank overdraft 5,257
    Trade creditors 85 6
    Other creditors 7,673

  • Page 94 of 181

  • 13,786
    Net de?cit in current assets (5,931
    Non?current liabilities
    Shareholders loans-ICPNG 12,461
    Bank loan secured 3,406

    15,867
    Net assets (2,710)*

    due to rounding up.

    A copy of management accounts for the period ended 31 August 2000 is attached
    and
    marked as Exhibit ?227? in the Appendices to this report.

    Based on the above accounts the company was insolvent. The company continued
    to
    make losses and this has eroded its capital base.

    The company was not able to generate enough cash to settle its debts as and when
    they fell due resulting in the increase of current creditors balance to over K8 million.

    I also note that the company continued to borrow from and the Corporation
    to sustain its operations.

    It appears that the Board of the Ilimo and the Board of the Corporation were
    oblivious
    to the insolvency status of the company. Ilimo continued to trade insolvent.

    129

    4. 7.6.5 2001 Trading Results Net Assets Position

    As stated earlier there are no statutory ?nancial statements or management
    accounts
    available in respect of the year 2001. Therefore I have not been able to perform any
    analysis.

    Ilimo, from the above analysis was insolvent and would have remained insolvent in
    2001.

    The insolvent status of Ilimo was con?rmed in September 2001 when a creditor sued
    and forced the company into liquidation. The liquidator, Mr. Robert Southwell
    threatened to sue the directors for trading an insolvent company. An extract of Mr.
    Ruimb?s response letter dated 19 October 2001 is as follows;

    ?The allegations you make against the directors who as you correctly state are
    nominees of ICPNG are serious and have grave and wide reaching consequences. I
    note the implication and consequences of Section 348 ofthe Companies Act.

  • Page 95 of 181

  • It appears that the directors knew of the insolvency status of Ilimo and yet they
    violated the Companies Act by continuing to trade.

    4. 7.6.6 2002 Trading Results Net Assets Position

    4.7.7

    Due to the company being managed by the Liquidator and instituting legal
    action to recover monies advanced, there was really no management on site, and as
    a
    result no accounts have been kept. Therefore I am not able to determine the
    company?s trading results and its net position as at 31 December 2002.

    Loans obtained by Ilimo Poultry Products Limited

    According to the financial statements set out earlier in this section of my report, the
    loan balances at the end of each year were as follows;

    Loans 1997 1998 1999 2000

    ICPNG 3 ,793 7,097 12,461
    Loan 3,647 3,047 3,406
    3,3 93 4,086 5,257
    Total 10,833 14,230 21,124

  • Page 96 of 181

  • I note that in 2000 the Corporation loans to the company totalled more than K12
    million. Ilimo was not able to settle any of the loans including the increased
    overdraft facilities.

    It begs to reason, why would the Board of the Corporation continue to inject money

    into an insolvent company when they could have taken necessary steps to reduce
    the
    risk the Corporation was exposed to.

    130

    It is important to develop an understanding of the circumstances that led the
    Corporation Board to continue to support an otherwise insolvent company. I must
    also determine whether the decisions to advance money were based on appropriate
    management advice, and whether appropriate Ministerial approvals were obtained
    under the PFM Act.

    4. 7. 7.1 Requirements of Public Finances (Management) Act

    The Head of State by notice in the National Gazette on 14 May 1987 declared the
    Corporation to be a public body to which Section 60(2)(b) of the PFM Act is
    applicable.

    A copy of the above is attached and marked as ?Exhibit 215? in the Appendices to
    this report.

    The Corporation is required to comply with the Act, in particular Section 61 which
    requires Ministerial approval for transactions of K500, 000 and above, including
    guarantees given to in respect of Ilimo debts, and its own lending to Ilimo.

    4. 7.7.2 Loans

    It appears that Ilimo had loan facilities with as far back as 1993. A letter
    written to by to Illimo dated 16 January 1996, outlines the credit facilities
    and loan balances of Ilimo as at the end of December 2005.The letter states as
    follows;

    This letter is issued pursuant to the Facility Agreement dated 22 July 1993 and
    supersedes our letter dated 10 April 1995.

    Unless the context otherwise requires, terms de?ned in the Facility Agreement
    shall have the same meaning when used in this letter. This letter also regulates
    provision of the Facilities set out in the Facility Agreement.

    PREAMBLE

  • Page 97 of 181

  • Annual review of the company?s banking facilities has recently been completed,
    and Papua New Guinea Banking Corporation has approved,
    subject to its Board ratification, rearrangement of facilities as set out below.

    The annual review revealed that Ilimo ?s performance over the recent past has
    been far from satisfactory given the lower than forecast sales and the resultant
    unsatisfactory profits reports to the end of September 1995 quarter. The
    substantial investment in the eedmill ofK6, 000,000 has proved a considerable
    financial burden to the company and on present performance, the Bank is not
    confident that a complete turnaround can be achieved in the short term.

    131

    Consequently, the Bank has decided that no further facilities will be provided to
    Ilimo and that strategies to reduce the debt must be pursued as a matter of
    urgency. These strategies include either closure of the feedmill, sale of the
    feedmill, inclusion of equity partners and/or further injection of equity by
    Investment Corporation of Papua New Guinea Should these
    measures be not achieved by 3 0th April 1996, the Bank will exercise its rights to
    protect its position.

    Under Clause 14.8 of the Facility Agreement, the payment of dividends by Ilimo
    is prohibited without ?s prior written consent, Ilimo and ICPNG have
    entered into a Deed of Subordination in relation to loan arrangements
    with I limo.

    Accordingly Ilimo is requested, if circumstances permit, to make principal
    repayments on Full Drawn Loans in advance of scheduled
    repayments. consents to the payment of dividends or loan
    repayments to ICPNG is also subject to cash?ow performance and profitability
    of Ilimo being to the Banks satisfaction.

    LIMITS

    Approved facilities for the time being are:-

    a) Trade Finance Facility K2, 700,000 (No change)
    Combined Overdra?
    Documentary Credit
    Bill ofLading Surrendered)

    b) Temporary Trade Excess 800,000 (No Change)
    c) Bank Guarantee 20,000 (No Change)
    Fully Drawn Loan No.1 K1, 734, 839 (No Change)

    e) Fully Drawn Loan No.2 (Sheds) [?1,451,421 (No Change)

    TOTAL 706,260 (No Change)
    Foreign Exchange Dealing Limit K4, 000,000 (No Change)
    REPAYMENT ARRANGEMENTS

  • Page 98 of 181

  • Trade Finance Facility to be reviewed annually.

    b) Temporary Trade Finance Excess to be cleared in full by no later than 30 April
    1996.

    132

    The hard?core component of the Trade Finance Facility debt of 500, 000 is to
    be cleared infull by no later than 30 April [996.

    c) Bank Guarantee to be reviewed as per ?Review? heading.
    d) Fully Drawn Loan No. 1 being repaid at existing [63,5 00 per month.
    Fully Drawn Loan No. 2 being repaid at existing K2 7,000 per month.
    The reduction to the Trade Finance Facility debt is to be e??ected either through
    provision of additional capital or from sale proceeds of the feedmill. Sale proceeds of

    all other properties are to be applied in reduction of the Fully Drawn Loan debts.

    Should there be a substantial reduction in the Feedmill Fully Drawn Loan,
    will consider reduced repayments.

    SECURITY
    Existing security comprising:-
    Registered mortgages over the company?s various leasehold properties.

    Registered second equitable mortgage by the company over all assets excluding
    leasehold.

    Third part securities as listed hereunder.

    [limo Pastorial Company Pty

    Registered mortgage in respect of State Lease Volume 4 Folio 824.
    Registered mortgage in respect of State Lease Volume 4 Folio 841.
    Registered mortgage in respect of State Lease Volume 20 Folio 475].
    Registered mortgage in respect of State Lease Volume 28 Folio 6819.
    Registered mortgage in reSpect of State Lease Volume 4 Folio 806.

    Registered equitable mortgage by [limo Pastoral Company Pty Ltd, Park Service
    Station Pty Ltd, Egg Wholesalers Pty and Pacific Panels Pty Ltd.

    Deed of Cross Guarantee by [limo Pastoral Company Pty Ltd, [limo Park Service
    Station Pty Ltd, Egg Wholesalers Pty Ltd, Paci?c Panels Pty Ltd, Stock :18: Poultry
    Feeds Pty and outu No. 37Pty Ltd.

    Stock Poultry Feeds Pty

    Registered mortgage in respect of State Lease Volume .28 Folio 6944.

  • Page 99 of 181

  • 133

    Registered equitable mortgage over all assets other than leasehold.

    Deed of Cross Guarantee by Ilimo Pastoral Company Pty ltd, [limo Park Service
    Station Pty Ltd, Egg Wholesalers Pty Ltd, Pacific Panels Pty ltd, Stock Poultry
    Feeds Pty and outu No. 37 Pty ltd.

    Paci?c Panels Pty

    Registered mortgage in reSpect of State Lease Volume 28 Folio 6818-

    Deed of Cross Guarantee by [limo Pastoral Company Pty ltd, [limo Park Service
    Station Pty Ltd, Egg Wholesalers Pty Ltd, Pacific Panels Pty Ltd, Stock 8: Poultry
    Feeds Pty and Toutu No. 37 Pty Ltd.

    (4) INTERESTRATES

    Papua New Guinea Banking Corporation ?s Indicated Lending Rate (Presently 13.
    75%
    per annum and subject to changes) plus a margin of 2% per annum. Changes to the
    indicator Lending Rate are advertised in major PNG newspapers.

    Any drawings in excess of the approved limit, or amounts in default will attract the
    Bank ?3 penalty interest rate of 5% per annum on the amount of excess or default i.e
    indicator Lending Rate plus margin plus penalty interest rate-

    (5) FEES

    Line Fee of]% per annum, charged quarterly, applies on total facilities outstanding,
    excluding the Foreign Exchange Dealing Limit of K4, 000, 000- this fee replaces the
    unused limit and loan administration fees-

    All other fees are charged at standard rates.

    (6) NEXTREVIEWDATE

    Ilimo ?s annual review has been carried forward to 3] May 1996. To enable the
    review
    process to be completed by this date, please provide the following ?nancial
    information
    by no later that 15 April 1996.

    Financial statements as at 31 December 1995.

    Actual to budget results for the six months period ending 31 December 1996. All
    variations of over K25, 000 are to be fully explained.

    Aged debtors and creditors schedules as at 31 December 1995 and 31 March 1996.
    Budgets, cash?ow projections and projected pro?t and loss statements for the 12

  • Page 100 of 181

  • months period ending 31 December 1996. Budget and cash?ow projections must be
    supported by detailed explanations on how the projections were arrived at.

    134

    (7) CONDITIONS UBSEQUEN

    he non provision of Equitable Mortgage Certificates as at 31 April
    1995, as initially agreed to, is viewed with concern and this is despite a
    number of requests from the Bank. We once again request that the provision of
    the certificates be commenced as ?om 31 January 1996 and thereafter
    without fail. Failure to comply with this requirement will be an event of
    default on the part of Ilimo.

    Quarterly management accounts and actual to budget results to be provided by
    the 15 of the following month. he ?rst set of accounts to be provided are as at
    31 March 1996 which are to be delivered to the Bank by 5 April 1996.

    Any variation of over in actual to budget results must be fully
    explained in writing.

    GENERAL

    The sale of non performing assets are necessary as this will assist with the reduction
    in
    Bank indebtedness and at the same time improve the company?s financial position.
    In
    addition, it is also necessary that the feedmill be either sold or an equity partner be
    found. Should the latter be a reality, any such funding will be required as equity
    before
    commencement, such funds being applied in reduction of Bank indebtedness.

    It is to be noted that the actions to be taken are in the best interest of the company
    and
    the Bank. In this regard, please provide us with your plan of action to be achieved by
    30 April 1996.

    The Bank has the right to cancel the loan/s or demand payment at any time. As a
    general rule the Bank would not normally do this unless the company?s accounts are
    not being conducted pr0perly or they have defaulted in terms of securities provided
    to
    secure the advances.

    Any or all of the terms and conditions herein may be varied by the Bank without
    notice
    at any time and at the Bank ?s discretion.

    Costs Expenses

  • Page 101 of 181

  • may debit all costs (including legal costs between solicitor and client),
    expenses and other amounts incurred or paid by in respect of this agreement
    (including those arising from any event of default or the exercise of any of ?5
    rights or powers or for the preservation of or in any manner with reference to this
    agreement, including the reasonable costs of Bank of?cers) and any stamp duty,
    loan
    duty or other imposts, duties, taxes ?nes or penalties arising directly or indirectly in
    respect of this agreement or any transaction contemplated thereby.

    Insurance

    135

    Ilimo has not provided evidence of insurance cover over the various assets pledged
    to
    the Bank as security despite written and verbal requests. This matter is to be
    attended
    to immediately with copies of itemized listings of all assets with their respective sums
    insured to be provided by 15 Februaty 1996.

    Kindly indicate the company ?s acknowledgment and acceptance to the above terms
    and
    conditions by signing and returning to this o??ice duplicate copies of this letter
    enclosed.

    A c0py of the above is attached and marked as Exhibit ?225? in the Appendices to
    this report.

    The letter indicates that as far back as 1995, Ilimo?s performance was not
    satisfactory and therefore no more monies were to be advanced. The letter further
    indicates that Ilimo was asked to reduce the facilities. The total owing to at
    that point in time was K67 million.

    The letter indicates that speci?cally asked Ilimo to have adequate insurance
    cover on all its assets, however, Ilimo failed to adequately insure all properties. This
    came to light some seven months later when the buildings were gutted by ?re. The
    Board and management then realised that they did not adequately insure all assets.

    In July 1999 Ilimo applied for a further K1 million overdraft from which was
    approved. offer letter dated 6 July 1999 indicated that the following facilities
    were provided;

  • Page 102 of 181

  • Facility Amount -Kina

    Combines Overdraft Bill of lading surrendered facility account 294? 3,500,108

    006-24651}

    Documentary letter of credit bill of lading surrendered facility account 1,500,000

    294?006?246511

    Bank guarantee facility 20,000

    Fully drawn loan account 294?016-203722 1,655,136

    Fully drawn loan account 294-016-255602 1,392,211

    Overdraft facility cheque account 294?006-616594 1,000,000
    TOTAL 9,067,455

    A copy of offer letter to Ilimo is attached and marked as Exhibit ?228? in
    the Appendices to this report.

    It appears that the K1 million was the last additional advance obtained by Ilimo. This
    was not repaid by Ilimo which resulted in interest accumulating on a daily basis. It is
    worth pointing out that 1998 and 1999 were periods of high interest rates and the
    interest charges would have been damaging to Ilimo?s cash?ow.

    136

    It appears that the Board of the Corporation gave guarantee for the loans,
    however, there is no evidence to suggest that they obtained Ministerial approval
    under the PFM Act.

    This came to light in December 1999 when Mr. Ruimb sought FPK Lawyers advice

  • Page 103 of 181

  • in respect of the guarantee. The advice by FPK dated 20 December 1999 is as
    follows;

    ?Ilimo Poultry Products Limited Guarantees to

    I have reviewed the documents relating to the guarantee documents that ICPNG
    gave in favour of in support of the various advances made by
    t0 [limo Poultry Products Limited.

    Assumption

    1 note from your letter of instructions that in relation to the guarantees, the
    prior approval of the Minister under section 6] of the Public Finances
    (Management) Act 1995 was not secured by ICPNG.

    This letter of advice is given on the assumption that did not secure the
    prior approval of the Minister under Section 6] 0f the Public Finances
    (Management) Act 1995.

    ues

    I will restrict my advice on the lack ofministerial approval under Section 6] of
    the Public Finances (Management) Act 1995 and the extent to which it a?ects
    the validity and enforceability of the guarantees. Although the other issues (as
    per your letter of instructions) are relevant, the fact that they would not have
    any significant bearing on the validity and enforceability of the guarantees
    means that they are issues that can be avoided without compromising the
    outcome of the advice.

    Advice

    It is my advice that the guarantee documents are invalid and therefore
    unenforceable against ICPNG. This is because of the lack of ministerial
    approval being secured in accordance with section 61 of the Public Finances
    (Management) Act 1995. If not for the lack or absence of the required prior
    approval of the Minister under section the guarantees would have been
    valid and enforceable.

