Status Report on Implementation of Recommendations in the Final Report of an Investigation into the Purchase of The Conservatory, Cairns by the Public Officers Superannuation Fund Board

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    Status report on the implementation of the twenty recommendations contained in the 1999 report into the purchase of The Conservatory building in Cairns by the Public Officers Superannuation Fund Board (the POSFB).

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  • Ombudsman Commission
    of Papua New Guinea

    STATUS REPORT

    on implementation of
    recommendations made in

    THE FINAL REPORT OF AN INVESTIGATION INTO
    THE PURCHASE OF
    THE CONSERVATORY, CAIRNS
    by the Public Officers
    Superannuation Fund Board

    DECEMBER 2000

  • Page 2 of 55

  • STATUS REPORT

    ON IMPLEMENTATION OF
    RECOMMENDATIONS IN

    THE FINAL REPORT OF AN INVESTIGATION INTO

    THE PURCHASE OF

    THE CONSERVATORY, CAIRNS
    BY THE PUBLIC OFFICERS SUPERANNUATION
    FUND BOARD
    AND ASSOCIATED TRANSACTIONS
    AND ARRANGEMENTS

    DECEMBER 2000

  • Page 3 of 55

  • TABLE OF CONTENTS

    1. INTRODUCTION

    1.1 PURPOSE OF THIS REPORT ………………………………….. 1
    1.2 RECAP: EXECUTIVE SUMMARY OF THE 1999
    REPORT ………………………………………………………………….1
    1.3 RECOMMENDATIONS FROM THE 1999 REPORT……….3
    1.4 CONSTITUTIONAL FRAMEWORK FOR MAKING
    RECOMMENDATIONS …………………………………………… 4
    1.5
    DUTIES OF RECIPIENTS OF RECOMMENDATIONS ….. 5

    2. RECOMMENDATIONS

    2.1 TABLE OF RECIPIENTS ……………………………………….. 7
    2.2 RESPONSES TO RECOMMENDATIONS………………….. 8
    2.3 TABLE OF RESPONSES TO RECOMMENDATIONS . 44

    3. CONCLUSION

    3.1 OBSERVATIONS …………………………………………. 47
    3.2 ASSESSMENT OF INDIVIDUAL RECIPIENTS ……….. 48
    3.3 NEXT STEPS ……………………………………………………….. 51

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  • 1. INTRODUCTION
    [1.1] PURPOSE OF THIS REPORT

    On 24 November 1999, the Ombudsman Commission finalised its report into
    the purchase of The Conservatory building in Cairns by the Public Officers
    Superannuation Fund Board (the POSFB). That report was the result of a four
    year investigation into the purchase and associated transactions and
    arrangements. The report was tabled in the Parliament on 1 December 1999.

    This present report is a status report on the implementation of the twenty
    recommendations contained in the 1999 report.

    PNG’s governmental bodies do not generally have a good track record in
    implementing recommendations arising from Ombudsman Commission
    investigations. Too often in the past, the Commission’s recommendations have
    simply been ignored. This has resulted in many of the same sorts of mistakes
    being made again and again.

    The purpose of this status report is to assess how the recipients of the
    recommendations in the 1999 report have performed. Who has done the right
    thing and taken the recommendations seriously?. Who has put words into
    action? Who has ignored the recommendations?

    [1.2] RECAP: EXECUTIVE SUMMARY OF THE 1999 REPORT

    Following are the 1999 report’s principal findings, principal recommendations
    and conclusion.

    Principal findings
    • In November 1994, the POSFB purchased The Conservatory for AUD$18.72 million
    (then equal to K16.7 million).

    • Just a week before that, The Conservatory had changed hands for $9.75 million.

    • The market value of the property in November 1994 was approximately $7 million. The
    POSFB paid a price more than two and a half times the market value.

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  • • When the POSFB made the decision to purchase The Conservatory, the company that
    they were negotiating with – controlled by Mr Warren Anderson and Mr Solly Benin of
    Western Australia – did not own the property.

    • The then Managing Director of the POSFB, Mr Ereman Ragi, kept no records of the
    discussions he had regarding the purchase of The Conservatory.

    • No serious consideration was given to the purchase of any property other than The
    Conservatory. No professional advice was sought regarding the property market in
    Cairns.

    • The POSFB did not obtain an independent valuation of the property. Mr Ragi left it to
    the vendor to arrange for two “market appraisals”. These concluded that The
    Conservatory was worth $18 million to $21 million. Neither appraisal was
    independent, objective or carried out by a qualified valuer.

    • The POSFB made no attempt to negotiate the asking price, even though it increased by
    K3.7 million in less than four months.

    • The members of the Board of the POSF failed, individually and collectively, to subject
    the proposed purchase to proper scrutiny and assessment. Each Board member had an
    opportunity to stop the fast passage of the proposal. Each failed to act.

    • Mr Ragi and Mr Tau Peruka (who was then Secretary of the Department of Personnel
    Management, Chairman of the Office Allocation Committee and a member of the
    Board of the POSF) were subject to political pressure to push through the purchase of
    the Conservatory.

    • Statutory approval for the purchase was given by Sir Julius Chan as Acting Minister
    for Finance.

    • In the opinion of the Ombudsman Commission, the conduct of Sir Julius, the Prime
    Minister at the time of the purchase, was wrong in that he had a conflict of interests in
    relation to the purchase of The Conservatory and a concurrent proposal for a major
    redevelopment in Port Moresby.

    • While Sir Julius was involving himself in the decision to purchase The Conservatory,
    the same people who were selling the property to the POSFB – Mr Anderson and Mr
    Benn – were involved in negotiations to build a large office complex in Port Moresby on
    land at Waigani owned by a company in which Sir Julius held 75% of the shares. Sir
    Julius held the shares in trust for his political party, the People’s Progress Party.

    • Sir Julius carried out his official duties without declaring his conflict of interests,
    creating an environment where corruption could easily occur.

    • In the opinion of the Ombudsman Commission, Pato Lawyers were also in a conflict of
    interests. They failed to pass on vital information about the price at which The
    Conservatory had recently changed hands.

    • Eighteen months after signing the contract to purchase The Conservatory, the POSFB
    entered into a “head lease” with the National Government, whereby the State agreed to
    lease the entire building for ten years.

  • Page 6 of 55

  • • This lease is a contrived arrangement. The State has agreed to pay the POSFB more
    then three times the market rental; there are no PNG governmental agencies occupying
    the building; and the building is still less than half tenanted. Even if the building is
    fully tenanted, the lease will continue to be a significant drain on the National Budget.

    Principal recommendations
    • The POSFB should immediately make a decision on the viability of commencing civil
    proceedings to recover money lost as a result of The Conservatory purchase.

    • The head lease should be terminated.

    • The Minister for Finance and Treasury should issue “show cause” notices to the
    members of the Board of the POSF responsible for the purchase of The Conservatory.

    • Other public officials, including Ereman Ragi who is now the CEO of the Cocoa Board
    and senior officers of the POSFB, who failed to discharge their professional duties,
    should have their continuing public employment immediately reviewed; and, if
    necessary, terminated.

    • Pato Lawyers should not be allowed to act for the State or any governmental body in
    any legal capacity for the next five years.

    • The Independent State of Papua New Guinea should not conduct any further business
    with Mr Anderson or Mr Benn or any company wholly or partly owned by them,
    separately or together.

    Conclusion
    The $11 million premium paid by the POSFB went straight into the hands of foreign property
    developers. The attempt to claw back some of this money from the State by way of exorbitant
    rentals under the head lease means that not only POSF contributors, but also the National
    Government and all the People of Papua New Guinea, continue to pay the price for gross
    administrative incompetence.

    The vast majority of public officials whose job it was to assess, analyse, criticise and above all
    apply common sense to these kind of proposals, failed miserably.

    The findings and recommendations of this report must be addressed and acted upon, to ensure
    the waste of public funds and the breach of public trust that occurred in this case are not
    repeated.

    [1.3] RECOMMENDATIONS FROM THE 1999 REPORT

    Chapter 14 of the 1999 report made thirty findings of wrong conduct by people
    involved in the transactions. Chapter 15 of the report then made twenty
    recommendations based on those findings. The recommendations are intended
    to ensure that the errors and bad practices, which resulted in the poor
    investment decision to purchase The Conservatory, do not recur. The

  • Page 7 of 55

  • recommendations are targeted at the statutory office-holders and Members of
    Parliament who have responsibility for the relevant areas of government.