    Reasons for Advice

    The reasons in support of my advice are as follows:

    137

    As you are aware, ICPNG is a ?public body? within the meaning of

    (C)

  • Page 104 of 181

  • ?public body? under the Public Finances (Management) Act 1995. It is in
    the context of being a ?public body? that ICPNG needed the prior
    approval of the Minister under section 61 of the Public Finances

    (Management) Act 1995 before signing the guarantee documents with

    For reasons already stated in our letters of advice regarding Kincorp and
    Chelsea, the guarantees given by ICPNG in favour of in reSpect
    of [limo Poultry Product Limited ?s debts (pursuant to the signed
    guarantee documents) are void as of formation because of the lack of
    ministerial approval. There is no need to repeat the reasons set out in our
    letters to you regarding Kincorp and Chelsea, other than to refer you to
    refer you back to those two letters of advice.

    If not for the lack of ministerial approval under Section 61 the guarantees
    would have been valid and enforceable against ICPNG for the following
    reasons

    the guarantee documents (although not yet executed by
    given that execution by can be done at any time by
    without any adverse legal consequence for would have
    been enforceable against on the basis that they are
    continuing guarantees, not guarantees that relate to any specific
    contractual arrangements or liability such that when those
    contractual arrangements or liability are determined, they also
    being to an end those guarantees.

    (it) what is stated in above of this paragraph is that, if the
    guarantees were restricted to any one or more of Ilimo Poultry
    Products Limited ?s contractual arrangements and liabilities are
    speci?ed, then the continuing validity and enforceability of the
    guarantees would be subject to the continuing validity and
    enforceability of those specified contractual arrangements and
    liabilities. However, it is noted in the guarantee documents that the
    guarantees are not guarantees that are limited to specified
    contractual arrangements and liabilities.

    Rather, it is noted that the guarantees are continuing guarantees that
    apply generally to all of the moneys that Ilimo Poultry Product
    Limited owes at any given time (now or in the future).

    continuing guarantees are guarantees that extend to a series of
    transactions and as such are not exhausted by nor are they con?ned
    to a specified single or more transaction. As such, the guarantees
    that has given in favour of for the bene?t of [limo

    138

    (M

  • Page 105 of 181

  • (V)

    Poultry Products Limited continue to subsist and cannot be said to
    have been brought to an end of terminated on the basis of the
    invalidity and unenforceability of the Share Sale and Purchase
    Agreement to which you refer in your letter.

    there is no provision in the guarantee documents that says that the
    guarantees were given in favour of as collateral security
    documents to the Share Sale and Purchase Agreement.

    the wording in the guarantee documents that imply the giving of
    continuing guarantees are as follows:

    to pay to the Bank on demand which may be made
    at any time and from time to time the moneys hereinafter mentioned
    or so much thereof as may be speci?ed in each such demand that is
    to say:

    (I) All moneys (including moneys advanced by way of loan for
    ?xed term or provided by way of overdraft) to become owing
    or payable to the Bank by the Debtor either alone or on joint
    or partnership account or on any other account whatsoever
    whether as principal or surety; also.

    (2) All moneys which the Bank shall pamr become liable to pay to
    for or on account of the Debtor either alone or jointly with any
    other person and either by direct advances or by reason of the
    Bank accepting or paying or discounting any order draft
    cheque promissory note bill of exchange or other engagement
    whether such order draft cheque promissory note bill of
    exchange or other engagement shall have matured or not or by
    entering into any bond indemnity or guarantee or letter of
    credit or otherwise incurring liabilities for or on behalf of the
    Debtor;

    (3) All moneys whatsoever which the Bank shall lend or pay or
    become liable to lend or pay or may have advanced or may
    advance the payment or repayment of which the Debtor has
    guaranteed or may hereafter guarantee to the Bank: also

    (4) All moneys whatsoever which the Bank shall lend pay or
    advance or become in any way liable to lend pay or advance to
    for or on the credit or for the accommodation or otherwise on
    the account of the Debtor or to for or on account of any other
    person upon the order or request or under the authority of the
    Debtor’ also

  • Page 106 of 181

  • I39

    (5)

    (6)

    (7)

    (8)

    All moneys with which the Bank shall be at liberty to debit and
    charge the account of the Debtor under any security now or
    hereafter held by the Bank from the Debtor or under the
    conditions or provisions herein contained; also

    All monies payable or to become payable to the Bank for
    discounts stamp duties postages commissions charges
    exchanges re-exchanges and expenses according to the usage
    and course business of the Bank; also

    Interest on all such moneys as aforesaid or on so much thereof
    as shall for the time being be due or remain unpaid at the rate
    or respective rates agreed upon in writing if any and in the
    absence of any such agreement then without prior or other
    notice to the Debtor or the Guarantor at and after the
    prevalent rate charged or chargeable by the Bank for the time
    being or from time to time to its other customers on the like
    account such interest to be deemed to accrue from day to day
    and to be computed from the time or respective times of such
    moneys being lent provided paid or disbursed or becoming
    due; and also

    Interest on such interest as aforesaid by way of compound
    interest computed at such time or times and from time to time
    as the Bank shall thing fit at the said rate or respective rates
    agreed upon if any or if not then at the said rate for the time
    being or from time to time charged as aforesaid?. (my
    emphasis)

    You will note ?om to (8) above, that the guarantees do not
    relate to any speci?ed debt, nor to the Share Sale and
    Purchase Agreement in particular. Clearly, the guarantees
    relate to all the moneys that Ilimo Poultry Products Limited
    may owe from time to time to This means that the
    guarantees are continuing guarantees.

  • Page 107 of 181

  • (iv) significantly, the following is noted in clause 1 of the guarantee
    documents:

    ?Continuing Security

    1.

    Subject to clause 2, this Guarantee shall be a continuing
    guarantee and shall not be considered as wholly or partially
    discharged by the payment at any time hereafter by the Debtor
    or by the Guarantor of any of the moneys hereby secured or by
    any settlement of account or by the death of notice of the death

    I40

    of the Guarantor or (in the case of a corporation or company)
    by the winding up of or by notice of any order decree or
    resolution for the winding up of the Guarantor or by any other
    matter or thing whatsoever and shall be enforceable
    notwithstanding that any negotiable or other instrument
    security or contract shall be still in circulation or outstanding.
    ?(my emphasis)?

    If there was any doubt, clause 1 of the guarantee documents makes it clear that
    the guarantees are continuing guarantees.

    Concluding Remarks

    The guarantees are void as of formation in other words, void as of the signing
    of the guarantee documents by (ICPNG). If not for the lack of ministerial
    approval under section 61, the guarantees would have been valid and
    enforceable against ICPNG O?or reasons set out in paragraph above).

    Recommendation

    Whilst it is noted that is bank and that in the interest of
    maintaining a good banker customer relationship ICPNG may wish to take a
    di?erent approach, it is recommended that ICPNG should pursue the same
    course of action that was recommended in relation to Chelsea.

    Therefore, we wait to hear from you about whether or not we should proceed to
    apply for a court declaration to the e?ect that the guarantees are void as of
    formation.

    A copy of the above is attached and marked as Exhibit ?251? in the Appendices to
    this report.

    Legal advice from the lawyers is self explanatory in the sense that the Board did not
    obtain Ministerial approval for the guarantees it gave for Ilimo loans.

  • Page 108 of 181

  • I note that the Board and in particular Managing Director Mr. Yamuna failed in their
    ?duciary duties with respect to the handling of loans to Ilimo.

    Ilimo failed to repay the monies resulting in instigating recovery proceedings
    against the Corporation. A writ of summons dated 22 May 2001 was lodged at the
    Waigani National Court indicate that llimo owed K103 million.

    A copy of the summons is attached and marked as Exhibit ?213? in the Appendices
    to this report.

    141

    The Corporation ?led a defence on 4Lh July 2001 at the Waigani National Court. In
    its defence, the Corporation argued that the guarantee given was not approved by
    the
    Minister under the PFM Act and was not enforceable.

    Before the matter could proceed to trial, the parties executed a consent order in
    November 2002. The consent order stated is as follows;

    ?This Court Orders that;

    1. The proceedings of any sale of Section 2 Allotment 9, 10, l, 12, 13a, 13b
    and 14 Granville, Port Moresby be paid into our Court and subsequently
    into an IBD account in the joint name of the parties pending the outcome
    of this action.

    I

    2. Cost be in the cause.

    A c0py of the consent order is attached and marked as Exhibit ?252? in the
    Appendices to this report.

    It appears that the consent order was basically to secure the proceeds of the sale of
    Ilimo.

    While the Board of the Corporation was attempting to sell the property, Poultry
    Products Limited, a company owned by Mr. Malcolm Smith took Ilimo to Court. The
    company won the case and forced Ilimo into liquidation. However the liquidator
    could not sell the land and properties as had registered mortgage over it.

    Based on the Corporation Board minutes of meeting 06/01 held on Friday 26
    October
    2001 appointed Deloitte to sell the properties. The extract of the minutes is
    as follows;

    ?llimo Poultry Products Limited (In liquidation)

  • Page 109 of 181

  • Board was informed of recent developments following the liquidation of the
    company on 27 September 2001 and di?iculties encountered by the liquidator in
    disposing o? assets to satis?/ the petitioner, Poultry Products Limited which
    sought and obtained winding up order.

    as the secured creditor holds mortgages over the company?s assets and
    since the petitioner is not the bank, the liquidator is unable to discharge his
    duties under the liquidation process. Board took note that the has
    appointed Deloitte ouch? Tohmatsu to handle the sale of assets on its behalf

    Board also considered the predicaments, and claims by employees of the

    company and the liquidator to meet ex?gratia termination entitlements and costs
    respectively and drew the following observations.

    142

    Appreciates the commercial reasons for continuing to keep the [limo
    employee during the period of negotiations up to now for the sale of the
    company to Athmaize.

    Recognises the role played by the [limo employees in providing security to
    the company assets by virtue of their physical presence on the company

    property.

    (0) Acknowledges the protection of the company assets by Ilirno employees in
    the absence of insurance cover being in place and the risk of employee
    revolt and destruction of the property.

    Acknowledges that the corporations is not responsible for the liquidator?s
    costs, as he is the agent of the petitioner, Poultry Products Limited.

    The Board also recognises that the corporation is legally not obliged to provide
    any further financial assistance to the company or its employees and that any
    assistance given is a gesture of goodwill and not to be taken as admission of
    liability.

    Based on the above understanding, the board resolved.
    not to pay the liguidator?s costs

    to approve an assistance package of [614,874.90 for the purpose of
    meeting [limo employees ex?gratia payments including repatriation costs
    and superannuation arrears to the National Provident Fund (NPP).

    Board further resolved that management review the calculations provided by
    [limo employees that they are correct.

    A copy of the above is attached and marked as Exhibit ?232? in the Appendices to
    this report.

  • Page 110 of 181

  • The liquidator Mr. Southwell sold all the plant and equipment whilst Deloitte who
    were appointed by sold the land and buildings to the Central Provincial
    Government.

    I am not able to determine whether pursued its action against the
    Corporation for any shortfall in recovery in sale proceeds compared to outstanding
    loans including interests.

    In my view, the Corporation Board breached its ?duciary duties as well as

    contravening Section 10 of the Act, which calls for the Board to practice sound
    business principles when undertaking its business.

    143

    4. 7. 7.3 Loans from the Corporation

    The amount advanced by the Corporation since 1996, according to the ?nancial
    statements, amounted to K12.461 million by the end of 2000.

    The Corporation loans to Ilimo date back to periods outside my Terms of Reference.
    The signed 1996 ?nancial statements indicate that the shareholder loans were K3.1
    million. Even as early as 1996, Ilimo was making losses and was unable to generate
    adequate cash ?ow to sustain its operations.

    A copy of the 1996 financial statements is attached and marked as Exhibit ?237? in
    the Appendices to this report.

    Further monies were advanced in the period covered by my Terms of Reference,
    resulting in shareholder loans amounting to approximately K12 million at the time the
    Corporation was attempting to sell its shares in Ilimo. An undated brief to the Prime
    Minister by Mr. Ruimb indicated that Ilimo owed the Corporation K12 million. An
    extract of the brief is as follows;

    ?s Shareholder Loan to Ilimo K12 million

    The nature of this loan relates to funds expensed for and on behalf of Ilimo over
    the years to enable Ilimo to maintain its business operations at the farm. The
    funds were disbursed on the understanding that Ilimo would repay the
    Corporation when it realised a profit.

    Unfortunately, Ilimo has not been pro?table therefore, the loan has not been
    repaid but has remained in I CPN ?s books as a debt owed by Ilimo.

    The contractual negotiations have proceeded without speci?cally addressing
    the issue of the ICPNG shareholder loan mainly because of Ilimo ?5 poor
    business performance and the view that [limo was not able to pay. The debt was
    essentially not recoverable and although not agreed between the parties, there
    was an intention to write-off

  • Page 111 of 181

  • A copy of the above is attached and marked as Exhibit ?229? in the Appendices to
    this report.

    Due to lack of information, I am not able to determine details of the loans nor am I
    able to ascertain how the loans from the Corporation increased to K7.097 million in
    1997 and thereafter to K12.461 million in 2000.

    Based on information available to the Commission, two substantial advances were
    made during the Chairmanship of Sir Dennis Young. These comprise of K2.S million
    in 1998 and a K10 million advance in the same period. These advances require my
    attention given the circumstances under which the payments were pushed through,
    and the fact that Ilimo was already insolvent.

    144

    million advance

    This advance was administered during the time of Sir Dennis Young as Board
    Chairman and Mr. Yamuna as Managing Director.

    It was alleged that Mr. Yamuna altered the minutes of the Corporation Board Meeting
    128 of 1998 to indicate that the Board approved an advance of K25 million to Ilimo.
    In his evidence to the Commission, Mr.Yamuna re?tted altering the minutes
    (Transcript page 1005). The original minute of the Corporation Board meeting
    number 128 of 1998 of is as follows (Exhibit

    ?The submission was jointly presented by Kris Bogare Investment Manager and
    Enoch Pokarop Senior Investment Analyst and Peter Blake Interim General
    Manager of Ilimo Poultry Products.

    The half year results showed that the company continued to make a loss of K1 .3
    million compared to the budgeted profit of K3. 7 million.

    The main reason for the loss is under production of some twenty thousand birds
    per week. The company currently produces 50,000 birds per week and needs to
    increase that to 70, 000 birds per week to break even. In order to reach this
    target, the company would require K29 million in short term and K6 million in
    the longer term.

    Board also considered an o?er from Utia Investments Ltd, a Kutubu Landowner
    company to acquire the Corporation ?s equity interest for a consideration of 0
    million. The Board felt that the Corporation could obtain a better price and

    therefore resolved to reject the o?er from Utia Investments.

    Board further resolved to renegotiate with Utia Investments and nominated Mr
    Dennis Young, Mr Robert Seeto and Mr Ted Tara to work with Management.

    Options proposed for re-negotiations with Utia Investments are;

  • Page 112 of 181

  • sale ofblocks ofland
    divestment of some shareholding
    obtain better o?er?

    The altered minute of meeting 128/98 is as follows (Exhibit

    ?The submission was jointly presented by Kris Bogare Investment Manager and
    Enoch Pokarop Senior Investment Analyst and Peter Blake Interim General
    Manager of I limo Poultry Products.

    he half year results showed that the company continued to make a loss of .3

    million compared to the budgeted pro?t of L3. 7 million.

    145

    The main reason for the loss is under production of some twenty thousand birds
    per week. The company currently produces 5 0, 000 birds per week and needs to
    increase that to 70,000 birds per week to break even. In order to reach this
    target, the company would require million in short term and K6 million in
    the longer term.

    Board also considered an o??er from Utia Investments Ltd, a Kutubu Landowner
    company to acquire the Cozporation ?s equity interest for a consideration ole 0
    million. The Board felt that the Corporation could obtain a better price and
    therefore resolved to reject the o?er from Utia Investments.

    Board further resolved to renegotiate with Utia Investments and nominated Mr
    Dennis Young, Mr Robert Seeto and Mr Ted aru to work with Management.

    In the interim, the Board approved an additional funding of K25 million to
    Ilimo to assist with the working capital and the completion of processing
    plant.

    Options proposed for re-negotiations with Utia Investments are;
    a) sale of blocks of land

    b) divestment of some shareholding
    0) Obtain better o?er?

    The bolded paragraph is the alteration purportedly performed by Mr. Pokarop on
    instructions from Mr. Yamuna.

    In order to determine the correct minutes, one needs to understand the normal
    procedures that the Board would follow to advance such a signi?cant amount.

    In normal funding requests, a proposal would be made by the management to the
    Board seeking funds. Normally the Investment Manager of the Cmporation would
    make a presentation to the Board to help members understand the proposal before

  • Page 113 of 181

  • they deliberate.

    The Board would then discuss the proposal and take a vote on the proposal. When
    the
    proposal is accepted by the Board for amounts of and over, the Board
    would proceed to seek Ministerial approval under the PFM Act.

    In this instance the Board would make a submission to the Minister for his approval.
    The submission would include a copy of the Board resolution together with evidence
    of funds available and a statement to the effect that the use of the funds as proposed
    was in the best interest of the organisation. I note that none of that was done. The
    Board of Sir Dennis Young convened a Special Board meeting on 30 October 1998
    to

    146

    state that Ministerial approval had been obtained for an advancement of K25 million
    to Ilimo.

    The approval as stated by Sir Dennis Young came from Minister Pok who was the
    Minister for Privatisation.

    In that meeting Director Mete Kahona representing the Treasury Department pointed
    out that the approval obtained from Minister for Privatisation, Fabian Pok was
    incorrect as the proper Minister from who to obtain approval was the Treasurer.

    The Board Chairman Sir Dennis Young brushed this aside and stated that he would
    check with Mr. Jim Fraser of the Legislative Council?s Of?ce for clari?cation on this
    issue. There is no evidence in the subsequent minutes that clari?cation was obtained
    or a proper approval was obtained from the Treasurer.

    Minister Pok?s illegal approval to Mr. Yamuna dated 30 September 1998 is as
    follows
    (Exhibit

    ?Reference is made to your letter of 29 September 1998 regarding investment
    Corporation of Papua New Guinea?s request to inject an additional
    million Poultry Products Limited to assist with working capital and the
    completion of the processing plant.

    In accordance with Section 61 of the Public Finances (Management) Act 1995, I
    hereby give approval of the Investment Corporation to inject K25 million into
    [limo Poultry Products Pty in order to rescue the company.

    I also give a ?blanket approval? for any further ?tnding which may
    ?require? to inject into llimo for time to time in order to protect the Investment
    Corporation?s huge investment exposure

    Based on Minister Pok?s illegal approval, funds were advanced to Ilimo. A summary
    by the Financial Controller, Mr. Angoman detailing the payments is as follows;

  • Page 114 of 181

  • Cheque No. Date Amount
    48199 03/09/98 400,000.00
    48437 09/10/98 600,000.00
    48449 13/10/98 500,000.00
    48506 20/10/98 101,024.00
    48548 27/10/98 87,507.45
    48558 28/10/98 397,000.00
    48641 05/11/98 227,651.00
    48659 10/11/98 186,817.55

    A copy of the summary done by the Financial Controller Mr Angoman is attached
    and marked as ?Exhibit 238? in the Appendices to this report.

    147

    In the light of Mr. Yamuna obtaining approval from the wrong Minister, it is further
    noted that Mr. Yamuna attempted to obtain approval from the Treasurer Iairo Lasaro
    in April 1998 to advance K2 million to Ilimo.

  • Page 115 of 181

  • Treasurer stated that no approval would be granted unless he was convinced that
    there
    were ?rm recovery plans and that the investment was still viable. The letter by
    Treasurer is as follows;

    ?Ministerial Approval to assist llimo Poultry Products Pty with K2 million
    I refer to you letter of 2 April 1998 requesting approval on the above

    After reviewing your submission, I have decided against approving it until I am
    fully informed of Ilimo ?s recovery plans and convinced that this is still a viable
    investment.

    Therefore the Corporation needs to convince me on a restructuring plan to
    revive [limo and make it viable, given the company?s performance track
    record.?

    A copy of the above is attached and marked as Exhibit ?216? in the Appendices to
    this report.

    After the Treasurer?s refusal for further advances to llimo, Mr.Yarnuna turned to
    Minister Pok for approval. Minister Pok gave an illegal approval when he was not the
    Minister responsible for administering the PFM Act.

    Both Mr. Yamuna and Minister Pok cannot deny that they had no knowledge of what
    they were doing at the time was wrong given their professional background and
    eitperience. Mr. Yamuna is a lawyer while Minister Pok is an accountant by
    profession.

    In addition Minister Pok was a former Corporation Board member and as such would
    have been well versed in PFM Act in terms of obtaining Section 61 approval.

    In my View ignorance of the law by two highly quali?ed Papua New Guineans is no
    excuse.

    In re3pect of this advance I noted that the Board of the Corporation, Sir Denis Young,
    Mr. Yamuna and Minster Pok acted improperly to advance monies to llimo. I note
    the following in respect of the advances;

    . N0 ministerial approval was obtained under the PFM Act.

    I Minister Pok acted illegally when he gave approval under Section power to do so.

    148

    I Mr. Yamuna acted improperly when he fabricated the minutes.

    I Sir Dennis Young acted improperly when he brushed aside director Mete
    Kohana?s concern for approval under PPM Act from the Treasurer.

    I No due diligence was performed on Ilimo to determine the return on funds

  • Page 116 of 181

  • invested.

    Other Board members were ignorant of their ?duciary duties when they failed
    to raise any queries when Mr. Yamuna altered the minutes to advance money
    to Ilimo.

    It is dif?cult for me to determine the motive of such malicious fabrication of the
    minutes from the highest ranking of?cer of the organisation, supported by his Board
    Chairman and the Minister for Privatisation.

    Most of the payments made by Ilimo were to the Australian companies purportedly
    associated with the proposed buyer of Ilimo for supplies of stock feeds and fertilised
    eggs to Ilimo. I am not able to determine whether these transactions were conducted
    at arms length or not.

    The question as to whether the Corporation Board led by the Board Chairman, Sir
    Dennis Young and its Managing Director Mr. Yamuna supported by the Minister Pok
    colluded with these suppliers to use Ilimo as a medium to deprive the Corporation of
    its funds is dif?cult to prove.

    However the behaviour of these individuals raises questions about their ?duciary
    duties, and in my View they failed to discharge their duties in accordance with the
    PPM Act Section 61, the Corporation Act and the Companies Act.

    million advance

    The K1.0 million advanced in this instance was the money the Corporation had
    declared as dividend to the State. The cheque written to the State was then
    cancelled
    and the funds diverted to Ilimo. A copy of the cancelled cheque is attached and
    marked as Exhibit ?217? in the Appendices to this report.

    The Board minutes of meeting 127 of 1998 is as follows (Exhibit
    ?Twenty i??h Anniversary Report
    Directors noted the progress report on preparation to commemorate the 25th
    anniversary of the Fund and endorsed the budget of K12 7,000 for this event.

    This event will be funded from the Fund ?s 1998 marketing and promotion
    budget.

    149

    Board resolved to note the report and also resolved that the Corporation pay a
    dividend of K1 million to the State as a gesture of goodwill following the State?s
    request last year for a dividend payment.

    According to Mr. Yamuna?s evidence (Transcript pages 1013 to 1015), the
    Corporation was not really in a ?nancial position to declare any dividend, however
    the Board decided to put on a show by declaring that dividend given that it was the
    Twenty Fifth Armiversary of Papua New Guinea?s independence. According to Mr.

  • Page 117 of 181

  • Yamuna, the Corporation itself was ?in red? or put properly, did not make pro?t and
    did not have the cash to declare a dividend at all. .

    If Mr. Yarnuna stated that the Corporation was not in a position to declare dividends,
    then by the same token, the Corporation was not in as position to lend any more
    money to Ilimo.

    There is no evidence that the Board authorised this advance and obtained Ministerial
    approval under the PFM Act. The direction for funding of Klmillion to Ilimo came
    from Mr. Yamuna.

    The ?rst of this money was advanced on 9 October 1998. A narration on
    the memo directing payment by Mr. Yamuna to Mr. Angornan is as follows;

    red Angoman
    This is urgent. Please raise the million Kina for Ilimo Farm

    A copy of the above memo is attached and marked as Exhibit ?218? in the
    Appendices to the report.

    A narration by Fred Angoman on the same memo to Hannah, the ?nancial
    accountant
    is as follows;

    ?Hannah, raise cheque of K600, 000 today . We will raise the K400, 000 on
    Monday 12/1098

    The second portion was drawn on 13 October 1998, however, the actual amount
    drawn was

    A copy of the above narration is attached and marked as Exhibit ?219? in the
    Appendices to this report.

    I note that both amounts drawn would have required Ministerial approval under the
    PFM Act, however, Mr. Yamuna failed to obtain Board and Ministerial approvals.

    It appears that Mr. Yamuna acted beyond his powers when he diverted the State?s
    dividend of K1 million to Ilimo.

    150

    My review of the approval ?les (Exhibits maintained by the Treasury
    Department indicate that for all the advances made to Ilimo in the period of Mr.
    Yamuna?s term, no Ministerial approvals under the PFM Act were obtained.

    4.7.8 Attempted Sale of Ilimo

    Numerous approaches were made beginning in 1997 by various entities interested in

    acquiring Ilimo. It appears that no proper evaluation of Ilimo was made by the Board

  • Page 118 of 181

  • of Ilimo and the Corporation. Hence no plan was established to address the future of

    . Ilimo. Given this background it would appear that offers by prospective buyers
    could
    not have been evaluated against any proper basis.

    The records available to me indicate that the Corporation Board was looking to
    diSpose of its shares in the company for as much as K15 million.

    4. 7.8.1 Potential buyers

    From the information available to the Commission it appears that several entities had
    shown their interest in acquiring Ilimo. It is also worth pointing out that there is no
    evidence available to suggest that public tenders were called for in respect of Ilimo
    sale, nor was a properly organised sale campaign conducted.

    According to the records available to me the following organisations showed interest
    in purchasing shares in Ilimo;

    I Public Of?cers Superannuation Fund Board (POSFB) in March 1997

    I Grand Collumbia around May 1997

    I Athmaize/Peak Performances Feeds PL around December 1997

    I Wiko Holding around December 1998

    I Utia Investments around November 1998

    I Canadian Poultry Company around February 1998

    I Goodman Fielder Australia around February 1998

    A copy of the above is attached and marked as Exhibit ?258? in the Appendices to
    the report.

    The provisions of the Act on disposal of investments needs to be considered. Section
    7 restricts disposal of shares to eligible persons.

    In respect of the prospective buyers the eligible entities were POSFB, Wiko Holdings
    and Utia Investments Limited. The others were ineligible and the Board would have
    breached Section 7(1) of the Act if it entered into negotiations with a view of
    disposing the Ilimo shares to them.

    151

    While the Corporation shares in Ilimo were never sold to any of the entities above it
    is worth commenting brie?y on the entities that entered into negotiations with the
    Corporation.

  • Page 119 of 181

  • POSFB

    POSFB would have been an ideal entity for the Corporation to diSpose of its shares,
    however, the offer of K6 million for 75% shareholding in Ilimo appeared to be low
    and therefore the Corporation rejected the offer.

    A copy of POSFB offer letter to Ilimo is attached and marked as Exhibit ?223? in the
    Appendices to the report.

    Wiko Holdings

    Wiko Holdings is owned by Sir Wiwa Korowi. Wiko Holdings offered U86 million
    or equivalent of K14.5 million. This sale was subject to 10% deposit, however, this
    did not eventuate resulting in the sale not progressing any further.

    A c0py of Wiko Holding offer letter to Ilimo is attached and marked as Exhibit
    ?224? in the Appendices to this report.

    I am of the View that this offer from Wiko Holding may not have had the ?nance to
    complete the sales.

    Utia Investments

    This was an eligible company owned by Kutubu landowners. The ?rst offer of K10
    million was rejected by the Corporation Board at its meeting number 128 of 1998.

    It appears that Utia returned with a revised offer of K14.151 million for 70%
    shareholding which was rejected by the Board to pursue interest from Athmaize of
    Australia.

    A copy of Board meeting number 128 of 1998 rejecting Utia Investments offer of
    K10 million is attached and marked as Exhibit ?220? in the Appendices to this
    report.

    In my View Utia Investments was an eligible company and the offer made was in my
    View fairly good for 70% shareholding.

    It would appear that the Kutubu landowners came with additional funding for
    working capital which was desperately sought by Ilimo. The inability and
    indecisiveness of the Board and Management of the Corporation led to a wasted
    opportunity.

    By all comparison this was the best offer and I fail to understand the logic as to why

    this offer was not accepted. It appears to me that the Board failed to comply with
    Section 10 of the Corporation by not accepting Utia?s offer.

    152

  • Page 120 of 181

  • Peak Performances Feeds Pty

    Peak Performance Feeds was part of the Athmaize Group of Australia. The PNG
    subsidiary of the group was Geilston Limited incorporated for the purpose of buying
    and holding shares in Ilimo.

    Mr. Pokarop timeline of events since 1994 indicated that the ?rst offer from this
    company was received by the COIporation Board on 23 December 1997.

    A copy of Mr. Pokarop?s chronology of events is attached and marked as Exhibit
    ?221? in the Appendices to this report.

    After negotiations a Sale and Purchase Agreement was signed between the
    Corporation, Toutu No. 37 and Geilston on 10 June 1999 for sale of 85%
    shareholding in Ilimo.

    A copy of the Contract of Sale is attached and marked as Exhibit ?246? in the
    Appendices to this report.

    The Agreement contained two components, of the purchase price, fixed component
    of
    K6 million and a deferred component of K95 million for 85% equity in Ilimo. The
    deferred component is de?ned as balance of collectible debtors, plus stock value
    less
    abnormal items and outgoings.

    The completion date is speci?ed as at 10am on the second day after the purchaser
    gives notice to vendor.

    Mr Yamuna signed on behalf of Toutu No. 37 and the Corporation, however, I note
    that Mr. Yamuna had no power or authority to sign contracts above

    I note that Mr. Yamuna again sought and obtained advice from the wrong Minister to
    dispose of the shares in Ilimo. Minister Pok again acted illegally when he gave
    approval under Section 61 of the PFM Act. The illegal approval by Minister Pok to
    Mr. Yamuna dated 22 March 1999 is as follows (Exhibit

    ?Reference is made to your letter of] 9 March 1999

    I, Dr Fabian Pok, Minister for Public Enterprises Communications, hereby
    grant the approval in terms of Section 61 of the Public Finances (Management)
    Act 1995, to the Investment Corporation of Papua New Guinea to divest 85% of
    its shareholding in [limo Poultry Products Pty to Peak Peiformances Pty
    for a total consideration ole5.5 million.

    Despite the contract being signed, the sale was never concluded. A sale commission
    of was paid to Port Moresby First National Real Estate Limited.

    The sale was not concluded when Mr. Yamuna and the Board of Sir Dennis Young?s
    appointments were revoked when the late Sir William Skate lost the Prime

  • Page 121 of 181

  • 153

    Ministership to Sir Mekere Mourata. By then, Minister Pok had lost his Ministry and
    under Sir Mekere?s privatisation policy, a new Ministry known as the Privatisation
    Ministry was created and Member of Parliament Mr. Vincent Auali became
    Privatisation Minister.

    Minister Auali then re?appointed Mr. Ruimb as Managing Director of the Corporation
    and Mr. Augwi as Board Chairman.

    4. 7.8.2 commission paid to

    On my review of tender procedures in Chapter 4 of my Report, I noted that
    engagement did not comply with tender procedures.

    From my inspection of documents available to the Commission, was not
    involved in the negotiations of the sale agreement relating to Ilirno.

    Mr. Yamuna had no authority to appoint an agent or enter contracts valued more
    then
    The commission paid to for work purportedly done was in
    excess of and would have required Board and Ministerial approval. Mr.
    Yamuna failed to obtain either Board or Ministerial approval.

    Mr. Yamuna in his evidence (Transcript page 1023 to 1024) to the Commission
    stated a Mr. Baker and a Mr. Sullivan of were involved in the negotiations
    and accompanied the Corporation negotiation team on trips to Cairns for further
    negotiations with the buyers. I ?nd no documentary evidence to support that these
    two individuals were involved in the negotiations. Even if these two individuals were
    involved, the time and effort expended does not equate to the fee paid.

    It appears that on the 29 March 1999, Mr. Yamuna wrote to that they had
    been appointed sole agent to sell Ilirno.

    The reply from dated 29 March 1999 (same day) is as follows:-
    ?Sole Agency to sell llimo Poultry Products Limited (IPPL)

    We thank you for your letter dated the March 1999, appointing our
    Company as Sole selling Agent of

    Having regard to the e??ort and negotiations that are required to achieve a sale
    of this magnitude(around K16 million), we are of the Opinion that a most
    reasonable and fair commission would be 3% (three percent) to be calculated
    as a percentage of the total purchase price.

    Please advise in writing your acceptance of the above commission and upon
    receipt we shall commence to sell IPPL with the resources at our disposal.

    154

  • Page 122 of 181

  • We appreciate very much your kind word in relation to our high professional
    standards and the service we provide.

    A copy of the above is attached and marked as Exhibit ?243? in the Appendices to
    this report.