    In the week following the finalisation of the report, the Ombudsman
    Commission wrote to the recipients of the recommendations. We asked all the
    recipients to give close consideration to the recommendations directed at them.
    We also requested each recipient to notify the Ombudsman Commission by 31
    January 2000 of the steps they proposed to take to give effect to the
    recommendations. On 3 August 2000 we wrote again to the recipients, reminding
    them of their obligations. Where we had not received enough information from
    the recipient, we also requested further details on how our recommendations were
    being implemented.

    The Ombudsman Commission also placed public notices in The National and Post-
    Courier newspapers over several days in early August 2000. These notices listed
    our recommendations and the recipients of those recommendations. The notices
    advised that we would be preparing a status report.

    We have received a variety of responses from the recipients of the
    recommendations.

    [1.4] CONSTITUTIONAL FRAMEWORK FOR MAKING
    RECOMMENDATIONS

    In accordance with Section 219(1)(a) of the Constitution, the general purpose of
    Our investigation was to determine whether any of the conduct under investigation
    was wrong, or whether any laws or administrative practices were defective. The
    Commission’s opinions on those matters were set out in the findings at Chapter 15
    of the report.

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

    Section 22(2) states:
    If in any case to which this section applies the Commission is of the opinion that any s ervice,
    body, perso n or other appropriate autho rity s hould –

    (a) consider the matter further; or
    (b) take certain specific action; or
    (c) mo dif y o r cancel any adminis trative act; or
    (d) alter any regulation or ruling; o r
    (e) explain mo re fully any administrative act; o r
    (f) do any other thing,

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

    [1.5] DUTIES OF RECIPIENTS OF RECOMMENDATIONS

    As we pointed out at page 353 of the final report, although our opinions on things
    that should be done are expressed in the form of “recommendations”, recipients
    have a general obligation to seriously consider and implement them. Section 22(3)
    of the Organic Law on the Ombudsman Commission states:
    If the Commission so requests, the responsible Minister, Permanent Head or statutory head, as
    the case may be, shall, within such period as is specified by the Commission, notify the
    Commission as to the steps (if any) that he proposes to take to give effect to its
    recommendations.

    We requested the responsible Minister, permanent head or statutory head to notify
    the Commission in writing of the steps proposed to be taken to give effect to our
    recommendations. We made this request in the report itself (page 354), in our
    letter immediately after the report was tabled in Parliament and again in a further
    letter at the beginning of August.

    Accordingly, there was a duty imposed on each recipient of a recommendation to
    notify the Commission of the steps proposed to be taken to give effect to the
    recommendation. If a recipient proposed not to implement any recommendation,
    there was a further duty to give cogent and convincing reasons why the
    recommendation cannot or should not be implemented. This status report
    evaluates the level of compliance with those duties.

    The constitutional duty may be enforced under Section 23 of the Constitution.
    Section 23 states:
    23. Sanctions.

    (1)W here any provision of a Constitutional Law prohibits or restricts an
    act, or imposes a duty, then unless a Constitutional Law or an Act of the Parliament provides
    for the enforcement of that provision the National Court may-
    (a) impose a senten ce of imp risonm en t f or a p eriod n ot exceeding 10 years or a fine not
    exceeding K10 000.00; or
    (b) in the absence of any other equally effective remedy under t he law s of Papua N ew Gu in ea,
    ord er the mak ing of compensation by a person (including a governmental body) who is in
    default,

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  • or both, for a breach of the pro hibitio n, res triction or duty, and may
    make such f urther order in the circumstances as it thinks pro per.

    (2) Where a pro vis ion of a Constitutio nal Law prohibits or restricts an act
    or imposes a duty, the National Court may, if it thinks it proper to do
    so, make any order that it thinks proper for preventing or remedying a
    breach o f the pro hibitio n, res trictio n o r duty, and Subs ectio n ( 1)
    applies to a failure to comply with the order as if it were a breach of a
    pro vision of this Co ns titutio n.

    (3) Where the N ational Co urt considers it proper to do so , it may include
    i n a n o r d e r u n d er S u bs e c t io n ( 2 ) an a n t i ci p a t o r y o r d er u n d e r
    Subsection (1).

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  • 2. RECOMMENDATIONS
    [2.1] TABLE OF RECIPIENTS

    The following table sets out each recommendation in brief and the recipients of
    that recommendation.

    N°. Recommendation Recipient
    The POSFB consider civil proceedings to Members of Board of POSF.
    recover money. –
    Attorney-General.
    Minister for Finance and Treasury.
    Managing Director of POSFB.
    The head lease for The Conservatory be Members of Board of POSF.
    terminated. Attorney-General.
    Minister for Finance and Treasury.
    Minister for Justice.
    Secretary, Dept. of Attorney-General.
    Managing Director of POSFB.
    Members of Board of POSF.
    The POSFB engage a specialist consultant to
    advise on The Conservatory. Minister for Finance and Treasury.
    Managing Director of POSFB.
    The POSFB urgently introduce due diligence Members of Board of POSF.
    and investment analysis procedures.
    Minister for Finance and Treasury.
    Managing Director of POSFB.
    The NEC make a policy decision regarding Prhne Minister.
    all future Waigani precinct development
    The current or future employment of certain Secretaries of all Departments, or heads of
    public officials be reviewed. governmental bodies.
    Ministers responsible for those Departments, or
    governmental bodies
    The Cocoa Board review the employment of Members of the Cocoa Board.
    Ereman Ragi.
    Minister for Agriculture & Livestock.
    The Minister for Finance and Treasury notify Minister for Finance and Treasury.
    Michael Malabag of the intention to terminate
    his appointment to the POSFB.
    The Minister for Finance and Treasury notify Minister for Finance and Treasury.
    Aloysius Eviaisa of the intention to terminate
    his appointment to the POSFB.

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  • 10 The Secretary of the Dept. of Finance and Secretary, Dept. of Finance and Treasury.
    Treasury review the employment of Vele Minister for Finance and Treasury.
    Iamo.
    11 The Managing Director of the POSFB review Managing Director of POSFB.
    the employment of Pe Cho. Minister for Finance and Treasury.
    12 The Managing Director of the POSFB review Managing Director of POSFB
    the employment of Joseph Wingia. Minister for Finance and Treasury.
    13 The POSFB engage a consultant to conduct a Members of Board, of POSF.
    management review of the POSFB. Minister for Finance and Treasury.
    14 Chris Haiveta make a public retraction and Mr Chris Haiveta MP.
    apology. Prime Minister.
    15 Rupa Mulina make a public retraction and Mr Rupa Mulina.
    apology.
    Attorney-General.
    16 The Attorney-General:issue guidelines
    Minister for Justice.
    advising that Pato Lawyers should no longer
    act for the State or any governmental. Secretary, Dept. of Attorney-General.
    Prime Minister.
    17 The NEC make a policy decision not to
    conduct business with Warren Anderson an
    Solly Benn. Prime Minister.
    18 The Prime Minister make all future
    determinations of changes of portfolio of Minister for Public Service.
    Ministers in writing. Secretary, Dept. of Personnel Management.
    19 The Minister for Public Service initiate Secretary, Dept. of Finance and Treasury.
    legislation to clarify the status of the Office
    Allocation Committee. Minister for Finance and Treasury.
    Secretary, Dept. of Finance and Treasury.
    20 The Minister for Finance and Treasury Attorney-General.
    initiate amendments to the POSF Act to alter
    the composition of the Board of the POSFB. Secretary, Dept. of Attorney-General.

    [2.2] RESPONSES TO RECOMMENDATIONS

    This section sets out, for each recommendation:

    • the text of the recommendation;
    • each recipient of that recommendation;
    • for each recipient, the information received from that recipient relating to
    that recommendation;
    • an assessment of each recipient’s responses;

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  • • an overview of the implementation of the recommendation.

    Recommendation N° 1

    That .the POSFB, in consultation with the Attorney-General, promptly
    consider the viability of instituting civil proceedings in Australia or Papua
    New Guinea with a view to recovering money lost as a result of the
    purchase of The Conservatory.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    As the Minister responsible for the POSFB, the Minister for Finance and Treasury
    had a role to play in overseeing the implementation of this recommendation. On
    29 February 2000, Sir Mekere Morauta, the Prime Minister and Minister for
    Finance and Treasury, advised that a National Executive Council (NEC) decision
    had been made, resolving to commence recovery proceedings. The Prime
    Minister further advised that resolution on the funding of the legal action was
    required prior to the commencement of proceedings.