    MI.Yarnuna replied two day later as follows;

    ?We acknowledge receipt of your letter dated 29 March 1999 and accept your
    o?er of three percent as commission of the total purchase price.

    Please liaise with Mr Allister Greaves of Peak Performance Feed
    Cairns on telephone (07) 4091 301 or facsimile 409] 350]. Mr Greaves will
    be arriving in Port Moresby on Tuesday 63h April 1999 for visitation to [limo
    and to meet with our lawyers.

    A copy of the above is attached and marked as Exhibit ?244? in the Appendices to
    the report.

    Mr. Yamuna then wrote another letter to Carter Newell Lawyers where Jimmy
    Maladina was a partner on the 29th March 1999 advising them of the involvement of
    I do not understand the purpose of this letter to Carter Newell by Mr
    Yamuna as there is no instruction as to What he expected Carter Newell to
    undertake.
    The letter is as follows;

    ?The Investment Corporation (ICPNG) is in the process of selling [limo Poultry
    Products Limited to Peak Performances Feeds (PPF) a company registered in
    Australia and operating out of Cairns.

    We have in principle agreed that the total value offlimo is [(15,500 000.00

    PPF will pay a deposit of [(3,000 000. 00 and pay the remainder of
    00 over a period of six (6) years at an interest rate of 9% per
    annum, on a vendor finance arrangement.

    The above instruction is broad, for detail please contact Mr Sullivans of Port
    Moresby First National Real Estate, who are our Brokers and Sole Agent on
    telephone 3212622.

    A copy of the above is attached and marked as Exhibit ?450? in the Appendices to
    this report.

    As stated earlier, the ?rst two paragraphs of the letter provide information and do not

    provide any instruction as such. In the last paragraph Mr. Yamuna clearly stated that
    the ?above instructions are broad?.

    155

  • Page 123 of 181

  • I fail to identify any instructions in this letter other then to deduce that Mr. Yarnuna
    attempted to make his arrangement with appear formal.

    The contract of sale as noted earlier was signed on 10 June 1998 and this contract
    of
    sale was never settled. However on 28 June 1999 Mr. Yamuna wrote to
    and advised them that the sale has been concluded and requested to submit
    their invoice for payment which is as follows;

    ?We have finalised the contract of sale of llimo Poultry Products and
    Management Agreement. .

    The Sale Commission of 3% as per your letter dated 29 March 1999 is
    accepted.

    Please provide an invoice to the Investment Corporation ofPapua New Guinea
    (ICPNG) to have the matter settled?

    A copy of the above is attached and marked as Exhibit ?245? in the Appendices to
    this report.

    By 28 June 1999 the purchaser had not paid the K6 million nor had it performed
    actions necessary for completion to occur.

    responded the same day (28 June 1999) with an invoice letter as follows;

    ?We are pleased to inform you that the sale has come to a satisfaction)
    conclusion and that Investment Corporation is to receive the monies directly.

    We now supply our memorandum of commission on that sale as per the
    agreement of your letter dated 3] March 1999.

    Sale Price Kl 5, 500, 000. 00
    Commisson due at 3% 465, 000. 00
    NCDC Sales tax 4% 18,600.00
    Total due and payable 483, 600.00

    We appreciate your business with Port Moresby First National Real Estate and
    pleased we are able to assist in this matter.

    A copy of the above is attached and marked as Exhibit ?247? in the Appendices to
    this report.

    Based on the above, a cheque for was drawn two days later on 1 July 1999
    and paid to

    156

    A copy of the cheque for is attached and marked as Exhibit ?248? in the

  • Page 124 of 181

  • Appendices to this report.

    In a normal sales arrangement, commissions are usually settled from the proceeds
    of
    the sale. It goes against prudent business principles for Mr. Yamuna to pay a
    commission from the Corporation?s funds. Mr. Yamuna actions are highly
    questionable and improper where he;

    (1) acted beyond authority in agreeing to pay substantial funds in commissions;
    (2) paid without seeking Board and Ministerial approval;
    (3) paid sales commission when there was no sales;

    After Mr. Yamuna was terminated and Mr. Ruimb appointed, recovery action was
    instigated against with Mr. Yamuna as second defendant.

    The writs of summons have been issued and the ?rst defendant has ?led a Notice of
    Intention to Defend. According to the Corporation lawyers the writs have also been
    served on the second defendant, Mr. Yarnuna, however there is no evidence to
    suggest that Mr. Yamuna ?led his intention to defend.

    A copy of the Summons and Notice of Intention to Defend by 1St Defendant are
    attached and marked as Exhibits ?249? and ?250? respectively in the Appendices to
    this report.

    It appears that the matter has not gone to trial and on 6 December 2005 Mr. Glenn
    Blake of IPBC wrote to the Corporation Lawyers Posman Kua Aisi to return the ?les
    in respect of this matter. The letter is as follows;

    ?Return of Court files on ICPN VS Port Moresby First National Real Estate
    and VS ICPNG.

    We wish to advise that Ms Lynette of your accounts section has contacted the
    as of 5 December 2005 regarding outstanding Invoice Number 251710

    We also wish to confirm on the release of K43, 55 .45 towards settling the other
    Invoices from your ?rm. We approved the payment despite your failure in

    answering the queries raised including fees on inactive files through our letters
    dated 18? and 19?? October 2006.

    Whilst we prepare settling the outstanding invoices relating to the Papua Club
    Court case, we wish to ask that you return all our Court files relating to the
    ICPNG VS Port Moresby First National Real Estate and VS ICPNG
    (WS No.652 of2001) cases.

    157

    As we have settled all the outstanding bills relating to the two cases, we wish to
    ask that you return all our court files immediately.

  • Page 125 of 181

  • We thank you for your assistance.

    A c0py of the above is attached and marked as Exhibit ?253? in the Appendices to
    this report.

    It appears the matter is now with IPBC to pursue.

    I ?nd that Mr. Yamuna colluded with to defraud the Corporation to the
    sum of Therefore, I would recommend that the legal proceeding
    commenced should be pursued by IPBC to recover the money from Mr. Yamuna.

    4. 718.3 Sale of Ilimo under John Ruimb as Managing Director a?er Mr. Yamuna

    When Mr. Ruimb was appointed for his second term as Managing Director in August
    1999 he continued to negotiate the sale of Ilimo with Peak Performances Feeds.

    Based on Mr. Ruimb?s discussions with the buyers, a revised agreement was signed
    on 6 June 2001.

    A copy of the revised agreement is attached and marked as Exhibit ?234? in the
    Appendices to this report.

    The subsequent negotiated price was K11 million for 100% purchase of shares in
    Ilimo. This price consisted of K6 million up front cash payment and a deferred
    component of K5 million to be paid in instalments.
    A letter dated 14 May 2001 written by Mr.Ruirnb to the buyer is as follows:-
    ?Reference is made to our telephone conversation of today.
    I con?rm that have met with the Prime Minister of Papua New Guinea this
    morning, and he has now formally granted in writing the approval under the
    Public Finances Management Act.
    The approved Agreement is the draft dated 24 April 2001, with Changes to
    Clause 10.] where the balance payable to the Investment Corporation of Papua
    New Guinea (ICPNG) is 886?00 as inter?company debt.

    The lawyers should now print the ?nal draft, which should not take more than
    one (1) day.

    Let us?x a date for execution and settlement to take place later this week.

    A copy of the above is attached and marked as Exhibit ?214? in the Appendices to
    this report.

    158

    The approval letter by the Prime Minister dated 14 May 2001 is as follows:?

    OF I 00% SHAREH OLDIN IN ILIMO PO ULT RYPROD CTS
    INVESTMENT ORPORA TION 0F PN TO GEILS TON LIMITED

  • Page 126 of 181

  • Reference is made to your letter of 9 May, 2001 in relation to the above subject
    matter.

    I note that all contentious issues have now been resolved between the Vendor
    and Purchaser and a draft Share Sale and Purchase Agreement has been
    ?nalized, a copy of which was attached to the above referred letter together
    with the following documents for my consideration.

    Mortgage Debenture between Investment Corporation of Papua New
    Guinea (ICPNG) and Ilimo Poultry Products Limited.

    Deed of Assumption and Release between I CPNG, Ilimo Poultry Products
    and the Papua New Guinea Banking Corporation

    I, as Treasury Minister, in accordance with Section 6] and any other relevant
    provision of the Public Finance Management Act, grant the following
    approvals:

    Approve the Draft Share Sale and Purchase Agreement and the terms
    contained therein for the sale by the ICPNG of its 100% shareholding in
    Ilimo to Geilston Limited as submitted to my Of?ce under your above
    referred cover letter.

    (it) approval for ICPNG to convert is shareholder loan of [(12.5 million to
    Ilimo into ordinary shares of that company as per the terms of the Draft
    Share Sale and Purchase Agreement, taking note the potential write~off of
    the residual balance on investment by I CPNG.

    Approval for ICPNG to assume the debt of about K10 million
    owed by Ilimo and pledge any of its assets to as security where
    required by in respect of the residual balance 0fK4 million after
    settlement.

    The contents of the approved Contract should not be materially altered or
    altered in any way prior to its execution without first seeking my approval?

    A coPy of the above is attached and marked as Exhibit ?240? in the Appendices to
    this report.

    DeSpite the signing of the contract, Peak Performance Feeds Pty Ltd?s PNG
    subsidiary Geilston Limited, was not able to conclude the sale. An extract of a letter

    159

    4.7.9

    written by Mr. Ruimb to the liquidator Mr. Rob Southwell provides some indication
    of what had tranSpired is as follows;

    ?The negotiations ?nally concluded with an execution of a contract for sale and

  • Page 127 of 181

  • purchase of [limo on 6 June 200]. Geilston/Athmaize were not able to complete
    settlement of the transactions deSpite being granted additional time within
    which to complete.

    After the failure of Gielston Athmaizefailed to complete the purchase, the [limo
    Board in mid-August 2001 met and resolved that [limo should go into voluntary
    liquidation and that the matter should be put to the shareholders for a
    resolution. A meeting of the Board of convened on 5 September 2001 to
    approve a voluntary liquidation, was directed by Minister for Privatisation to
    defer discussion of the [limo liquidation until further notice from him.

    On 27 September 2001, a petition by Poultry Products Limited (PPL) against
    [limo for non?payment of a debt of about [?400,000 was granted and [limo was
    placed in liquidation under yourself

    A copy of the above is attached and marked as Exhibit ?239? in the Appendices to
    this report.

    The above extract basically states what has happened. The question one needs to
    ask
    is why did the Corporation Board and Management pursued over a period of more
    then two years a costly negotiation with a buyer which had no capacity to buy.

    The buyer initially sought to have the sale funded by the vendor and this alone
    should
    have rung alarm bells. A prudent Board would have requested the buyer?s bank to
    con?rm whether the buyer had the capacity to complete the transaction or otherwise.
    No such assurances were sought. Instead Mr. Yamuna signed a two page contract
    which enabled the buyer to manage llimo and extract available cash from Ilimo for
    supplying stock feed.

    Liquidation of Iiimo

    I note that after Peak Performances failed to conclude the sale, the company as
    stated
    earlier went into liquidation and eventual disposal of its farm assets by who
    had registered mortgage over these assets.

    In my View this was a very bad investment whereby the Corporation lost more than
    K15 million and exposed the Corporation, the State and the Fund for further claims
    by

    My task in respect of the investment in Ilimo has been limited by available
    information, especially financial data available to me. I have established some
    common failures including irregularities and illegal acts which are detailed in my
    summary of ?ndings including appropriate recommendation in respect of these.

    160

  • Page 128 of 181

  • 4.7.10 Summary of ?ndings and recommendations

    The following provides a summary of my ?ndings and recommendations relative to
    the terms of reference concerning the management and disposal of Ilimo Poultry
    Products Limited. In particular, TOR which requires my assessment of
    whether there were any imprudent, improper, or illegal actions taken by any person
    in
    relation to the management and disposal of Ilimo Poultry Products Limited.

    4. 7.10.1 Terms of Reference 1(5)

    Whether the Investment Corporation failed to adhere to prescribed investment
    guidelines.

    I No proper due diligence was performed by either or the Corporation
    when they continued to lend money to Ilimo.

    I The Board of he Corporation and Ilimo continued to borrow funds for Ilimo
    which exposed the Corporation, the State and the Fund to greater risk.

    4. 7.10.2 Terms of Reference 1(c)

    Whether there was any inappropriate intervention, imprudent, illegal or unsuitable
    investments or other improper or unauthorised action.

    I The investment in Ilimo was clearly unsuitable; however, the Board of the
    Corporation and Toutu No. 37 continued to lend money at the expense of the
    Corporation and the Fund.

    I Mr. Yamuna appointment of Peak Performance Feeds Pty as mangers of
    Ilimo was illegal as he had no authority to do so.

    I No Ministerial approval was obtained for the Corporation loans to Ilimo as
    required under the PFM Act.

    I Mr. Yamuna acted improperly when he fabricated the Corporation Board
    minutes to advance K25 million to Ilimo.

    I Privatisation Minister Pok acted illegally when he gave approval under
    Section K25 million advance to Ilimo when he had
    no power to do so.

    I Privatisation Minster Pok acted illegally when he gave blanket approval for

    future advances to Ilimo when he had no authority to give such approval
    under Section 61 of the PFM Act.

    161

    Sir Dennis Young acted improperly when he brushed aside late Director Mete

  • Page 129 of 181

  • Kohana?s concern regarding the approval from Privatisation Minister Pok in
    respect to Section 61 of the PFM Act.

    Mr. Yamuna acted beyond his powers when he collaborated with
    and dishonestly paid to an amount of belonging to the
    Corporation purportedly as commission for sale of Ilimo when no such sale
    took place.

    improperly obtained the sum of belonging. to the
    Corporation purportedly as commission for sale of Ilimo when there was no
    sale of Ilimo.

    Ilimo was insolvent when directors allowed it to continue to trade.

    Ilimo was insolvent when its shareholders the Corporation and Toutu No.37
    allowed it to trade.

    4. 7.10.3 Term of Reference

    Whether there was any failure to comply with prescribed tender procedures in
    connection with the sale and disposal of Ilimo Farm.

    The Board and Management failed to initiate and follow proper tender
    procedures including due diligence when attempting to sell Ilimo shares.

    4. 7.10.4 Terms of Reference 9

    Whether in relation to the Investment Corporation, the Investment Corporations
    Fund and Pacific Balanced Fund, the responsible Government Agencies, including
    the Department of Finance, the Bank of Papua New Guinea and the Auditor
    General, failed in the regulatory, supervisory or reporting responsibilities under
    any applicable Act and what was the extend of this failure.

    The Auditor General failed in his responsibilities when he did not advice the
    Board of the Corporation and the Ilimo Board of his audit requirements and
    the need maintain proper accounts for the audit and subsequent report to
    Parliament.

    The Finance Department failed its responsibility when it allowed the
    Corporation to lend and over to Ilimo without approval as required
    under the PFM Act.

    The Registrar of Companies failed to take appropriate actions when Ilimo
    failed to lodge annual returns as required under the Companies Act.

    162

    The Commissioner General of failed in his responsibilities when he did
    not to take appropriate action when Ilimo failed to lodge its annual tax returns
    and training levy returns as required under the Income Act.

  • Page 130 of 181

  • 4. 7.10.5 Terms ofReference I 1

    Whether any person or corporate entity should be referred to relevant authorities
    for investigation with view of criminal prosecution or other action.

    Referrals to the Ombudsman Commission

    Mr. Pok should he occupy a leadership position in ?Jture for illegal approvals
    under the PFM Act.

    The Board members of the Corporation and Toutu No. 37 should they hold
    any leadership positions for failure to obtain Ministerial approval under
    Section 61 of the PFM Act.

    Referral to the Royal Papua New Guinea Constabulary

    Mr. Pok for illegal approvals under Section 6l of the PFM Act when it was
    clear that he was not the Minister responsible for administering that Act.

    Mr. Yamuna for knowingly acting beyond his powers to pay a Commission of
    to when there was no sale of Ilimo, and was
    not involved with the proposed sale process.

    The Directors of for knowingly obtaining commission from the
    Corporation when they were not involved in the sale of Ilimo and that no sale
    has taken place in respect of Ilimo.

    Referral to Registrar of Companies

    The Board of Ilimo and Toutu No.37 for breaches of various provisions of the
    Companies Act.

    No Ministerial approval was obtained for the Corporation loans to Ilimo as
    required under the PFM Act.

    Mr. Yarnuna acted improperly when he fabricated the Corporation Board
    minutes to advance K25 million to Ilimo.

    Privatisation Minister Pok acted illegally when he gave approval under

    Section K25 million advance to Ilimo when he had
    no power to do so.

    163

    I Privatisation Minster Pok acted illegally when he gave blanket approval for
    future advances to Ilimo when he had no authority to give such approval
    under Section 61 of the PFM Act.

  • Page 131 of 181

  • I Sir Dennis Young acted imprOperly when he brushed aside the late Director,
    Mete Kohana?s concern for obtaining approval from the Treasurer as Opposed
    to the approval presented from Privatisation Minister Pok.

    I Privatisation Minister Fabian Pok acted illegally when he gave approval under
    Section March 1999 for the sale of Ilimo to Peak
    Performance Feeds Ltd.

    I Mr. Yamuna acted illegally when he collaborated with and
    defrauded the Corporation of purportedly as commission for sale of
    Ilimo.

    I improperly obtained the sum of belonging to the
    Corporation purportedly as sales commission for sale of Ilimo shares.

    In reSpect of the above I recommend the following;

    I Ilimo Board members namely John Ruirnb, Alu Tongia, Eno Daera, Leo
    Hannet, Shankar Mahadavan, Sir Dennis Young, Wandi Yamuna, Fred
    Angoman, Vai Reva, John Nilkare, Meakoro Opa, Enock PakarOp and Lincoln
    Taru be referred to the Registrar of Companies for appropriate actions to be
    taken under the Companies Act.

    I The Board of the Corporation namely Wandi Yamuna, Ted Taru, Jack
    Pattersdon, Joseph Kumgal, Demas Kavavu, Robert Seeto, Napoleon Liosi,
    Michael Varapik, John Ruimb, Toffamo Mionzing, John Tari, Abraham
    Tahija, John Khallahe and Puliwa Mapikon for breach of PFM Act and the
    Act.

    I Mr. Pok be referred to appropriate authorities for giving illegal approvals
    under the PFM Act.

    I Mr. Yamuna be referred to appropriate authorities for authorising ?nancial
    transactions which were beyond his authorised ?nancial limited.

    I IPBC continue legal proceedings against Mr.YaInuna and to
    recover the paid as sales commission.

    164

    4.8

    4.8.1

    Equity Investments of the Corporation and the Fund

    Introduction

    This section covers TOR 1 where I am tasked to assess whether there was any
    irregularity and illegality in equity investments, loans to other entities and receipts of

  • Page 132 of 181

  • dividends.

    TOR 1 reads as follows;

    ?Whether, in the performance of its functions and the exercise of its powers,
    particularly in the management of the Investment Corporation Fund, the
    Investment Corporation failed to comply with the provisions of the Investment
    Corporation Act (Chapter 140), the Public Finances (Management) Act 1995
    or any other Act and with relevant policies and directions from the National
    Executive Council between the years I998 and 2002 concerning but not
    limited to the following;

    whether the Investment Corporation failed to adhere to prescribed
    investment guidelines.

    whether there was any in appropriate intervention, imprudent, illegal or
    improper conduct by any person, company, business, legal entity or
    other entity in relation to the expenditure or illegal or unsuitable
    investments or other improper or unauthorised action.

    In particular I will consider a number of issues as follows;

    Who were the Board of Directors and Managers tasked with prudent
    management of the Corporation and the Fund.

    What equity investments were held between 1998 and 2004?

    What new equity investments were undertaken within the period covered by my

    In respect to new investments, whether due diligence were performed, Board
    approval and Ministerial approval Obtained?

    What equity investments were disposed off during the period covered by my

    In respect Of disposals of equity investments, whether there were proper
    analysis, Board approval and Ministerial approval?

    I65

    4.8.2

    Whether dividends from investments were received and deposited into bank
    accounts maintained by the Corporation?

    I Whether the loans given to other entities were based on proper due diligence,
    Board approval and Ministerial approval?

    . Whether the Board complied with Section 10 of the Investment the Act with

  • Page 133 of 181

  • respect to Investments and provision of loans to external entities?

    I Whether the investments that remained after the conversion were appropriately
    held by MTSL in accordance with the Securities Act and Regulations.

    The overall attempt is to determine whether the unit holders? funds were properly
    managed during the period 1998 to 2004 by various Boards and Management of the
    Corporation.

    I am mind?il that the Board (except Treasury Department ex of?cio director), the
    Managing Director and Deputy Managing Director are political appointments. As
    such, there may have been investment decisions based on reasons other then the
    economic returns to the Corporation and the Fund.

    There may be certain degree of expectation whereby I am expected to ?nd
    conclusively that investments based on reasons other the economic returns were
    undertaken. However, I am mind?il that in such circumstances, it would be dif?cult
    given that discussions in respect of any such investment would normally be verbal
    and would lack documentation. I will rely on established procedures when reviewing
    these investments.

    Background

    Information contained in this section will help one to understand the performance of
    equity investments including loans given to other entities.

    Both the Corporation and the Fund have had significant investments over the years
    and these comprised from subsidiary companies and investee companies including
    lending of funds to these companies. Some of the investments performed
    exceptionally well while others have not performed as expected.

    Over the period, new investments were undertaken while some existing investments
    were disposed off. However, not in all cases these additions and disposals of
    investments were based on economic returns of these investments.

    I will review these investments to determine if established procedures were followed

    in either addition or disposal of investment including loans given to other companies
    who may have failed to repay with interests.

    166

    4.8.2.1 Investment Guideline

    1 have considered the Investment Guidelines in Chapter 3 of my Report. The brief
    provided here is to enable one to understand the context in which the investments by
    the Corporation and Fund were undertaken.

    I am mindful that there was no formal investments guideline for the Corporation to
    follow while undertaking investments. However, Section 10 of the Act required the

  • Page 134 of 181

  • Board and Management to manage the affairs of the Corporation including the Fund
    on sound business principles.

    Section 10 of the Act required the Board and Management to conduct at all times in
    the interest of the unit holders. This would ensure that maximum bene?t would
    accrue to unit holders in respect of investments undertaken and investments
    disposed.
    Minimum criteria to be considered in reSpect of new investment and disposal of
    existing investments are detailed below.

    Entry into New Investments

    At minimum the following procedures should be followed;

    I Proper due diligence of new investments by management detailing anticipated
    economic returns.

    I Board deliberation, approval or rejection of pr0posed investment based on due
    diligence and proper documentation of its decision in the minutes.

    I Ministerial approval as required under Section 61 of the PFM Act.

    Disposal of Investments

    At minimum the following should be followed;

    I Proper due diligence including independent valuation of investments
    considered for disposal.

    I Board deliberation of the disposal and documentation of its decisions in the
    minutes.

    I Ministerial approval as required under Section 61 of the PFM Act in reSpect
    of investments of values of and over.

    I Follow proper tender procedures in respect of any disposal of investment.
    4. 8.2.2 Board and Management of the Corporation

    The Board of Directors and management responsible for investments at relevant
    times
    is set out in Chapter 4 of my Report.

    167

    4.8.3 Equity investments by the Investment Corporation Fund

    The Fund over the years? invested in many companies operating in various
    businesses
    that existed between 1998 and 2004. My task is to review any disposal or acquisition
    within the period covered by my TOR.

  • Page 135 of 181

  • 4.8.3.1 Investments in 1998

    The Fund equity investments at the end of 1998 comprised of the following;

  • Page 136 of 181

  • Company I Shares Costs Valuation
    – Sha?hol-ding Kina

    Amalgamated Packaging 30% 210,001 250,132 2,024,578
    Associated Mills 26% 610,353 619,325 9,833,153
    BHP Steel 20% 132,000 232,003 1,883,983
    BHP Titan 20% 200,000 200,000 203,560
    BOC Gases 26% 271,700 233,988 4,641,207
    Boral Gas/ Origin Energy 33% 1 10,000 222,497 2,677,609
    Carrier Air conditioning 20% 10,000 48,766 270,485
    Gordon Gotch Nil Nil 0 0
    Coffee Holding 12 49,495 0
    Highlands Paci?c 0% 3,000,000 3,000,000 1,319,400
    Ilimo 4% 225,703 209,994 29,115
    Kila Marsh 26% 47,000 47,000 872,846
    Lihir Gold 0 700,000 0 0
    Markham Culverts 25% 33,335 446,689 . 1,590,806
    Monier 20% 40,0000 210,000 319,168
    NG Containers 30% 89,990 74,079 0
    Niugini Mining 0% 1,000,000 2,578,300 0
    Orogen Minerals 0% 972,000 1,701,000 2,805,386
    Pagini Transport 19% 1 19,016 0 0
    RBPM Regal 26% 27,170 44,920 117,803

  • Page 137 of 181

  • Rothmans 26% 107,380 234,003 1,118,384
    SP Holdings 0% 31,192 442,502 96,139
    SP Tyres 20% 63,000 61,998 104,302
    TGAS 20% 16,000 40,800 0
    Kumul Hotels 27% 1,037,850 943,509 1,3 83,869
    Trukai 33% 520,000 468,000 565,188
    United Bakery 26% 332,127 191,272 372,247
    Matkins 45% 22,500 22,500 0
    Total 12,523,277 32,229,228

    A copy of the above is attached and marked as Exhibit ?259? in the Appendices to

    this repOIt.

    168

    Whether the Board followed proper procedures including Ministerial approval as
    required under Section 61 of the PFM Act is outside the period covered by my

    I have merely stated the fact that these investments existed in 1998, and I will review
    additions and disposals of investments since 1998. I will also flag bad investments
    whereby monies have been invested without due consideration for economic returns.

    In respect of 1998, I note that the following investments were disposed prior to 1998;

    I Lihir Gold Limited
    I NG Containers
    I Niugini Mining Limited
    I am not able to determine the exact amount that was received in respect of these

    disposals.

    The other investments namely Coffee Holdings, Pagini TranSport, TGAS and
    Watkins were all bad investments. There is no evidence to suggest that these
    companies traded which resulted in the Fund valuing these investments at zero. The
    unit holders? funds invested in these companies amounted to more then

    4. 8.3.2 Investments in 1999

    The following were the Fund?s investments in 1999.

  • Page 138 of 181

  • Page 139 of 181

  • Enipany I Shares Costs Valuation
    Shareholding Kina
    Amalgamated Packaging 30% 210,001 250,132 1,404,886
    Associated Mills 26% 610,353 619,325 9,833,153
    BHP Steel 20% 132,000 232,003 1,414,486
    BHP Titan 20% 200,000 200,000 210,660
    BOC Gases 26% 271,700 233,988 9,205,739
    Boral Gas/Origin Energy 33% 110,000 222,497 3,068,560
    Carrier Airconditioning 20% 10,000 48,766 270,485
    Gordon Gotch Nil Nil Nil
    Coffee Holding 12% 49,495 49,495 –
    Highlands Paci?c 0% 3,000,000 3,000,000 1,791,900
    Ilimo 4% 225,703 209,994 –
    Kila Marsh 26% 47,000 47,000 1,327,374
    Markham Culverts 25% 33,335 446,689 1,470,217
    Monier 20% 40,000 210,000 615,672
    NG Containers 30% 89,990 74,080 –
    Orogen Minerals 0% 972,000 1,701,000 2,937,967
    Pagini Transport 19% 1 12,016 98,569
    RBPM Regal 26% _2_7,170 __44,920 117,804
    26% 107.380 234,003 5

    169

  • Page 140 of 181

  • SP Holdings 0% 31,192 442,502 96,140
    SP Tyres 20% 63,000 61,998 57,645
    20% 16,000 40,800
    Toyota Tusho 1,059,875 4,228,901 4,139,130
    Kumul Hotels 27% 1,037,850 943,509 1,043,558
    Trukai 33% 520,000 468,000 990,704
    United Bakery 26% 332,127 191,272 372,248
    Total 14,299,443 40,368,328

    A copy of the above is attached and marked as Exhibit ?260? in the Appendices to
    this report.

    In respect of Highlands Paci?c, I note that an amount of K3 million was invested,
    however, the investment had diminished to K17 million. It appears that the Board
    had invested in a resource company Without pr0per due diligence of long term
    prospects of the investment resulting in the diminution of investment.

    The new investment in 1999 was the purchase of Toyota Tsusho shares from the
    Corporation. Further, the Fund disposed investments in Rothmans and Orogen
    Minerals shares.

    Purchase of Toyota Tsusho shares

    The Board at its meeting number 131 of 1999, approved the purchase of Toyota
    Tsusho shares from the Corporation by the Fund. The extract of the minute is as
    follows (Exhibit

    ?Board approval was sought for the ICPNG to acquire the Corporation ?3
    23.03% shareholding in Toyota Tsusho (PNG) for a total consideration of
    K7. 779 million to [(8.856 million.

    The company is a strong performer paying consistent dividend to shareholders.
    It continues to dominate a large market share in the automotive industry. It is
    under sound management and the future prospects look good.

    Under current arrangement, ICPNG as the Manager of the Fund is obliged to
    transfer good performing investments to the Fund a?er maturity. The

  • Page 141 of 181

  • Corporation has not fulfilled this obligation in the case of Toyota Tsusho (PNG)
    Ltd. It was proposed that the Board approve the acquisition.

    The Board resolved to approve the Fund?s acquisition of the Corporation ?s
    23.63% 2,119,749 ordinary shares at price of K417 for a total purchase
    consideration of K8, 85 6,3

    The Board further discussed the share sale at its meeting 132 of 1999 which is
    recorded in the minutes as follow (Exhibit

    170

    ?Board reviewed the submission and took note of the earlier resolution passed
    at meeting no [31/99 and the practical di?iculties that would arise in
    implementing that resolution and resolved to accept management?s
    recommendation to reserve only 50% (1,059,875 shares) at the revised price of
    K3. 99 per share for a total consideration of K4, 228, 901 .25

    There is no evidence that Ministerial approval was obtained as required under the
    PFM Act. The ?les (Exhibits submitted by the Treasury Department to
    the Commission do not record this transaction.

    Investment Manager Mr. Pokarop?s brief to the Acting Managing Director indicated
    that he was not sure whether Ministerial approval was required. An extract of his
    analysis is as follows;

    am not sure whether any Ministerial approval is required under the
    reservations process. It should be noted that the Kl .6 million has already been
    drawn without Ministerial approval.

    Mr. Pokarop ought to have known that transactions of and over required
    Ministerial approval. However he choose to cast doubt over the transaction by saying
    that he was not sure whether Ministerial approval was required in this instance.

    A copy of Mr.Pokarop?s brief is attached and marked as Exhibit ?261? in the
    Appendices to this report.

    According to 1999 Fund Management accounts, a part payment of K1.4 million was
    paid to the Corporation for the Toyota Tsusho shares.

    A copy of the extract of the 1999 management accounts is attached and marked as
    Exhibit ?262? in the Appendices to this report.

    A further was paid in 2000 according to the 2000 management accounts.

    A copy of the extract of the 2000 management accounts is attached and marked as
    Exhibit ?263? in the Appendices to this report.

    According to the 2001 cashbook a further K265 million was paid in 2001 which
    brought the total amount paid for the Corporation shares in Toyota Tsusho to

  • Page 142 of 181

  • I note that the amount paid is more by than what has been
    resolved at the Board meeting. It appears that the amount of paid was in
    excess of the agreed price of K42 million. In my View this amount is refundable to
    the Fund by the Corporation.

    A copy of the extract of the 2001 management accounts is attached and marked as
    Exhibit ?264? in the Appendices to this report.

    171

    I have noted under my review of investments after the conversion that, after the
    Corporation had obtained the hands from the Fund as payment for these shares, the
    Corporation never transferred the shares to the Fund. It appears that by 2005, the
    shares were still held in the name of the Corporation.

    I note that K46 million of unit holders? funds were taken out by the Board of the
    Corporation for which the shares were never transferred to the Fund.

    The Corporation continued to receive dividends form Toyota Tsusho since 1999. The
    dividends received by the-Corporation up to the point of conversion is In
    my view, half of the total dividends received belonged to the Fund. However, I note
    that there is no evidence to suggest that the dividend received was shared between
    the
    Fund and the Corporation according to their reSpective shareholding.

    I find that the Corporation owes the Fund K304,l78 in dividends it received from
    Toyota Tsusho and applied to its own use. The overpayment of on the
    shares purchase and the dividends not remitted to the Fund of K304,l78 total
    K704,l79. In my view this amount is due to the Fund from the Corporation.

    I further recommend that the shares currently held under the name of the
    Corporation
    be transferred to the Fund for a consideration based on valuation and taking into
    account money owed to the Fund.

    Disposal of shares in Roihmans

    The Fund shareholding in Rothmans was disposed in 1999. The Board at its meeting
    number 130 of 1999 resolved to dispose of the Rothmans shares as follows (Exhibit

    ?The Board resolved to dispose of its shares in Rorhmaris for the value of
    million.