    On 18 August 2000 the Prime Minister made a further reply regarding this
    recommendation. The Prime Minister advised that he supports these proceedings
    and that a meeting would be held shortly with Melbourne-based law firm, Holding
    Redlich, to further this matter. The Prime Minister has also requested the
    Attorney-General to advise the Ombudsman Commission when proceedings are
    formally issued.

    The Commission is satisfied with the Prime Minister’s response to this
    recommendation.

    The Attorney-General (Mr Michael Gene to July 2000; Mr Sao Gabi since
    July 2000)

    On 27 January 2000, then Attorney-General, Mr Michael Gene, wrote to us in
    response to the report. He advised that the POSFB and the State had retained the
    Australian law firm, Holding Redlich. He had instructed this firm to make all the
    necessary arrangements required to commence civil recovery proceedings in the
    Courts against the appropriate defendants. The State and the POSFB were to be
    joint plaintiffs. The Attorney-General advised that these proceedings should be
    formally issued by mid-2000.

    On 18 August 2000, the current Attorney-General, Mr Sao Gabi, made a further
    response on this recommendation. He advised that meetings would be held

  • Page 13 of 55

  • shortly with Holding Redlich to discuss the proposed statement of claim, the forum
    and the defendants in the proceedings.

    On 6 October 2000, the Australian Financial Review reported that a statement of
    claim was filed on 5 October 2000 on behalf of the Papua New Guinea
    government and the POSFB. The statement of claim alleged that the named Papua
    New Guinean defendants had committed misfeasance in public office, breaches of
    fiduciary duty, negligence and breaches of the Constitution. The newspaper
    reported Mr Howard Rapke, a partner with the law firm acting for the plaintiffs,
    as saying the case would be ready for trial early next year. The Australian
    Financial Review report was picked up by The National and the Post-Courier
    newspapers on 9 October 2000.

    However, on 10 October 2000, Mr Gabi was reported in The National as being
    “outraged” at Mr Rapke’s comments, saying they were “unauthorised” and “pre-
    empted Cabinet deliberations”. Mr Gabi said the National Executive Council had
    yet to decide whether to serve a writ in The Conservatory case. Mr Gabi was
    quoted as saying:
    Cabinet has instructed me to seek a second legal opinion on the merits of the case before it
    makes a final decision.

    On 12 October 2000 the former Attorney-General, Mr Michael Gene, was
    reported in The National as being surprised at Mr Gabi’s comments. Mr Gene
    said that Cabinet had approved the decision to serve the writ and he did not
    understand why Mr Gabi needed to seek a second opinion.

    We wrote to Mr Gabi on 3 November 2000, to ascertain what was really going
    on.

    Mr Gabi wrote back on 12 December 2000 with the following response:
    I advise that the proceedings have been instituted in Australia and Papua New Guinea.
    However, the writs have not been served of the Defendants until such time a second opinion
    on the sufficiency of the evidence to succeed on the case is obtain. (sic)

    I have received a second opinion from Senior Counsel in Australia who have
    advised that the chances of recovery are less than 40 per cent.

    We have therefore received very mixed messages from the Office of the Attorney-
    General on the implementation of this recommendation.

  • Page 14 of 55

  • It appears that legal proceedings have commenced. However, Mr Gabi’s recent
    statements do not show the commitment to these proceedings that we expect. His
    comments suggest that he has lost the will to continue with this important court
    action. The information that Mr Gabi has been seeking a second opinion on the
    chances of success in the case does not fill the Ombudsman Commission with
    confidence that this recommendation continues to be seriously considered.

    There are many questions to be asked following the Attorney-General’s apparent
    change of heart:

    • When and why did the National Executive Council decide to instruct Mr Gabi
    to seek a second opinion?

    • Who is the lawyer Mr Gabi received the second opinion from?

    • Did that lawyer have any involvement in The Conservatory matter?

    • Was Mr Zacchary Gelu (the State Solicitor who certified the head lease for
    The Conservatory and who is the subject of a wrong conduct finding in the
    1999 report) involved in the decision to seek a second opinion?

    • Has Mr Gabi, in his capacity as principal legal adviser to the National
    Executive Council, fully and properly advised the NEC on what it should do?

    • If not, when will Mr Gabi give that advice?

    The Commission’s recommendation called for prompt consideration of the
    viability of instituting civil proceedings. The Commission considers that ample
    time has elapsed since The Conservatory report was tabled in the Parliament.

    In order to fulfil his duty under this recommendation, the Ombudsman
    Commission considers that Mr Gabi must be much more decisive and diligent in
    addressing the question of court proceedings.

    The Managing Director of the POSFB (Mr John Ban (Acting) to September
    2000; Mr Ces Jewago since September 2000)

    On 28 January 2000 Mr John Ban, then Acting Managing Director of the POSF,
    responded to our report by saying that the Board intended to deliberate on the
    Commission’s recommendations and would respond in due course. On 20 June
    2000 Mr Ban responded further. In relation to the court proceedings, Mr Ban
    stated that a budget had been approved for the purpose of pursuing the legal
    action.

  • Page 15 of 55

  • Mr Ban made a further response on 7 August 2000. Mr Ban advised that the
    Attorney-General had taken charge of the recovery action. Mr Ban also provided
    a list of twenty witnesses who had, or would shortly be, flown to Melbourne to
    provide witness statements.

    Although Mr Ban’s initial response was not timely, we have received sufficient
    information from the new Managing Director of the POSF, Mr Ces Iewago, and
    from other sources, to be satisfied that the POS1413 has seriously considered this
    recommendation.

    The members of the Board of the POSF

    The members did not reply individually to this recommendation. The Managing
    Director responded, apparently on behalf of the entire Board. His response is
    discussed above.

    We would have preferred the Board members to have responded personally or to
    have advised the Commission that the Managing Director would be responding on
    their behalf.

    Overview

    The groundwork for legal proceedings has been done in accordance with our
    recommendation and in October 2000 the statement of claim was filed. This is
    pleasing.

    However the Ombudsman Commission is very concerned and perplexed about
    Attorney-General Sao Gabi’s handling of this matter. The cost of the legal
    proceedings should not be the sole factor in determining whether the
    proceedings go ahead. It is important that the State be seen to pursue people
    who mis-use public money and money which is held in trust for the public.
    This litigation would have important non-financial benefits.

    If there has been a change of heart within the NEC on this matter, as Mr Gabi’s
    recent comments may suggest, then the public need to know the basis for this
    change of mind.

    It would be a disgrace if these legal proceedings were shelved because the
    Cabinet did not have the courage to see them through or because the
    composition of the current NEC contained Ministers who involved themselves
    in the Conservatory purchase. These are not appropriate reasons for a change
    of mind on the commencement of civil proceedings by the State.

  • Page 16 of 55

  • The Ombudsman Commission expects the Attorney-General to give clear,
    justifiable and transparent advice on the continuation of proceedings without any
    further delay.

    Recommendation N° 2

    That the Board of the POSF and the Attorney-General (representing the
    State) meet and agree to terminate the head lease for The Conservatory;
    and that the head lease be terminated as soon as is practicable without
    penalty or reward to either the POSFB or the State; and that all litigation
    concerning the head lease be discontinued immediately.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    On 29 February 2000, Sir Mekere Morauta, the Prime Minister and Minister for
    Finance and Treasury, advised that he was in agreement with this recommendation
    and had sought advice from the Attorney-General. According to the Prime
    Minister, the Attorney-General had advised at the time that termination of the head
    lease may affect the nature and extent of the damages to be recovered from the
    legal proceedings.

    The Prime Minister responded further to this recommendation on 18 August 2000,
    simply stating that the Attorney-General is reviewing the head lease.

    The Prime Minister has made a useful response, advising that further action is
    being taken. However, the Ombudsman Commission requires more detailed
    information on the exact steps the Prime Minister is taking to implement this
    recommendation. We understand that the Prime Minister is in the process of
    addressing this issue, but we are concerned about the delay in fully considering
    this recommendation.

    The Minister for Justice (Mr Kilroy Genia to November 2000; Mr Andrew
    Baing from November to December 2000; Mr Puri Ruing since December
    2000)

    Then Minister for Justice, Kilroy Genia, responded to our report on 14 February
    2000. He advised that he had been briefed by the Attorney-General on this
    recommendation. The Minister stated that he was satisfied that the Attorney-
    General has taken the appropriate course of action. He stated that the Attorney-
    General would brief him again after further consideration.

    Mr Genia made a further response to this recommendation on 18 August 2000,
    advising that the Attorney-General and the Board of the POSF are currently
    reviewing the head lease.

  • Page 17 of 55

  • The Minister for Justice’s response addresses our recommendation, but does not
    give a satisfactory explanation as to what specific steps are being taken. We are
    also concerned that a legal review of the lease has not yet been finalised.

    The Attorney-General (Mr Michael Gene to July 2000; Mr Sao Gabi since
    July 2000)

    On 27 January 2000, then Attorney-General Michael Gene, wrote to us in
    response to the report. He advised that he was currently reviewing the State’s
    position on the matter, with particular regard to the implications of such an action
    on the proposed legal proceedings.

    On 18 August 2000 the current Attorney-General, Mr Gabi, advised that he was
    reviewing the head lease.

    Following a request from the Ombudsman Commission for more information
    about progress on this matter, Mr Gabi wrote to the Commission on 12 December
    2000. In his response, Mr Gabi gave the distinct impression that he had gone cold
    on the idea. Mr Gabi stated:
    The Board of POSF and my office(representing the State) are not been able to agree to
    terminate the head lease for the Conservatory.

    The position of the Board is that it was the head lease between the State and the
    POSFB which prompted it to purchase the property. The head lease guarantees
    a steady income for the investment. I have been advised that the termination of
    the head lease by the State would result in litigation or would attract legal
    proceedings against the State.

    The Attorney-General’s implementation of this recommendation is neither
    complete nor adequate.

    The Managing Director of the POSF (Mr John Ban (Acting) to September
    2000; Mr Ces Iewago since September 2000)

    On 28 January 2000 Mr John Ban, then Acting Managing Director of the POSFB,
    responded to our report by saying that the Board intended to deliberate on the
    Commission’s recommendations, and respond in due course.

    On 20 June 2000 Mr Ban responded further, advising that he had sought legal
    advice on the head lease arrangement with the State. Mr Ban did not provide us
    with a copy of that advice. However he did say that the advice indicated that the
    State could not unilaterally terminate the head lease without any penalty.

  • Page 18 of 55

  • On 7 August 2000 Mr Ban provided a further response to this recommendation.
    He advised that the POSFB had considered the matter of the head lease and did
    not agree with the recommendation to terminate the head lease for the following
    reasons:
    i) From the point of the view of the membership of the POSF, this has
    been a profitable investment and has yielded an acceptable return on
    the capital outlay.

    ii) The decision to sign the original lease had depended on the consent
    of at least two Ministers of the National Government, and if anyone is
    to be criticised by the Ombudsman Commission for waste of “tax
    payers money” it should not be the POSF Board which was merely
    making the best possible Investment it could for its members, but the
    party who willingly signed a lease on terms which were clearly far
    more favourable to the Landlord than to the tenant, when other
    options were available.

    We are extremely disappointed with the Board’s decision and the shallow
    consideration given to the matters raised in our report. The head lease is a
    grossly inequitable arrangement which effectively uses public money to protect
    the POSFB. If The Conservatory is to be a financial burden, then we consider
    that burden should rest on the POSFB and not the public of PNG as a whole.
    Regardless of legal liability, the POSFB is under a moral obligation to agree to
    terminate the lease.

    We do not consider that the former Managing Director has given adequate reasons
    for failing to implement this recommendation. The reasons given are typical of the
    fuzzy thinking that characterised the Conservatory purchase.

    The members of the Board of the POSF

    The members did not reply individually to this recommendation. The Managing
    Director responded, apparently on behalf of the entire Board. His response is
    discussed above.

    As stated earlier, the Board members should have responded personally, or
    advised the Commission that the Managing Director would be responding on their
    behalf.

    Overview

    As we stated in the 1999 report, the rentals the State is paying under the head lease
    for The Conservatory are more than three times the market rental. In effect, the

  • Page 19 of 55

  • people of Papua New Guinea are heavily subsidising the poor decision of the
    POSFB to purchase The Conservatory. The lease is an artificial creation designed
    to protect the POSFB with the government’s money.

    The decision of the Board not to terminate this lease is both short-sighted and ill-
    judged. Some individual members of the Board have seen fit to make public
    statements supporting the purchase and the head lease. However, they have not
    found themselves able to respond individually to our recommendation. The
    Ombudsman Commission is concerned that the Board, both individually and
    collectively, fails to appreciate the concerns we have about the head lease.

    The Attorney-General’s lukewarm response has done nothing to protect the
    interests of the State or, by extension, the people of Papua New Guinea.

    Recommendation N°3

    That the POSFB engage an independent and reputable specialist consultant
    to advise it on how to deal with The Conservatory in order to maximise the
    return on the investment.
    The Minister for Finance and Treasury (Sir Mekere Morauta)

    On 29 February 2000, Sir Mekere Morauta, the Prime Minister and Minister for
    Finance and Treasury, stated to us that he had been advised by the Secretary of the
    Department of Finance and Treasury that the POSF had engaged a professional to
    advise on how to best use the premises. On 18 August 2000 the Prime Minister
    further advised that the Managing Director would forward to us a copy of the
    Management Agreement with Raine & Home.

    This reflects the Managing Director’s statement below.

    The Managing Director of the POSFB (Mr John Ban (Acting) to September
    2000; Mr Ces Iewago since September 2000)

    On 28 January 2000 Mr John Ban responded to our report by saying that the
    Board intended to deliberate on the Commission’s recommendations, and respond
    in due course. On 20 June 2000 Mr Ban responded further, advising that the real
    estate firm Raine & Home had been engaged to manage The Conservatory. This
    firm had been given the specific task of carrying out the required refurbishment
    and securing full tenancy.

    Mr Ban provided further information in his letter of 7 August 2000 and enclosed a
    copy of the Management Agreement. Raine & Home had taken over from Omega
    Management, the company previously engaged to manage the Conservatory. The

  • Page 20 of 55

  • Management Agreement with Raine & Horne appears to be a standard commercial
    management agreement, with Raine & Horne receiving 3.75% of the gross rental
    receipts per month plus a standard commission for initial leasing and renegotiating
    leases.

    This action goes some way towards implementing our recommendation. We note
    that Raine & Horne are actively seeking new lessees for The Conservatory.

    The members of the Board of the POSF

    The members did not reply individually to this recommendation. The Managing
    Director responded, apparently on behalf of the entire Board. His response is
    discussed above.

    Overview

    The engagement of Raine & Horne is a positive step for the future of The
    Conservatory. It may be possible to achieve full occupancy of The
    Conservatory and subsequently lessen the burden on the State.
    Recommendation N° 4

    That the POSFB urgehtly introduce du e diligence and investment analysis
    _

    procedures, and an investment policy, to accurately assess all investments,
    especially offshore investments, against certain fixed criteria.
    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury, Prime Minister Sir Mekere Morauta,
    responded on 29 February 2000. He stated that he understood, from the Secretary
    of the Department of Finance and Treasury, that an independent financial and
    performance audit of the POSFB had already commenced, under terms of
    reference agreed with the International Monetary Fund and the World Bank. The
    Prime Minister also advised that an investment policy for the POSFB had been
    produced. On 18 August 2000 the Prime Minister advised that the POSFB was
    forwarding more information to us.

    As discussed below, we are generally satisfied with the implementation of this
    recommendation.

    The Managing Director of the POSFB (Mr John Ban (Acting) to September
    2000; Mr Ces Iewago since September 2000)

  • Page 21 of 55

  • On 28 January 2000 Mr John Ban, then Acting Managing Director of the POSF,
    responded to our report by saying that the Board intended to deliberate on the
    Commission’s recommendations and respond in due course. On 20•June 2000 Mr
    Ban responded further, advising that an Investment Committee and an investment
    policy had been put in place. The Investment Committee comprises three general
    managers, an accountant from an external firm and an actuary. The investment
    policy sets out the guidelines on how new investments are to be appraised and
    screened.