    There was no analysis of this disposal other then only a narration on the 1999
    investment schedule as follows;

    Fund was forced to divest on this occasion because of the uncertainty
    over the merger ofRorhmans International and British American Tobacco and

  • Page 143 of 181

  • the implication of that merger on Rothmans of Pall Mall (PNG) Ltd.

    In 1998 the investment in Rothmans was valued at Kl.l million. The shares were sold
    in April 1999 for K26 million.

    A copy of the 1999 investment schedule with the above narration is attached and
    marked as Exhibit ?265? in the Appendices to this report.

    I have veri?ed to the bank account of the Fund in 1999 an amount of was
    received and was deposited.

    172

    A copy of the bank statement is attached and marked as Exhibit ?266? in the
    Appendices to this report.

    A Board resolution paper which required management to obtain Ministerial approval
    before the sale could proceed is as follows;

    ?Yhe Board approved the sale of the ICPNG Fund?s 26% holdings in Rothmans

    of Pall Mall (PNG) Ltd.

    Action required: a) Ministerial approval
    b) Expedite sale

    Action O?icer: Mr. P. Mel

    A copy of the Board resolution paper is attached and marked as Exhibit ?267? in the
    Appendices to this report.

    There is no evidence to suggest that Ministerial approval as required under Section 6
    of the PFM Act was obtained.

    In addition there is no evidence in the ?les submitted by the Treasury Department
    that
    such approval was obtained (Exhibit ?63 Therefore, I conclude that no
    Ministerial approval was obtained under Section 61 of the PF Act in respect of this
    disposal.

    DiSposal of 0rogen Minerals shares

    I have not been able to locate any documents from the documents available to the
    Commission detailing any Board approval and Ministerial approval as required under
    Section 61 of the PFM Act. Only a narration on the 1999 investment schedule is as
    follows (Exhibit

    ?The investment was divested due to attractive stock price and need to achieve
    capital gains from favourable exchange rate.

  • Page 144 of 181

  • ICPNG purchased 50,000 shares directly on the market at the cost ofA$1.46
    per share for total consideration of A3 73, 000 from funds held.

    The amount received as per the schedule is for the shares and at the
    same time the Fund bought 50,000 shares from the open market.

    The ?les (Exhibit ?63 submitted by the Treasury Department does not
    contain any evidence that Ministerial approval was obtained as required under
    Section 61 of the PFM Act.

    It appears that no Board and Ministerial approval were obtained in respect of this
    investment.

    173

    4. 8.3.3 Investments in 2000

    The following were the Fund?s investments in 2000;

  • Page 145 of 181

  • Company 1 1 Shares Costs — Valtgtion
    Shareholding Kina

    Amalgamated Packaging 30% 210,001 250,132 2,117,566
    Associated Mills 26% 610,353 619,325 13,405,366
    BHP Steel 20% 132,000 232,003 1,129,814
    BHP Titan 20% 200,000 200,000 341,760
    BOC Gases 26% 271,700 233,988 9,018,538
    Boral Gas/Origin Energy 33% 110,000 222,497 3,136,320
    Carrier Air conditioning 20% 10,000 48,766 58,470
    Gordon Gotch Nil Nil Nil
    Coffee Holding 12% 49,495 49,495
    Highlands Paci?c 0% 3,000,000 3,000,000 716,100
    Ilimo 4% 225,703 209,994
    Kila Marsh 26% 47,000 47,000 1,327,374
    Markham Culverts 25% 33,335 446,689 1,470,217
    Monier 20% 40,000 210,000 615,672
    NG Containers 30% 89,990 74,080
    Orogen Minerals 0% 100,000 175,000 1 230,980
    Pagini Transport 19% 119,016 98,569
    RBPM Regal 26% 27,170 44,920

  • Page 146 of 181

  • SP Holdings 0% 31,192 442,502 103,108
    SP Tyres 20% 63,000 61,998 112,518
    TGAS 20% 16,000 40,800
    Toyota Tusho 1,059,875 4,228,901 1,300,149
    Kumul Hotels – 27% 4,471,980 4,065,477 2,932,724
    Trukai 33% 520,000 468,000 5,330,104
    United Bakery 26% 332,127 191,272 372,248

    Total 15,661,408 43,719,028

    A copy of the above is attached and marked as Exhibit ?268? in the Appendices to

    this report.

    One signi?cant transaction that occurred in 2000 is the acquisition of Travelodge

    rights issue shares.

    Acquisition ofTraveZodge Rights Issue

    The investment schedule indicated that the Travelodge shares were purchased in
    2000, however, the actual transaction took place in 1997. The Board at its meeting
    number 122 of 1997 approved the purchase of rights issue by Travelodge. The
    extract of the minute (Exhibit is as follows;

    174

    ?Directors discussed the revised submission and resolved to approve that the
    Fund take up its allocation for a consideration of K34 million subject to
    ministerial approval being obtained.

    Ministerial approval under Section 61 of the PFM Act was obtained dated 22 October
    1997 from Treasurer Iairo Lasaro is as follows (Exhibit

    refer to the submission from the Investment Corporation Fund ofPapua New
    Guinea dated .26 September 1997 on the above subject.

    In accordance with Section 61 of the Public Finances (Management) Act, I
    hereby grant my approval for I CPNG to take out the ?Rights Issue Equity in
    the refurbishing 0f Travelodge (PNG) Ltd?s group of Hotels (Port Moresby,

  • Page 147 of 181

  • Islander and Ela Beach) for a total consideration of [(3.434 million.

    Any variation in the rights issue holding should seek my prior approval.

    According to a status report by the Investment Analyst, the Fund took up 3,434,000
    shares at K100 per share.

    A copy of this report is attached and marked as Exhibit ?269? in the Appendices to
    this report.

    As state earlier this transaction appeared to have taken place in 1997, however, the
    Fund only accounted for it in 2000. My report on the K37 million proposed write?off
    indicated that no proper accounting records were maintained.

    4. 8.3.4 Investments in 2001

    The following were the Fund?s investments in 2001;

  • Page 148 of 181

  • Company 1 1 Shares 1 Costs?
    Shareholding 1 Kina
    Amalgamated Packaging 30% 210,001 250,132 1,404,886
    Associated Mills 26% 610,353 619,325 9,833,153
    BHP Steel 20% 132,000 232,003 1,414,486
    BHP Titan 20% 200,000 200,000 210,660
    BOC Gases 26% 271,700 233,988 9,205,739
    Boral Gas/ Origin Energy 33% 110,000 222,497 3,068,560
    Carrier Air conditioning 20% 10,000 48,766 270,485
    Gordon Gotch Nil Nil Nil –
    Coffee Holding 12% 49,495 49,495
    Highlands Paci?c 0% 3,000,000 3,000,000 1,791,900
    Ilimo 4% 225,703 209,994
    Kila Marsh 26% 47,000 47,000 1,327,374
    Markham Culverts 25% 33,335 446,689 1,470,217
    Monier 20% 40,000 210,000 615,672

    175

  • Page 149 of 181

  • NG Containers 30% 89,990 74,080 –
    Orogen Minerals 0% 972,000 1,701,000 2,93 7,967
    Pagini Transport 19% 119,016 98,569 –
    RBPM Regal 26% 27,170 44,920 117,804
    Rothmans 26% _107,380 234,003
    SP Holdings 0% 31,192 442,502 96,140
    SP Tyres 20% 63,000 61,998 57,645
    TGAS 20% 16,000 40,800 –
    Toyota Tusho 23% 1,05 9875 4,228,901 4,139,130
    Kumul Hotels 27% 1,03 7,850 943,509 1,043,558
    Trukai 33% 520,000 468,000 990,704
    United Bakery 26% 332,127 191,272 372,248
    Total 14,299,443 40,368,328

  • Page 150 of 181

  • A copy of the above is attached and marked as Exhibit ?270? in the Appendices to

    this report.

    The only investment diSposed in 2001 was BHP.

    Disposal of BHP shares

    The Board at its meeting number 137 of 2000 approved the disposal of BHP shares.
    The extract of the minute is as follows (Exhibit

    ?Board reconsidered the proposal noting that BHP and COM craft would be
    moving ahead to finalise the transfer of ownership and resolved to approve that
    the fund divest its shareholding in BHP Steel Buildings Products and BHP

    Titan Limited for the same price agreed to buy the two major players.

    The management then made a submission to the Treasury Department which
    reviewed the sale and advised the Minister to give approval under Section 61 of the
    PFM Act. Ministerial approval by Prime Minister and Treasurer Sir Mekere Mourata
    is as follows (Exhibit

    ?1 refer to your letter dated 8 January 2001 on the above.

    Please be advised of my approval under Section 61 of the Public Finances
    (Management) Act 1995 for the investment Corporation Fund of Papua New
    Guinea to e?ect the sale of its 20% interest each in BHP Building Products
    PNG and BHP Titan at a totalprice ole,600,000.

    Any variation to the above should seek my prior approval.

    It appears that the main reason the shares were sold was that BHP was restructuring
    its business world-Wide to concentrate on its cores business of steel production. The

    176

    BHP shares were valued at K1.6 million in 2001 and the price obtained would appear

    reasonable.
    4.83.5 Investments in 2002

  • Page 151 of 181

  • The following were the Fund? 3 investments in 2002;

  • Page 152 of 181

  • Page 153 of 181

  • Page 154 of 181

  • 1 Company Shares 1 Costs 1 Valuation
    Shareholding Kina
    Amalgamated Packaging 30% 210,001 – 250,132 1,404,886
    Associated Mills 26% 610,353 619,325 9,833,153
    BHP Steel 20% 132,000 232,003 1,414,486
    BHP Titan 20% 200,000 200,000 210,660
    BOC Gases 26% 271,700 233,988 9,205,739
    Boral Gas/Origin Energy 33% 110,000 222,497 3,068,560
    Carrier Airconditioning 20% 10,000 48,766 270,485
    Gordon Gotch Nil Nil Nil
    Coffee Holding 12% 49,495 49,495
    Highlands Paci?c 0% 3 ,000,000 3,000,000 1,791,900
    llimo 4% 225,703 209,994 0
    Kila Marsh 26% 47,000 47,000 1,327,374
    Markham Culverts 25% 33,3 35 446,689 1,470,217
    _Monier 20% 210,000l 615g2_
    Metals Refining 37% 5 8,955,000 6,075,072 1 8,238,600
    Holdingi 1 i I
    MTSL 15% 75,000 75.000 –
    NG Containers 30% 89,990 74,080
    Orogen Minerals 0% 972,000 1,701,000 2,937,967
    Pagini Transport 19% 119,016 98,569 –
    RBPM Regal 26% 27,170 44,920 117,804
    Rothmans 26% 107,380 234,003 –
    SP Holdings 0% 31,192 442,502 96,140
    SP Tyres 20% 63,000 61,998 57,645
    TGAS 20% 16,000 40,800 –
    Toyota Tusho 1,059,875 4,228,901 4,139,130
    Kumul Hotels 27% 1,037,850 943,509 1,043,558
    Trukai 33% 520,000 468,000 990,704
    United Bakery 26% 332,127 191,272 372,248
    LI?otal 14,299,443 40,368,328

  • Page 155 of 181

  • A copy of the above is attached and marked as Exhibit

    this report.

    ?271? in the Appendices to

    Two investments were purchased in 2002, these being the Metals Re?ning Holdings

    (MRH) shares and MTSL shares.

    177

    MTSL

    The Fund bought 15% of shares in MTSL for MTSL Board comprising of
    the only shareholder and director at the time Mr. John Sanday indicated that
    application for the shares was received in October 2000. There is no evidence in the
    2000 COIporation Board minutes that this investment was considered. The extract of
    MTSL Board minute is as follows;

    ?The Chairman tabled applications for shares received by the Investment
    Corporation Fund of Papua New Guinea for 75,000 shares, the
    Defence Force retirement Benefit?s Fund for 75,000 shares and
    Melanesian Capital Advisors Limited for 350,000 shares in the

    Company:-

    IT WAS RESOLVED that the consideration for which the shares will be issued
    to and is Kl.00 for each share. The consideration for the
    issue of shares to MCAL is to be for a consideration other than cash.

    IT WAS RESOLVED that in the Board?s opinion, the consideration for and the
    terms of issue of the shares are fair and reasonable to the company and to the
    existing shareholder.

    IT WAS RESOLVED to issue the shares to and MCAL in the

    following prOportions:?

    75,000.00 ORDINARY SHARES at [(1.00 each

    75, 000 ordinary shares at [(1.00 each;

    MCAL 350, 000 ordinary shares for consideration other than cash

    IT WAS RESOLVED that the Chairman be authorized to sign the Certificate
    required by Section 47(2) of the Companies Act and to sign and lodge for

  • Page 156 of 181

  • registration, the prescribed form to register the issue of shares at the Registrar
    of Companies O??ice.

    The Board would have deliberated and approved this investment however there is no
    evidence to suggest that. Mr. Ruimb was appointed a director of MTSL at that
    meeting and therefore this investment appear to have been sanction by Mr. Ruimb
    as
    Managing Director of the Corporation.

    A copy of the minute is attached and marked as Exhibit ?272? to the Appendices to
    this report.

    Metals Re?ning Holdings Limited

    The 99% buyout of the other shareholders in Metals Re?ning Holdings was a major
    investment undertaken by the new trustee MTSL. However there is no record of any

    178

    due diligence performed by the Trustee and Trustees? Board approval sought for this
    investment based on due diligence. It appears that the investment was undertaken
    by
    MTSL Executive Chairman Mr. Sanday without any due diligence and Board
    approval.

    4. 8. 3.6 Investments a?er conversion in 2002

    All remaining investments after the conversion for both the Fund and the Corporation
    are discussed under paragraph 4.

    4.8.4 Equity investments by Investment Corporation of PNG

    The Corporation had the following equity investments at the end of 1997;

  • Page 157 of 181

  • Page 158 of 181

  • Company Shares Costs 1 Valuation
    Shareholding Rina
    Origen Minerals unknown unknown 3,140 3 ,140
    BPT (PNG) Unknown unknown 2,224,116 2,224,116
    ANG Corporation Unknown unknown 55,598
    Cascade Shares Unknown unknown 216,065 216,065
    Paci?c Capital Unknown unknown 31 1,358 31 1,358
    Kigabah Plantation UnknOWn unknown 925,463 193,880
    TGAS Unknown unknown 92,208 92,208
    Lae Freezers Unknown unknown 300,000 300,000
    Mecca Group Unknown unknown 8 8
    Ilimo Farm Unknown unknown 2,057,406 197
    New Guinea Plantations Unknown unknown 293,772
    Jimi River Cattle Unknown unknown 256,868
    Radio Taxies Unknown unknown 4,500
    National Equity Corp Unknown unknown 5,000
    Metals Re?ning Unknown unknown 1,700,000
    Toutu No.37 unknown unknown 99 99
    Cascade Apartments unknown unknown 431,250 431,250
    c/note
    Paci?c Capital Pref shares unknown unknown 11,538 11,538
    Lalokau Project Land only Land 6,772,154 6,772,154
    only
    [iota] 15,660,543 10,556,013

    A copy of the above is attached and marked as Exhibit ?273? in the Appendices to
    this report.

    Many of the investments noted above were bad investments as indicated by the de?
    cit
    of K5 million noted on valuations over costs of investments.

  • Page 159 of 181

  • 179

    I have covered Ilimo and the property companies separately. In this analysis I will
    deal with equity investments that were either disposed or acquired during the period

    covered by my TOR.

    4. 8.4.1 Investments in 1998

    The investments in 1998 were as follows;

    Company Shares Costs Valuation
    Shareholding I Kina

  • Page 160 of 181

  • Orogen Minerals unknown unknown 3,140 3,140
    unknown unknown 2,360,116 2,360,116
    AN Corporation unknown unknown 55,598
    Paci?c Capital unknown unknown 31 1,358 31 1,358
    Paci?c Capital Pref Shares unknown unknown 11,538 11,538
    Ki gabah Plantation unknown unknown 925,463 193,880
    TGAS unknown unknown 92,208 92,208
    Lae Freezers unknown unknown 300,000 300,000
    New Guinea Plantations unknown unknown 293,772 –
    Jimi River Cattle unknown unknown 256,868
    Radio Taxies unknown unknown 4,500
    National Ecpiity Corp unknown unknown 5,000
    Metals Re?ning Holdings unknown unknown 1,700,000
    Lalokau Project Land only Land only 6,772,154 6,772,154
    Total 13,091,715 10,044,394

    A copy of the above, is attached and marked as Exhibit ?274? in the Appendices to

    this report.