    On 7 August 2000 Mr Ban gave us more details on the Investment Advisory
    Committee, which was established in January 2000. The management directive
    for the Committee states:
    The role of the Investment Advisory Committee is to ensure that new investment proposals and
    screened and tested to comply with:

    i) in v est m e n t g u id el in es issu ed b y t h e M in ist e r f o r F in a n ce ;
    ii) the Board’s Investment Policy
    ii i) Th e in vestm en t sh a ll y ie ld a sa tisf a ctory ra te of r etu rn
    iv) For transparency, all new investment proposals and process of its
    respective evaluation are properly documented.

    The management directive also gives procedures for reviewing investments,
    including the requirement for proper documentation. Mr Ban said the Committee
    had already been quite effective since its implementation.

    Mr Ban also provided a copy of the POSFB’s “Investment Policy Statement” of
    March 2000. It is not clear whether this document has been adopted by the Board
    or whether it is only a draft document. This Investment Policy Statement sets out
    guidelines for investments by the POSFB and re-states the requirement for
    investments to comply with both legislation and investment guidelines.

    We consider that the establishment of the Investment Advisory Committee is a
    satisfactory response by the POSFB to our recommendation. The Investment
    Policy Statement and the management directive will be useful tools to measure the
    future performance of th POSFB.

  • Page 22 of 55

  • The members of the Board of the POSF

    The members did not reply individually to this recommendation. The Managing
    Director responded, apparently on behalf of the entire Board. His response is
    discussed above.

    Overview

    We are encouraged by the new investment policy and the establishment of the
    Investment Advisory Committee. If adhered to strictly, these initiatives will
    enhance the prospect of future investments by the POSFB advancing the interests
    of the contributors. We make the point however that these policies and procedures
    can only be as good as the people who are putting them in action.

    Recommendation N° 5

    That the National Executive Council make a policy decision that all future
    proposals to redevelop the Waigani precinct for government office buildings
    must be thoroughly screened in a manner which ensures full compliance
    with the Land Act, the Public Finances (Management) Act and the Public
    Services (Management) Act; and that the policy decision be conveyed
    formally to the following:

    • Secretary, Department of Personnel Management
    • Secretary, Department of Lands and Physical Planning
    • Secretary, Department of Treasury and Planning
    • Chairman Office Allocation Committee

    The Chairman of the National Executive Council, the Prime Minister (Sir
    Mekere Morauta)

    Prime Minister Sir Mekere Morauta, responded on 29 February 2000. The Prime
    Minister stated that all further proposals will be required to comply with all
    relevant legislation. The Prime Minister said that he would ensure, through the
    Prime Minister’s Department, that the Secretaries of the Departments of Personnel
    Management, Lands and Physical Planning, and Finance and Treasury were
    advised to that effect.

    The Prime Minister made a further response on 18 August 2000. Sir Mekere
    advised that he has directed the Central Agencies Coordinating Committee
    (CACC) to advise if any further action is required. In addition, the Prime
    Minister advised that NEC Decision 10/2000 has strengthened the process of
    decision making within the public sector.

  • Page 23 of 55

  • Overview

    We note that the Prime Minister has adopted this recommendation in principle.
    However we are of the opinion that an NEC decision that requires screening will
    greatly assist in ensuring compliance with the legislation. It has always been a
    requirement to comply with the legislation. However, our report shows that
    unless there is a clear direction to uphold the proper procedures, short cuts and
    defective administration can occur.
    Recommendation N° 6

    That the on-going public employment, or re-employment, of: the following
    public officials whose conduct was wrong, be carefully and critically
    reviewed:

    Kila AI;
    John Ban;
    Mark Basausau;
    Pe Cho*;
    Gabriel Dusava;
    Aloysius Eviaisa*;
    Zacchary Gelu;
    Vele Iamo*;
    Jacob Lerneki;
    Michael Malabag*,
    Ugvvalubu Mewana;
    Rupa Mulina;
    Tau Peruka;
    Ereman Ragi*, and
    Joseph Wingia*.

    The people marked (*) are the subject of their own separate recommendations,
    and are discussed at the appropriate recommendation below.

    Kila Ai
    On 24 August 2000 the Secretary of the Department of Personnel Management,
    Mr Soiat Williams, responded to this recommendation regarding Mr Ai Mr
    Williams enclosed a letter he had written to Dr Sibona Kopi, the Acting
    Provincial Administrator of Central Province, requesting Dr Kopi to serve an
    attached “Notice Requiring Explanation” to Mr Ai.

    The Notice Requiring Explanation requested Mr Ai to provide an explanation of
    the “specific allegations” made by the Ombudsman Commission regarding Mr

  • Page 24 of 55

  • Ai’s role in The Conservatory purchase. According to the notice, Mr Williams
    would then determine whether the matter should be dealt with under the
    disciplinary provisions of Mr Ai’s contract of employment.

    We do not know whether this notice was served on Mr Ai as requested by Mr
    Williams. We are disappointed that only very preliminary steps have been
    taken to date. We do not consider that this recommendation has been
    adequately implemented.

    John Ban

    Until the appointment of Mr Ces Iewago on 11 September 2000, Mr John Ban
    was the Acting Managing Director of the POSF. In April 2000 the Ombudsman
    Commission heard that the POSFB was proposing to make a recommendation
    regarding the substantive appointment of a Managing Director. We then wrote
    to the Secretary of the Department of Treasury and Planning, Mr Koiari Tarata,
    in his capacity as Chairman of the POSFB, advising that he should consider
    very carefully the findings of our report in relation to Mr Ban. We also wrote
    in similar terms to the Prime Minister, as the Minister responsible for the
    POSFB.

    Mr Tarata responded on 20 June 2000, requesting clarification from the
    Ombudsman Commission on whether Mr Ban had been “cleared” from the
    allegations in The Conservatory report. We responded on 22 June 2000,
    explaining to Mr Tarata that our report had made findings against Mr Ban.
    These findings are not allegations which could be later cleared. We re-stated to
    Mr Tarata that he was obliged to carefully and critically review the employment
    of Mr Ban in light of the findings in our report. We wrote to the Prime
    Minister in similar terms.

    On 20 June 2000 Mr Ban wrote to us, both as Acting Managing Director of the
    POSFB and on his own behalf in relation to this recommendation. He sought
    “clearance” of his name. He advised that he was one of the contenders for the
    position of Managing Director.

    The Prime Minister advised us on 14 August 2000 that he had directed the
    Board to prepare a brief on the status of Mr Ban and to recommend someone for
    either an acting or substantive appointment to the position. On 18 August 2000,
    Mr Tarata also responded to this recommendation, stating that the Prime
    Minister had requested a brief on Mr Ban’s status.

    Mr Ban wrote to us again on 1 September 2000, saying that although we had
    responded to his letter of 20 June 2000, we had not covered the issue of

  • Page 25 of 55

  • “clearing” his name. Mr Ban requested a response from the Ombudsman
    Commission on this issue.

    We responded on 8 September 2000, advising Mr Ban that because we had
    given our final opinion in our report, the issue of “clearance” did not arise. We
    also re-stated our opinion that until all our recommendations relating to the
    Board members and officers of the POSF are dealt with, it would be
    inappropriate for a substantive appointment to be made to the office of
    Managing Director.

    On 11 September 2000 the Prime Minister, acting in his capacity as Minister for
    Finance and Treasury, appointed Mr Ces Iewago as Managing Director of the
    POSFB. On 22 September 2000 Mr Aloysius Eviaisa put a public notice in The
    National newspaper. The notice stated that Mr Eviaisa was taking the Prime
    Minister to court over the appointment of Mr Iewago. Mr Eviaisa claimed that
    the Board’s recommendation to appoint Mr Iewago was made under duress. Mr
    Eviaisa also stated that Mr Ban had the required credentials for the position of
    Managing Director and Mr Iewago did not.

    Overview

    The appointment of Mr Iewago removes the proposal to appoint Mr Ban as the
    Managing Director of the POSFB. Although there has been no review of Mr
    Ban’s on-going employment with the POSF in the light of the findings in our
    report, we note that Mr Ban did not play a major part in the decision to
    purchase The Conservatory. We are satisfied that there has been adequate
    consideration given to this recommendation.