    In respect of the above I have noted that some investments were bad and were
    valued
    at zero. These investments include;

    ANG Corporation
    I Jimz’ River Cattle

    National Equity Corp

    Metals Re?ning Holdings

    Some notable investments namely Kigabah, Lae Freezers, Gordon Gotch, Negliw
    No. 94 and TGAS were carried at cost however the investments have not performed

    to expectation.

    I note that there was no disposal or acquisition of investments in 1998.

    180

  • Page 161 of 181

  • 4.8.4.2 Investments in 1999
    No schedule exists in respect of investments in 1999.

    Due to limited information available to me, I am not able to determine the movement
    of investments in 1999. However there is a schedule in February 2000 which is
    discussed below. 1 do not think there would have been any material difference
    between December 1999 and February 2000.

    4. 8. 4.3 Investments in 2000

    1 have not been able to locate any investment schedule as at the end of December
    2000 however, there is a schedule pertaining to February 2000 which is as follows;

  • Page 162 of 181

  • Company 0/o Shares Costs Valuation.
    Shareholding Kina

    000
    Paci?c Capital 14 161,538 161,538 161,538
    Paci?c Capital Pref shares 161,538 161,538 161,538
    Kigabah Plantation 100 87,821 718,314
    TGAS 20 16,000 40,800
    Lae Freezers 300,000 300,000
    Madang Timbers 19 145,959 625,142 –
    Madang Timer Pref shares 33,199 33,199 33,199
    Negliw No 94 750,000 750,000
    Jimi River Cattle 51 99,178 736,893 –
    Jimi River Cattle 810,552 810,552 –
    Kobum Spice Co 250,000 –
    Scorpio 74 200,000 200,000
    Lalokau Project 7,121,000 5,950,000

    Total 11,908,976 7,056,275

  • Page 163 of 181

  • A copy of the above is attached and marked as Exhibit ?275? in the Appendices to
    this report.

    Again, I note that most of the investments are bad investments which have failed to
    perform and are valued at zero. The total investments cost at the end of 2000 was
    K119 million however these investments were valued at K70 million, a de?cit of
    K40 million. The de?cit in investment clearly indicates that the investments
    undertaken generally failed to perform.

    The only investment that was disposed was Toyota Tsusho shares purportedly sold
    to
    the Fund. My review of investments after the conversion indicated that the Toyota
    Tsusho shares were still held by the Corporation. The above schedule in my view is
    not correct because the Corporation sold half its shares in Toyota Tsusho to the Fund
    and as such it would still have half of the shares in its books.

    181

    4.8.4.4 Investments in 2001 2002

    4.8.5

    The accounts of the Corporation were prepared up to 2000 by Guinn PKF and the
    accounts from 2001 onwards are yet to be prepared.

    There is no schedule of investment available for the years 2001, 2002, 2003 and
    2004
    to review. However, I have analysed the investments that were existing in February
    2000. The investments that I have reviewed indicate that most of the investment for
    both the Fund and the Corporation were bad investments which indicate that the
    Management and Board over the years have failed to do prOper due diligence
    before
    undertaking these investments.

    It appears that the Board failed its ?duciary duties with reSpect to investment and as
    a
    result, unit holders? funds were lost through bad investments.

    Investments after the conversion – 2002 to 2004

    After the conversion most of the non-performing investments of both the Fund and
    Corporation appear to have been disposed. The investments remaining were
    transferred to the Trustee MTSL to manage on behalf of the Fund. Investments at 30
    June 2004 were as follows;

  • Page 164 of 181

  • Comp any Shares Costs 1 Valuation?
    Shareholding Kina
    Amalgamated Packaging 30% 210,001 250,132 5,378,126
    Associated Mills 26% 610,353 619,325 8,013,935
    BOC Gases 26% 271,700 233,988 8,509,644
    Boral Gas/Origin Energy 3 3% 1 10,000 222,497 3,160,3 00
    Marsh 26% 47,000 47,000 1,815,610
    Markham Culverts 25% 33,335 446,689 2,286,781
    MTSL 15% 100,000 75,000 100,000
    Metals Re?ning Holdings 79.5% 19,490,005 6,985,072 5,067,401
    Monier 20% 40,000 0 72,000
    Ramu Sugar 200,000 296,000
    SP Holdings 0% 31,192 442,502 110,420
    SP Tyres 20% 63,000 61,998 105,400
    Toyota Tusho 2,255,888 8,457,803 2,004,976
    Kumul Hotels 27% 4,471,980 4,065,477 2,727,908
    Trukai 33% 520,000 468,000 16,548,164
    Total 22,573,483 56,196,665

  • Page 165 of 181

  • A copy of the above is attached and marked as Exhibit ?276? in the Appendices to

    this report.

    182

    The above table summarise the investments that were held at the end of June 2004.
    There were no new investments, however the following investments were disposed;

    I Carrier Air conditioning

    . Origen Minerals

    Pagini Transport
    There is no detail of any Board discussion in the Trustee Board minutes about the

    disposal of the above investments.

    Fund committee meeting number 1 of 2003 provides some indication of the status of
    some of the investments as follows;

    ?Sale of Highlands Pacific Limited Shares

    Approval was granted for the sale 300,000 shares in Highlands Pacific in July
    2002. We have been able to sell 211,399 shares at the price of 38 cents per
    share. The net proceeds from the sale was K161813443. The balance of 88, 601
    shares will be sold when the price pick up

    Rama Sugar Limited Shares

    The Fund was only allocated 1 0, 000 shares in Rama Sugar Limited at the IPO.
    The Fund initially offered to purchase 200,000 shares at [(1.26 for a total
    consideration of K252, 000 in Ramu Sugar Limited.

    The Fund has brought additional 90,000 shares on the market at the price
    range ole.68 to 73 per share.

    The Fund now has a total of 200,000 shares in the company. The company has
    declared 7 toea per share dividends on the ordinary shares to be paid in

  • Page 166 of 181

  • December. 0n the current shareholding, the Fund received K14, 000 (gross).
    Sale of Fund ?3 shares in Pagini Transport

    The Company has proposed to buy?back its shares, as follows:

    – 66,352 shares 50 toea on September 2002

    66,352 shares 50 toea on 30?1 April 2003

    – 66,351 shares 50 toea on 31 October 2003

    The first payment of 76 was received on 3 0I September 2002.

    Carrier Air Conditionin

    183

    The Company has now accepted our o??er to purchase the Fund ?5 0, 000 shares
    at K1635 per share, for a consideration of Settlement has taken
    place on 10th February 2003.

    The 0, 000 shares were initially bought at the average price of K48 7 per share
    and recently sold at 6.35 per share.

    SP Tyres Limited

    The company has indicated willingness to purchase the shares. However, they
    are yet to confirm the price of the sale.

    Write o? of Investments in Ilimo Products

    The Investment totalling K225, 703 (at cost) in [limo Products was written?of in
    Ilimo Products. The write?0f is necessitated by the recent actions by the
    liquidator to sell the assets of the company.

    The write-o? will have no drastic impact on the Fund?s portfolio as the Fund is
    carrying a Nil valuation in the books. The write-o? will also tidy up the
    portfolio.

    Regal Bakery Limited

    The Fund ?s investment totalling K2 70 in Regal Bakery was written?o?. The
    company has ceased operations in 1996 and is awaiting the de?registration
    once IRC has given their approval.

    A copy of the above is attached and marked as Exhibit ?277? in the Appendices to
    this report.

    In respect to Highlands Paci?c, it is mentioned that an approval was granted. I have
    not been able to establish who granted that approval. Further there is no mention on

  • Page 167 of 181

  • the approval in the MTSL Board minutes.

    It appears that Carrier Air conditioning and Pagini Transport shares were sold,
    however there is no mention of the Origen Minerals shares being di8posed.

    The information available to me is limited and I am not able to determine the
    proceeds of these investments and whether the proceeds received were deposited
    into

    the account of the Fund.

    4. 8. Ownership of Fund ?5 Investments

    The investments noted after the conversion include investments belonging to both
    the
    Fund and the Corporation. The investments belonging to the Corporation should
    have

    184

    all been disposed of and those belonging to the Fund should have been transferred
    to
    the Trustee to hold in trust for the Fund. –

    MTSL is a general trust and as such is required by Securities Act and Regulations to
    properly identify assets and liabilities of various trusts that it manages. All trust
    investments held by the Trustee should appropriately noted as held in trust for the
    respective trusts.

    A valuation performed by KPMG on behalf of Nasfund in 2005 detailed the
    investments and legal ownership of these investments. The valuation indicated that
    MTSL had breached its ?duciary duties by transferring and maintaining the
    ownership of some of the best performing investments of the Fund in its own name
    and not as in trust for the Fund. These investments held in the name of MTSL itself
    are as follows;

    I Associated Mills Limited
    I BOC Gases

    I Marsh

    I rttkaz’ Industries

    I SP Brewery

    I Toyota Tsusho (PNG)

    A copy of the valuation performed by KPMG is attached and marked as Exhibit
    ?278? in the Appendices to this report.

  • Page 168 of 181

  • I have reviewed copies of the share certificates and con?rmed that the shares were
    held in the name of MTSL and not as held in trust for the Fund.

    A copy of the share certi?cates in the name of MTSL is attached and marked as
    Exhibit ?279? in the Appendices to this report.

    I note on the share certi?cate (Exhibit ?279?) of Toyota Tsusho (PNG) that Mr.
    Ruirnb signed as Director of that company for the shares to be transferred to MTSL
    in
    its own name and not as in trust for the Fund.

    Mr. Ruimb as a former managing director of the Corporation and current manager of
    the Fund should have insisted that such transfer be held in trust, however he failed
    when he knowingly signed the share certificate transferring the ownership to MTSL.

    The investee companies in my view should have resisted such transfer to
    own name. However there is no evidence to indicate to me that the Board of the
    above mentioned companies resisted such transfer without noting the Fund as a
    beneficiary.

    185

    I note that the directorships of these companies were held by MTSL directors and
    staff members who appear to have been selected by the Executive Chairman Mr.

    anday.

    A schedule of investment as at 30 June 2005 from KPMG working file is as follows;

  • Page 169 of 181

  • Company No. of Title KPMG
    shares Valuation

    Ramu Sugar 200,000 Unknown MTSL in trust for 488
    BSP 64,419 Unknown MTSL in trust for PBF 202
    Amalpack 210,001 30 MTSL in trust for 6,3 00
    Associated Mills 610,353 26 MTSL 15,869
    BOC Gases 271,700 26 MTSL 15,598
    Kumul Hotels 4,471,980 26.92 ICPNG 3,220
    Markham 33,335 25 MTSL in trust for ICPNG 2,250
    Culverts
    MMC 45,771,313 99.21 MTSL in trust for 5,035
    MTSL 100,000 20 MTSL in trust for 50
    Marsh 47,000 26 MTSL 3,243
    Origin Energy 110,000 33 MTSL in trust for 6,333
    SP Brewery 31,192 SP Tyres 62,000 Toyota Tsusho 2,155,750 24 ICPNG 5,029
    Trukai Industries 540,260 34 MTSL 10,940

    A copy of the above is attached and marked as Exhibit ?280? in the Appendices to

    this report.

    I note that the following in respect of the above;

    I KPMG have not been able to identify the ownership of Ramu Sugar and BSP

  • Page 170 of 181

  • shares. 1 have not been able to obtain any con?rmation in respect of the
    ownership of these shares from the information available to the Commission. I
    recommend that the investments are transferred to the Fund.

    I note that some investments are wrongly held in the names other then in trust
    for the Fund. In respect of the investments held in the name of MTSL, the
    Corporation, and MTSL in trust for I would recommend that these
    be transferred to MTSL as being held in trust for the Fund.

    It appears to me that MTSL deliberately held these performing investments in its
    own name to obtain bene?ts for itself and not for the Fund. My review of the K12
    million Westpac loan indicated that these investments were pledge by MTSL to

    186

    obtain that loan in its own name. Please refer to my report on Westpac K12
    million loan.

    I recommend that the above anomalies are corrected so that the investments are
    accounted for properly in the Fund?s name to ensure any bene?ts derived from
    these assets accrue to the unit holders.

    4.8.6 Examples of Bad Investments

    My review of the investments undertaken by both the Fund and the Corporation
    indicated that many poor investments have been undertaken resulting in loss of
    funds
    belonging to the unit holders. It appears that the Board and management over the
    years failed in their ?duciary duties by not performing proper due diligence before
    undertaking investments.

    My view is that either the Board or management simply lacked the competence
    required to manage the assets entrusted to them or collaborated with the promoters
    of
    these investments to take funds out of the Fund and the Corporation under the guise
    of investments.

    The bad investments are so many and for me to inquire into every one of them is not
    feasible. However, I have randomly selected some examples of bad investments to
    understand the process that the Board and management followed in undertaking
    these
    investments.

    4.8.6.1 Ilimo Poultry Products Limited

    Ilimo was an investment in which the Corporation lost in excess of K15.0 million.
    The poor performance of Ilimo was attributed to political interferences and bad
    management over the years.

  • Page 171 of 181

  • While the investment was not performing as expected as far back as 1995, the
    Board
    of the Corporation continued to lend money and solicit loans from to sustain
    Ilimo?s operation. Prudent business principle would have prevailed whereby the
    Board would have disposed the investment at the earliest than persisting to operate
    it

    by way of lending funds for its continued operations.

    The investment was eventually liquidated and its assets sold to settle a creditor. The
    land and buildings were sold by which had a mortgage over it.

    Investment in Ilimo resulted in the Corporation losing more then K15.0 million over

    the years prompting me to review Ilimo separately. Please refer to my report on Ilimo
    for detailed analysis.

    187

    4. 8. 6.2 Gordon Gotch (PNG) Negliw No. 94

    The promoter of this investment was Mr. Andrian Warupi who was then the
    Managing Director of MVIL. The proposal was to buy Gordon Gotch, a stationery
    company, from its Australian owners and requested the following;

    I Corporation to acquire 49% shareholding in Gordon Gotch for a
    consideration of

    I Corporation to provide bridging ?nance of K1 million.
    I Provide guarantee of up K15 million.

    A copy of Gordon and Gotch proposal is attached and marked as Exhibit ?281? in
    the Appendices to this report.

    It appears that Negliw No. 94 was to buy the shares in Gordon Gotch (PNG)
    Limited and then offer the proposed 49% to the Corporation.

    Negliw No. 94 was a company owned 30% by Azerin Limited, 20% by Wilgen
    Nominees (PNG) and 50% by Airaba Trading (Exhibit

    Board members and the approval of this investment

    This investment was ?rst promoted to the Corporation around September 1998 when
    the following were Board members;

  • Page 172 of 181

  • _Na{ne Position
    Sir Dennis Young Chairman
    Wandi Yamuna Managing Director
    Ted Taru Director
    Jack Petterson Director
    Demas Kavavu Director
    Robert Seeto Director
    Mete Kahona (late) Director
    Napoleon Liosi Director
    Michael Varapik Director

    It appears that the above Board ?rst deliberated on this investment in its meeting
    number 128 of 1998 held on 11 September 1998. The extract of the minute is as
    follows (Exhibit

    ?Directors considered the paper which sought the Board ?3 approval to acquire
    a 49% shareholding in the company for K245, 000 and preference shares worth
    K1.5 million attracting interest at the rate of15% pa.

    Board resolved to approve the acquisition on 3 0% shareholding for
    consideration of 5 0, 000 plus providing a guarantee up to million subject

    188

    to satisfactory agreement of a guarantee fee. It was further resolved that the
    three directors nominated for the 1limo Poultry re?negotiation with Utia

  • Page 173 of 181

  • Investments assist management to conclude the guarantee arrangement for this
    approval.?

    The Board at its special meeting number 2 of 1998 held on 30 October 1998 further
    resolved to invest in Gordon Gotch as follows (Exhibit

    ?Board noted developments that have transpired since the last meeting on 11
    September 1998 and resolved to approve an investment of for the
    purpose of taking up 150,000 convertible notes. The notes are to be converted
    into ordinary shareholding of10% 0f the company after 5 years.

    There is no evidence to suggest that a proper due diligence was undertaken other
    then
    the discussions that were undertaken between Mr. Wampi, Mr. Nelson and Mr.
    Bongare.

    The Board further discussed at its Board meeting number 129 Of 1998 which is as
    follows (Exhibit

    ?Mr. Mete Kahona reiterated his disapproval of ICPNG guarantee of K15
    million. The chairman pointed out that this was in accordance with the
    resolution of the directors at the Board meeting held at Ilimo on Friday 11
    September 1998.

    After further clari?cation from the Investment Manager and Senior Investment
    Analyst, Mr. Kahona concurred with the recommendation for the guarantee.
    The directors resolved for Investment Corporation to;?