    Mark Basausau

    Mr Basausau’s current employment status is unknown. We are not aware of any
    government department or body that is currently employing Mr Basausau.
    There are therefore no recipients of this recommendation in relation to him.

    Gabriel. Dusava

    At the time of our final report, Mr Dusava was not, to our knowledge,
    employed by any department or other governmental body. On 22 December
    1999, the Acting Managing Director of the Investment Promotion Authority
    (IPA), Ivan Pomaleu, advised the Ombudsman Commission that Mr Dusava had
    been recommended as a candidate for the office of Managing Director of the
    IPA. Mr Pomaleu requested our advice on how the potential appointment
    would be affected by Mr Dusava’s dismissal from office by a leadership tribunal
    on 17 October 1997.

  • Page 26 of 55

  • We responded to Mr Pomaleu’s letter on 13 January 2000, alerting Mr Pomaleu
    to our recommendation in the report. ‘We sent a copy of this letter to then
    Minister for Trade and Industry, Michael Nall. Mr Dusava was subsequently
    appointed Managing Director of the IPA by the Minister on 14 January 2000.
    The Minister also released a rather misleading and out-of-context press
    statement stating that he had consulted with the Ombudsman Commission before
    making the appointment.

    The Ombudsman Commission then made a public statement, expressing
    disappointment at the decision and stating that the appointment of Mr Dusava
    was “an affront to the constitutional processes we have in place to instil good
    governance and good leadership in Papua New Guinea.” After some public
    discussion, the Prime Minister ordered an investigation into Mr Dusava’s
    appointment. On 19 January 2000, the Minister revoked the appointment of Mr
    Dusava as Managing Director of the IPA.

    We are not aware of any government department or body that is currently
    employing Mr Dusava. At the time of this status report, there are therefore no
    recipients of this recommendation in relation to him.

    Zacchary Geld’

    On 22 August 2000, the Secretary of the Department of Justice & Attorney-
    General, Sao Gabi, responded to this recommendation. Mr Gabi advised that
    Mr Gelu’s legal advice was based on the circumstances and facts of the case as
    they were presented to Mr Gelu. In the report we had criticised Mr Gelu for his
    legal advice regarding the execution of the lease of The Conservatory to the
    State. The matters raised by Mr Gabi in his letter do not affect the reasoning
    behind our finding and recommendation.

    Mr Gabi said that he was waiting for the response of the Secretary of the
    Department of Personnel Management before deciding on an appropriate course
    of action.

    On 24 August 2000 the then Secretary of the Department of Personnel
    Management, Mr Soiat Williams, responded to this recommendation regarding
    Mr Gelu. Mr Williams enclosed a letter he had written to Mr Gabi, requesting
    that he serve an attached “Notice Requiring Explanation” on Mr Gelu.

    The Notice Requiring Explanation requested Mr Gelu to provide an explanation
    of the “specific allegations” made by the Ombudsman Commission regarding
    Mr Gelu’s role in The Conservatory purchase. According to the notice, Mr

  • Page 27 of 55

  • Williams would then determine whether the matter should be dealt with under
    the disciplinary provisions of Mr Gelu’s contract of employment.

    We do not know whether this notice was served on Mr Gelu as requested by Mr
    Williams. We are disappointed that only very preliminary steps have been
    taken to date. We do not consider that this recommendation has been
    adequately implemented.

    On 16 November 2000, the Attorney-General announced the appointment of Mr
    Gelu as Acting Solicitor General. The Post Courier quoted Mr Gabi as saying:

    He (Mr Gelu) is a very experienced and competent officer and I am confident that he will
    discharge his duties diligently.

    No mention was made of the Ombudsman Commission’s recommendation
    regarding Mr Gelu. The appointment was made without any consultation with
    the Ombudsman Commission.

    Mr Gabi appears to have acted recklessly and without regard to his
    constitutional responsibilities.

    Jacob Lemeki
    Mr Lemeki is currently a Village Councillor at Alhoga village on Misima
    Island, Milne Bay Province. As Mr Lemeki was elected to this position, and
    not appointed by the government, this recommendation does not apply. There
    are therefore no recipients of this recommendation in relation to him.

    Ugwalubu
    Mowana
    Mr Mowana’s current employment status is unknown. We are not aware of any
    government department or body that is currently employing Mr Mowana.
    There are therefore no recipients of this recommendation in relation to him.

    Rupa Mulina
    Mr Mulina’s current employment status is unknown. We are not aware of any
    government department or body that is currently employing Mr Mulina. There
    are therefore no recipients of this recommendation in relation to him.

    Tau Peruka

  • Page 28 of 55

  • Mr Peruka’s current employment status is unknown. We are not aware of any
    government department or body that is currently employing Mr Peruka. There
    are therefore no recipients of this recommendation in relation to him.

    Further comment Secretary of Department of Personnel Management

    On 18 August 2000, the then Secretary of the Department of Personnel
    Management, Mr Soiat Williams, provided further information on the
    implementation of this recommendation. Mr Williams said that he had
    delegated an officer of his Department to research the “specific allegations”
    made in our public notice of 2 August 2000.

    The Secretary also enclosed a copy of his letter of 18 August 2000 to the
    Secretary of the Department of Finance and Treasury, concerning those public
    servants we named in our report. In this letter the Secretary advised that he
    would be seeking further details from the Ombudsman Commission to enable
    him to ensure that disciplinary action was taken against the named public
    servants.

    Mr Williams’ appointment as Secretary of the Department of Personnel
    Management was revoked in November 2000. He was replaced by Mr Peter
    Tsiamalili. We will be pursuing Recommendation N° 6 further with Mr
    Tsiamalili.
    Recommendation N° 7

    That the Cocoa Board meet and, using its power in Section 15 of the Cocoa
    Act (Chapter 388) to appoint or terminate employees, decide to review the
    employment of Ereman Ragi as Chief Executive Officer of the Cocoa
    Board; and ask him to show cause as to why he should continue to hold that
    position.

    The Minister for Agriculture and Livestock (Mr Ted Diro to May 2000; Mr
    Mao Zeming from May to November 2000; Mr Muki Taranupi since
    November 2000)

    At the time of the report, Mr Ted Diro was the Minister for Agriculture and
    Livestock. Since then the position has been held by Mr Mao Zeroing, who was
    also Deputy Prime Minister at the time, and from November 2000 by Mr Muki
    Taranupi. None of the Ministers have responded to the report or subsequent
    letters.

  • Page 29 of 55

  • The members of the Cocoa Board

    On 2 March 2000, the Chairman of the Cocoa Board, Mr Sam Tulo, wrote to the
    Ombudsman Commission in response to this recommendation. Mr Tulo advised
    that he had written to Mr Ragi on 7 February 2000, asking him to show cause as
    to why he should continue to hold the position of Chief Executive Officer.

    Mr Tulo said that Mr Ragi responded on 14 February 2000 and the members of
    the Board held a formal meeting on 23 February 2000. At that meeting, the
    members unanimously resolved to retain Mr Ragi’s services.

    On 3 August 2000 we requested additional details, including copies of the
    documents that were the subject of the Board’s deliberations, in order to satisfy
    ourselves that the Board fully considered all the matters raised in our report
    regarding Mr Ragi’s conduct.

    On 22 August 2000 the Board responded to our letter, providing a copy of Mr
    Ragi’s response to the Board’s request for him to show cause why he should
    continue holding the position of Chief Executive Officer. The Board also provided
    a copy of the minutes of its meeting at which this matter was discussed. The
    minutes show that the Board decided to retain Mr Ragi for two reasons:
    The purchase of the Cairns Conservatory has no direct bearing of the affairs of the
    Cocoa Board.

    Mr Ragi was not terminated by the POSF Board for his action, nor was he
    charged and convicted with a criminal offence, but rather was replaced by the
    Minister and the new Government when it took office.

    Overview

    We are concerned that the Cocoa Board has engaged in whitewashing Mr Ragi.
    Ereman Ragi was a major instigator of the purchase of The Conservatory. His
    poor decisions and administrative incompetence have cost the contributors to the
    POSF, and the public in general, some tens of millions of kina in lost revenue and
    wasted rents.