    Acquire 30% shareholding in Gordon Gotch for a consideration of

    Give guaranteefor a loan ofK1.5 millionfor afee ofK75,000.00
    To be held in abeyance pending investigation by the Special Committee.?

    Based on the above resolution Mr. Yamuna wrote to Mr. Warupi that the guarantee
    has been provided by the Corporation Board which is as follows;

    ?The Board of the Investment Corporation of Papna New Guinea at its meeting
    of Friday, 283″”1 October 1998 granted its approval to guarantee a loan of

    K1 ,500, 000 from any commercial bank towards the purchase of Gordon cf;
    Gotch (PNG) Pty Ltd.

    The guarantee will attract a fee of 5 per anniim on the basis of reducing
    balance ofthe loan amount. The Investment Corporation ofPapita New Guinea

    189

    will execute the necessary guarantee documents with the lending Commercial
    Bank.

  • Page 174 of 181

  • Please keep us informed of progress.

    A copy of Mr. Yamuna?s letter to Mr. Warupi is attached and marked as Exhibit
    ?282? in the Appendices to this report.

    It appears that Negliw No. 94 did not utilise the above guarantee instead approached
    the Corporation for a K1.0 million bridging loan while awaiting the bank loan
    approval. There is no evidence available to indicate that indeed Negliw No. 94 had
    approached a commercial bank for the loan.

    Mr. Nelson wrote a letter to Mr. Warupi dated 19 August 1998 wherein he mentioned
    a draft pr0posal. I have not been able to ?nd a copy of that draft proposal. The letter
    by Mr. Nelson points out many anomalies in that mentioned draft proposal. However
    the Board submission by Mr. Nelson states otherwise.

    A copy of Mr. Nelson?s letter to Mr. Wampi is attached and marked as Exhibit
    ?283? in the Appendices to this report.

    The Board submission does point out some weakness especially in relation to the K1
    million bridging ?nance and cautions the Board to wait for the promoters to secure
    their own funding as opposed to the Corporation giving the bridging loan of K1
    million. The recommendation by the management in their submission is as follows;

    ?Given the above consideration and conclusions, the Board has the discretion
    to conclude a decision on the K1 million bridging finance to Negliw No. 94
    Ltd.

    A copy of the Board submission is attached and marked as Exhibit ?284? in the
    Appendices to this report.

    The management would have clearly recommended to the Board not to provide the
    bridging loan of K1 million however instead it left the Board to use its discretion.
    That was the recommendation made after management was forced to change their
    recommendation. Details of this are discussed below.

    A memo by Mr. Nelson to Deputy Managing Director Mr. Lincoln Taru indicated
    that a previous proposal was made declining the investment is as follows.

    copy of the amended version of the original Board Submission re the request
    by Mr. Adrian Warupi and Negliw No.94 Pty for bridging finance ole
    million is enclosed for your information and record.

    I confirm that as per your verbal instruction, the original recommendation to
    decline the proposal has been amended accordingly as stated in this version
    copied to you.

    190

  • Page 175 of 181

  • A copy of the above is attached and marked as Exhibit ?285? in the Appendices to
    this report.

    It appears that Mr. Taru verbally instructed Mr. Nelson to amend the proposal to
    recommend favourably to the Board. Mr. Taru?s conduct in this particular investment
    proposal was not in the interest of the Corporation.

    Mr. Nelson wrote to the acting Managing Director Mr. Ruimb on 21 September 1999
    and con?rmed that he was forced to change his recommendation against lending the
    K1.0 million requested by Mr. Warupi. The extract of the memo paragraph 13 is as
    follows;

    ?The management did not recognise my recommendations to decline the proposal
    and further instruct that the recommendation be changed. I was then called by the
    then Investment Manager (Mr.K.Bogare) and was advised to change the
    recommendation. An amended proposal was put to the Board, which approved the
    million bridging finance to Negliw 94. Pacific Management were advised
    accordingly therea??er.

    A copy of Mr. Nelson?s letter to Mr. Ruimb is attached and marked as Exhibit ?286?
    in the Appendices to this report.

    Mr. Nelson states that Mr. Kris Bogare then the Investment Manager had directed
    him to change the recommendation.

    It appears that the directive to change the recommendation came from Mr. Yarnuna
    and Mr. Ted Taru.

    The Board at its meeting number 129 of 1998 held on 14 December 1998 approved
    the KLO million funding. The extract of the minutes (Exhibit is as follows;

    ?The Board resolved to approve the request by Pacific Management for
    bridging ?nance of K1 million to assist with the purchase of Gordon Gotch
    Pty Ltd.

    Investment Corporation will use its loan facilities for Paci?c
    Management to access Kl million for a period of two months for which Pacific
    Management agrees to pay an annual interest rate of 27%. At the end of two
    months ICPNG guarantee of K1.5 million will come into effect for which the
    Corporation will be paid five percent per annum.

    I note that at the time the Board resolved to lend money to Negliw No. 94 it was
    heavily indebted to for loans it was seeking to revive Ilimo from near
    collapse. Neither the Corporation nor the Fund was in a position to lend money or
    undertake new investments. It does not make business sense for the Board to
    resolve
    for Corporation to use overdraft facilities to lend to Negliw No. 94 Pty
    K1.0 million to purchase Gordon Gotch.

  • Page 176 of 181

  • 191

    There is no evidence (Exhibit that Mr. Yamuna and the Board obtained
    Ministerial approval as required under Section 61 of the PFM Act. I have noted from
    the review of Ilimo that Mr. Yamuna and the Board of Sir Dennis Young resorted to
    obtaining Section 61 approval from Public Enterprises Minister Mr. Pok when
    Treasurer Lasaro refused their request for further funding to llimo.

    There was no loan agreement and there was no Ministerial approval however Kl.0
    million was paid into the trust account of Young Williams in favour of Negliw No.
    94 Pty Ltd.

    I must point out that there is no evidence to show the historical performance of
    Gordon Gotch were obtained to determine whether the company had the capacity
    to generate suf?cient cash and repay the money in the event that it did not secure
    the
    bank loan. Gordon Gotch from general knowledge was a stationery company.

    As stated in the Board minute, the K1.0 million was a bridging loan while awaiting
    Negliw No. 94 commercial bank loan application to be processed. Negliw No.94 was
    to repay the loan within two months once it had secured commercial loan. However it
    appears that commercial bank based on their due diligence refused to lend money to
    Negliw No. 94 resulting in the Corporation loan not being repaid.

    It must be pointed out that Mr. Yamuna and Sir Dennis Young who were instrumental
    in this investment were still in?charge at the Corporation and that may explain why
    no
    recovery action was taken when Negliw No. 94 failed to repay the money after two
    months. Recovery action was initiated only after Mr.Ruimb was re?appointed to the
    Corporation.

    In my view this investment was not based on due diligence and when Negliw No. 94
    failed to secure the commercial bank loan, the Corporation should have taken
    measures after two months to recover its money.

    Legal advise on the K10 million loan to Negliw N0. 94

    After the money was paid to Young Young Williams in favour of Negliw No. 94,
    the Corporation sought legal advice from their lawyers Fiocco Posman Kua as to
    how the loan should be treated as the loan money was from the Fund. As stated
    earlier the Corporation did not have the capacity to undertake any investment at that
    point in time.

    A copy of the legal advice from Fiocco Posman Kua is attached and marked as
    Exhibit ?287? in the Appendices to this report.

    The advice noted many procedures were not followed by the Board and one of the
    key procedures was that the loan did not have Ministerial approval as required under
    Section 61 of the PFM Act. The advice by the lawyers recommended that the
    Corporation take appropriate measures to rectify these anomalies noted.

  • Page 177 of 181

  • 192

    I note that the Board and management did not implement any of the advices. It
    would
    have been awkward for the Board to seek Ministerial advice after the KLO million
    has been disbursed.

    I note with interest the hand written notes by Mr. Taru on the copy of a memo by Mr.
    Nelson to Mr. Yamuna in respect of the loan;

    ?It has been my view all along that the Chairman has become Executive
    Chairman and has not allowed the management to assess the proposal in line
    with the standard investment guidelines which have been responsible for the
    growth in the assets of the up to this point in time. There must be some respect
    where this is due. How long can we go on! The careless attitude of the
    Chairman will indeed lead us into troubled waters.

    Mr. Lincoln Tara?s notes indicate that the Chairman Sir Dennis Young had pushed
    for the money to be paid without proper assessment.

    A COpy of Mr. Taru?s hand written notes is attached and marked as Exhibit ?288? in
    the Appendices to this report.

    1 have noted earlier that Mr. Taru was the one who asked Mr. Nelson to amend the
    Board submission to recommend the funding. Mr. Taru failed to exercise his duties
    by ensuring that due process were followed at that point in time and to make such
    comments after the funds have been disbursed does not make sense. In my view Mr.
    Taru failed in his duties as deputy Managing Director when he directed the board
    submission to be altered to recommend the investment.

    Negliw No. 94failed to repay the KLO million

    There is no evidence to suggest how Gordon Gotch had fared after being bought by
    Negliw No.94 with the K1.0 funding from the Corporation.

    Negliw No. 94 returned on 9 March 1999 as repayment of principle.

    A copy of the above document is attached and marked as Exhibit ?289? in the
    Appendices to this report.

    A further 161,041.10 was paid on 18 March 1999 in respect of the accrued interest.

    A copy of the above is attached and marked as Exhibit ?290? in the Appendices to
    this report.

    The balance of was never repaid resulting in the Corporation taking Court
    action. It must be pointed out that while Mr. Yamuna was the Managing Director, he
    failed to take appropriate action when Negliw N0. 94 failed to repay the money after
    the agreed time frame of two months. It was only after Mr. Yamuna was suspended

  • Page 178 of 181

  • and Mr. Ruimb was returned to the Corporation as acting Managing Director
    recovery action commenced.

    193

    The paid to Gordon Gotch was convertible notes to be converted to
    shares once Negliw No.94 has acquired 100% shares in Gordon Gotch, however
    that did not eventuate. The amount paid to Gordon Gotch remained as a loan given
    that no shares were issued.

    The Corporation Recovery Action

    The Corporation sued Mr. Yarnuna as ?rst dependent, Negliw No.94 as second
    defendant and Gordon Gotch as third defendant.

    A COpy of summons is attached and marked as Exhibit ?291? in the Appendices to
    this report.

    The Court made an order on 29 April 2003 for the Negliw No.94 to be wound up in
    accordance with the Companies Act. Liquidator Mr.Frank John de Graaf was
    appointed to liquidate the company.

    A copy of the Court order is attached and marked as Exhibit ?292? in the
    Appendices to this report.

    The liquidator upon inspection of the records noted that Gordon Gotch had
    realisable assets of and liabilities of Negliw No. 94 had no
    assets and liabilities of 10,853,556.

    A copy of the liquidator?s report is attached and marked as Exhibit ?293? in the
    Appendices to this report.

    On 7 November 2003 Mr. Philip lsu of PEIL wrote to the liquidator advising him to
    proceed with the liquidation of Gordon Gotch to realise the assets to fund his costs
    of liquidating Negliw No. 94.

    A copy of the above letter is attached and marked as Exhibit ?294? in the
    Appendices to this report.

    An extract of letter from Posman Kua Aisi Lawyers indicated that the liquidator fee
    exceed The extract of the letter is as follows;

    ?[fyou do not agree to pay the [(5,000 towards the legal costs and Mr. De
    Graaf is either unable or unwilling to ?rnd the liquidation of Gordon die Gotch
    then it is likely he will seek 2?0 recover his costs against you. We consider the
    costs of over 75, 000 to be excessive

    It appears from the documents available to the Commission that the liquidation
    process did not recover any ?lnds as both Negliw No.94 and Gordon Gotch did not
    have any signi?cant asset to realise any amount.

  • Page 179 of 181

  • I note that Mr. Warupi promoted a non viable investment for which the Board

    Chairman Sir Dennis Young and Mr. Yamuna promoted at the Board level as viable

    194

    investment despite being recommended against by the Investment Division. It would
    appear that Board members and management collaborated with the promoter to
    defraud the Corporation of its limited cash resource.

    The total amount lost by the Corporation excluding forgone interest and the interest
    charged by on its loan account is

    Negliw No.88 Pty trading as Rouna Hydrophonics

    While reviewing Gordon Gotch and Negliw No.94, I have come across another
    company called Negliw No. 88 Pty trading as Rouna Hydrophonics which was
    also promoted by Mr. Warupi at the same time as Negliw No.94 Pty Ltd.

    The Board at its special meeting number 2 of 1998 approved both investment in
    Gordon Gotch for and another be invested in Negliw No.88.
    The extract of the minutes is as follows (Exhibit

    ?Board considered and approved an investment ofK200,000 for the purpose of
    taking up 30% equity in the operating company which proposes to farm fresh
    fruits and vegetables for the Port Moresby markets.

    On 5 November 1998 a cheque for paid to Negliw No.88. The cover letter
    by Mr. Nelson accompanying the cheque is as follows;

    ?Enclosed herewith is cheque number 04863 7 for K200, 000 payable to Negliw
    No. 88 Pty Ltd. The payment is for the purchase of 200.000 ordinary shares in
    the company for 30% ownership.

    We look forward to finalising the necessary documents to effect the Investment
    Corporation’s shareholding in Negliw No. 88 Pty Rouna Fresh Fruits
    Vegetables.

    Please keep us informed of the progress.

    A copy of the above letter is attached and marked as Exhibit ?295? in the
    Appendices to this report.

    The Board further at its meeting number 131 of 199 noted as follows (Exhibit

    total of was invested. Despite repeated for information on the
    investment, no satisfactory report has been received. Management has been
    concerned and will follow up.

  • Page 180 of 181

  • It appears that apart from the the Corporation paid an additional
    There is no documentary evidence available to the Commission to prove that the
    additional amount was approved by the Board.

    195

    This loan was handled in the same manner as the Negliw No. 94 and Gordon Gotch
    investments. The Chairman of Negliw No.88 was one Hohoa Hohoa who was also
    together with Maria Warupi, wife of Mr. Warupi, were directors of Negliw No.
    94.

    A copy of the legal advice detailing directors of Negliw 88 is attached and marked as
    Exhibit ?296? in the Appendices to this report.

    To venture into a detailed analysis of this investment would be a waste of time as this
    investment was not feasible yet the Board of Sir Dennis Young and the Management
    of Mr. Yamuna proceeded to invest. My view is that the investment itself was not
    feasible and the decision to invest appears to be based on considerations other the
    economic retums of the proposed investment.

    4. 8. 6.3 Lae Whole Sale Freezers Pty

    The investment was undertaken during the period prior to 1998 therefore I am not
    able to determine the process that was followed in respect to investment in this
    company.

    By August 1998, the company was liquidated for the failing to pay one of its
    creditors. It appears that the Corporation only joined the proceeding after the court
    case was initiated. A letter of instruction from Mr. Yarnuna to Thirlwall Aisi Koiri
    Lawyers dated 4 August 1998 as follows;

    ?You are hereby to ?le a notice to appear in the National Court of
    Justice Waigani on behalf of the Investment Corporation ofPapua New Guinea
    in the hearing of the petition to wind up the Lae Wholesale Freezers Pty by
    the Fletcher International Exporters Pty through their lawyers, the Carter
    Newell Lawyers.

    ICPNG has a significant interest in the company being 300,000, K100
    cumulative preference shares, earning 12% interest per annum. We are also a
    creditor in the company and the current petition poses a serious risk to us of
    loosing that investment, if the wind up proceedings conclude in Fletcher?s
    favour.

    Considering our significant interest in the company, it is in our interest
    therefore to protect our investment. We advise therefore that the petition for
    wind up be opposed.

    Please contact us should there be need for further information or assistance.
    Our contact is Mr. Wilson Nelson, who can be contacted on the above fax and

  • Page 181 of 181

  • address or telephone 3212855

    A copy of the above is attached and marked as Exhibit ?297? in the Appendices to
    this report.

    196

    The above letter by Mr. Yamuna indicate that the Corporation had provided loan to
    the company in?addition to the equity investment of I am not able to
    determine exactly how much in total was owed by Lae Freezers both in terms of
    accrued preferential dividends and other debt as mentioned in Mr. Yamuna?s letter
    due lack of relevant information.

    There is no further information other then an information paper from the Investment
    Division indicating that the company was put into liquidation. It appears that
    has ?rst registered mortgage over the company building. It appears that the
    company was overcommitted as it appears that it had borrowed from
    Westpac and the Corporation.

    A copy of the information paper from the Investment Division is attached and marked
    as Exhibit ?298? in the Appendices to this report.

    I note that the Corporation lost in excess of through it preferential
    shareholding and advances made to Lae Wholesale Freezers Ltd.