    It is difficult to see how the Cocoa Board could have thoroughly considered the
    matters in our report and then produced the two paragraphs noted in the minutes
    above. Mr Ragi’s response to his show cause letter continues to advance the
    discredited notion that The Conservatory was a good investment for the POSFB.
    He also uses the two worthless valuations of the property obtained during 1994 to

  • Page 30 of 55

  • argue that the building was worth what the POSFB, under Mr Ragi, decided to
    pay for it.

    Most worryingly, Mr Ragi claims that the Ombudsman Commission’s report
    contains “allegation” against him, the truth of which cannot be relied on until
    tested in a court of law. This betrays a deplorable ignorance of the Ombudsman
    Commission’s role under the Constitution.

    The Cocoa Board’s consideration of this matter has not been thorough or
    conscientious.

    The failure by various Ministers to respond at all to this recommendation is
    extremely disappointing.
    Recommendation N° 8

    That the Minister for Finance and Treasury give written notice to Michael
    Malabag under Section 7 of the POSF Act, advising that he intends to
    terminate his appointment as a member of the Board of the POSF on the
    grounds of inability and inefficiency; and that the Minister, after receiving
    Mr Malabag’s reply, gives due consideration to terminating his
    appointment.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury, Prime Minister Sir Mekere Morauta,
    responded on 29 February 2000. The Prime Minister stated that he would forward
    a letter to Mr Malabag, requiring him to show cause why his appointment to the
    POSFB should not be terminated.

    On 14 August 2000 the Prime Minister further advised us that he had written to
    Mr Malabag on I. May 2000, requesting him to show cause. The Prime
    Minister. advised that Mr Malabag would not be re-appointed when his term as
    Board member representing the Public Employees Association expires.

    Mr Malabag’s term expired in November 2000. He has not been reappointed.

    Events have overtaken the implementation of this recommendation. We are
    satisfied that the Prime Minister has properly considered this matter.

    Other comment

    On 21 August 2000, Mr Napoleon Liosi, the National President of the Public
    Employees Association, took out a full-page advertisement in the Post Courier

  • Page 31 of 55

  • in support of Mr Malabag. Mr Liosi, on behalf of the PEA, expressed the view
    that the purchase of The Conservatory was a viable investment, that Mr
    Malabag has the complete confidence of the PEA and that Mr Malabag would
    have had no knowledge of any “devious motives” held by any other parties to
    this transaction.

    While we acknowledge the right of Mr Liosi to express his support in this way,
    we are concerned that he has unquestioningly adopted the POSFB line on the
    viability of the Conservatory purchase. The Conservatory was not a good
    investment. The building was purchased for more than double what it was
    worth. According to information received from the POSFB in November 2000,
    the building is only 35% occupied. Mr Malabag, and the other Board members,
    should have assessed the investment properly. They did not do so.

    If Mr Liosi’s advertisement was paid for from PEA funds, we hope Mr Liosi is
    confident that his sentiments reflect the views of the PEA membership.
    Recommendation N° 9

    That the Minister for Finance and Treasury give written notice to Moysius
    Eviaisa under Section 7 of the POSF Act, advising that he intends to
    terminate his appointment as a member of the Board of the POSF on the
    grounds of inability and inefficiency; and that the Minister, after receiving
    Mr Eviaisa’s reply, gives due consideration to terminating his appointment.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury, Prime Minister Sir Mekere Morauta,
    responded on 29 February 2000. The Prime Minister stated that he would forward
    a letter to Mr Eviaisa, requiring him to show cause why his appointment to the
    POSFB should not be terminated.

    On 14 August 2000 the Prime Minister further advised us that the term of Mr
    Eviaisa had expired, and the Prime Minister would be appointing another
    nominee of the Police Association to fill the position.

    Events have overtaken the implementation of this recommendation. We are
    satisfied that the Prime Minister has properly considered this matter.

    Other comment

    On Friday 25 August 2000, Mr Eviaisa published a notice in the Post Courier

    newspaper. This notice was in similar terms to the notice published by
    Napoleon Liosi on 21 August regarding Mr Malabag. In his notice, Mr Eviaisa

  • Page 32 of 55

  • continued to assert that the purchase of The Conservatory was a sound
    investment. Mr Eviaisa also stated that no action had been taken against himself
    and Mr Malabag because they had done nothing wrong.

    On 22 September 2000, Mr Eviaisa placed another public notice in the
    newspaper giving his public support for Mr Ban and criticising the appointment
    of Mr Iewago as the Managing Director of the POSFB. This was an ill-
    conceived gesture which added nothing to the effective functioning of the
    POSFB. If the advertisement was paid for from Police Association funds, we
    hope Mr Eviaisa is completely certain that his sentiments reflect those of the
    Police Association membership.

    In his notices, Mr Eviaisa declared himself to be a member of the POSF Board.
    However Mr Eviaisa’s term had expired before the newspaper advertisements
    were placed. The current Managing Director of the POSF, Mr Iewago, in a
    letter to the Ombudsman Commission on 21 October 2000, confirmed that Mr
    Eviaisa’s three-year term as a Board member expired on 27 May 2000.

    Section 4(2)(b) of the POSF Act specifically states that Board members “shall be
    appointed for a term of three years”. There is no provision for automatic
    extensions to this term of office. Section 4(2)(c) states that Board members “are
    eligible for reappointment.” Mr Eviaisa has not been reappointed to the Board.
    Mr Eviaisa should not declare himself to be a member of the POSF Board or
    take part in the meetings and decisions of the Board.
    Recommendation N° 10

    That the Secretary of the Department of Finance and Treasury take
    immediate steps to review the employment of. Vele Iamo on the grounds of
    incompetence and inability; and, in particular, lays disciplinary charges
    against him.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury, Prime Minister Sir Mekere Morauta,
    responded on 29 February 2000. The Prime Minister advised that he had
    discussed this matter with the Secretary, who was requesting Mr Iamo to show
    cause. On 18 August 2000 the Prime Minister further advised that the Secretary
    would provide us with further details.

    The Secretary of the Department of Finance and Treasury (Mr Koiari Tarata)

    The Secretary of the Department of Finance and Treasury, Mr Koiari Tarata,
    responded to our original report on 1 June 2000. This letter enclosed an earlier

  • Page 33 of 55

  • letter, dated “31 February 2000”, which Mr Tarata advised had been misplaced in
    his files and was not sent to us. In this letter Mr Tarata said that he formed the
    view that Mr Iamo should show cause as to why his employment should not be
    reviewed. Mr Tarata also said he would take advice from the Attorney-General
    and the Department of Personnel Management on disciplinary charges.

    Mr Tarata made a further response to our report on 18 August 2000. He advised
    that Mr lamo had not responded to the letter sent to him earlier in the year, asking
    him to show cause. Mr Tarata enclosed a follow-up letter sent to Mr Iamo, asking
    him to show cause and advising Mr lamo that he intended to seek advice on
    appropriate disciplinary action.

    Mr Tarata also enclosed letters dated 18 August 2000 to the Attorney-General and
    the Secretary of the Department of Personnel Management, Mr Soiat Williams.
    These letters requested legal advice on any potential disciplinary action.

    Secretary of the Department of Personnel Management (Mr Bill Kua to
    March 2000; Mr Isaac Lupari from March to June 2000; Mr Soiat Williams
    from June to November 2000; Mr Peter Tsiamalili since November 2000)

    On 24 August 2000 the Secretary of the Department of Personnel Management,
    Mr Soiat Williams, responded to this recommendation regarding Mr Iamo. The
    Secretary was not a direct recipient of the recommendation of our original
    report. Mr Williams enclosed a letter he had written to Mr Koiari Tarata,
    Secretary of the Department of Finance and Treasury, requesting Mr Tarata to
    serve an attached “Notice Requiring Explanation” to Mr Vele lamo.

    The Notice Requiring Explanation requested Mr Iamo to provide an explanation
    of the “specific allegations” made by the Ombudsman Commission regarding
    his role in the Conservatory purchase. According to the notice, Mr Williams
    would then determine whether the matter should be dealt with under the
    disciplinary provisions of Mr Iamo’s contract of employment.

    We do not know whether this notice was served on Mr Iamo as requested by Mr
    Williams.

    Overview

    We are concerned that the implementation of this recommendation has taken
    many months to get to this preliminary stage. It is a very simple
    recommendation which for no good reason seems to have found its way into the
    “too hard basket”. We will be closely monitoring the consideration given by
    the Secretary and the Minister to Mr Iamo’s continued employment. We expect
    the process to be swiftly completed and a decision made.

  • Page 34 of 55

  • Recommendation N° 11

    That the Managing Director of the POSFB take immediate steps to review
    the employment of Pe Cho on the grounds of incompetence and inability;
    and, in particular, lays disciplinary charges against him.

    Recommendation N° 12

    That the Managing Director of the POSFB take immediate steps to review
    the employment of Joseph Wingia on the grounds of incompetence and
    inability; and, in particular, lays disciplinary charges against him.

    Recommendations 11 and 12 were treated identically by all the recipients. We
    therefore deal with these recommendations together.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury and Prime Minister, Sir Mekere Morauta,
    responded on 29 February 2000. The Prime Minister advised that the Managing
    Director of the POSFB was seeking legal advice on these recommendations. On
    18 August 2000 the Prime Minister further advised us that the Managing Director
    would provide us with further details.

    The Managing Director of the POSFB (Mr John Ban (Acting) to September
    2000; Mr Ces Iewago since September 2000)

    Mr Ban, then Acting Managing Director of the POSFB, responded to these
    recommendations on 20 June 2000. In that letter Mr Ban advised that steps had
    been taken for disciplinary action against Mr Cho and Mr Wingia. Formal action
    had been deferred until the normal board meeting to be held in July 2000.

    Mr Ban responded further on 7 August 2000. He said that the POSFB had
    deliberated on this recommendation at its July meeting. According to Mr Ban, the
    Board made the following observations:
    i) It would be inequitable and open to serious challenge if the Board
    were to terminate employees for their part in this transaction which
    had occurred four (4) years ago.
    ii) These employees have an excellent record during their employment
    with the Board (12 years in the case of Mr Wingia and 6 years in the
    case of Mr Cho). There is no evidence that any employees behaved
    corruptly or in bad faith — rather that their actions betrayed deplorable
    lack of commercial acumen.
    iii) The employees concerned did not try to conceal their involvement in
    the transaction, and since 1994, each employee has had his contract of
    employment renewed by the POSFB in full knowledge of this
    involvement.

  • Page 35 of 55

  • iv) The matter is worthy of serious treatment on an industrial basis,
    that is to terminate employment at this stage would be harsh and
    oppressive — esp ecia lly as, du ring t h e four yea rs since th e
    Comm ission commenced its investigation, each man has had his
    contract of employment renewed by the Board in full knowledge of his
    part in the matters the subject of the Ombudsman’s report.
    v) Therefore it would be in such gross breach of procedural fairness if the
    Board terminated the employment now, in the light of the foregoing
    that, in addition to laying itself open to the justifiable assertion that it’s
    actions were harsh and inequitable, it would lay itself open to
    prospects of expensive litigation.

    Mr Ban went on to say that the Board had agreed to ask the Department of
    Personnel Management for advice on a fair punishment for each officer. After
    receiving such advice, the Board would then take suitable action at the September
    board meeting.

    The Ombudsman Commission considers that the view taken by the Board is
    misconceived and indefensible. The Board has misunderstood both the
    Commission’s recommendation and its own responsibilities regarding its staff.

    Our recommendation was to review the employment of both officers in light of the
    Commission’s findings in the report. This should have involved a weighing
    exercise, where each officer’s employment history was weighed against his poor
    decisions regarding The Conservatory. If such a balancing exercise had been
    undertaken in full consideration of all the facts, including giving the officers a
    chance to make a submission, a decision to terminate resulting from that exercise
    could not have been harsh or oppressive. Such a termination could certainly not
    be a breach of procedural fairness, nor should it give rise to litigation. All the
    Board’s arguments on these grounds are baseless.

    We are also disappointed by the Board’s seeming vindication of their officers’
    actions. Mr Ban states that there is no evidence that they behaved corruptly,
    “rather that their actions betrayed deplorable lack of commercial acumen”.

    The Ombudsman Commission considers that a deplorable lack of commercial
    acumen is not a desirable quality for a senior POSFB officer, especially an officer
    with responsibility for investments. POSFB staff should be selected and retained
    on merit. Failure to live up to the duties of their positions should be dealt with
    promptly and decisively.

    Fortunately the new Managing Director of the POSFB, Mr Iewago, seems to
    concur with this view. In a letter to the Commission on 21 October 2000 he stated
    that Mr Cho’s employment had been terminated, as of 6 November 2000. Mr

  • Page 36 of 55

  • Iewago stated that he is seeking legal advice on the matter of Mr Wingia’s future
    employment at the POSF.

    Overview
    The Commission considers that this recommendation was badly addressed by the
    former Acting Managing Director, Mr Ban. However, the indications we have
    received from the new Managing Director, Mr Iewago, are that he is serious about
    addressing and implementing the Commission’s recommendations concerning the
    on-going employment of senior officers of the POSFB who were found to have
    acted wrongly.

    We note, however, that Mr Iewago has still to notify the Ombudsman Commission
    of the action taken on the recommendation concerning Mr Wingia.

    Recommendation No 13

    That the Board of the POSF engage an independent and reputable
    consultant (or firm) to conduct a management review of the POSFB; in
    particular to review, assess and make recommendations for changes, if
    necessary, to all senior management positions in the organisation and, if
    necessary, to the occupants of those positions.

    The Minister for Finance and Treasury (Sir Mekere Morauta)

    The Minister for Finance and Treasury, Prime Minister Sir Mekere Morauta,
    responded on 29 February 2000. The Prime Minister advised that he accepted
    the recommendation, and that a financial and performance audit of the POSFB
    had already commenced. On 18 August 2000 the Prime Minister further
    advised us that the performance audit of POSF was completed in February 2000
    and that the Managing Director of the POSFB would be providing us with a
    copy of that report.

    Members of the Board of the POSF

    On 28 January 2000 Mr John Ban, then Acting Managing Director of the POSF,
    responded to our report by saying that the Board intended to deliberate on the
    Commission’s recommendations and would respond in due course. On 20 June
    2000 Mr Ban responded further, advising that an audit committee had been put in
    place, to ensure the “corporate governance” of the Board.

    On 7 August 2000 Mr Ban gave us more details on the implementation of this
    recommendation. Mr Ban advised that the Auditor-General appointed Deloitte
    Touche Tohmatsu early in 2000 to carry out a special review at the POSF. The

  • Page 37 of 55

  • thrust of the review was to look at the “fundamental controls which contribute
    towards ensuring a good governance framework at POSF”. This review was
    completed in February 2000 and its findings were reported to the Prime Minister.

    Deloitte Touche Tohmatsu report

    We have examined the report by Deloitte Touche Tohmatsu, entitled Public
    Officers’ Superannuation Fund Corporate Governance Review (“the Deloitte
    report”). Mr Ban provided us with a draft of the Deloitte report dated 29
    February 2000. The quotes below are from that draft report.

    The Deloitte report resulted from a review performed in accordance with terms of
    reference issued by the Office of the Auditor-General. The report made seven key
    findings:
    1. Many of the fundamental controls which contribute to ensuring a robust
    governance framework are deficient.
    2. The Internal Audit Division is ineffective because it is not positioned
    appropriately within POSF or given appropriate status to ensure it can function
    effectively.
    3. Review of Board minutes and other documentation indicates that the decision
    making process employed by the Board, specifically in relation to making
    investm ents, has In term ittently la ck ed con trol, a ccountab ility and
    transparency.
    4. The existing POSF Act results in a close association between the State and the
    Fund. Based on normal commercial considerations, this relationship is not in
    the best interest of the individual members of the Fund.
    5. The inadequate provision of a sound control framework by executive
    management is ultimately responsible for shortcomings in the operational
    management of the Fund.
    6. The performance of the Investment Division cannot be directly linked to the
    performance of the Fund as the Board has collectively ignored or refused the
    advice from the Division on a number of occasions.
    7. Review of the performance of portfolio managers indicated significant
    concerns within the Information Services Department.

    The Deloitte report also reviewed the role of senior management positions. It
    made several recommendations regarding both the nature of the positions and the
    conduct of their occupants. The following recommendations are numbered in
    accordance with Appendix 1 of the Deloitte report “List of recommendations to
    Improve Governance at POSF”:
    15. Each m emb er of th e Board and th e Investm ent C ommitt ee sh ou ld sig n
    a con f li ct of in t er est sta tem en t f o r ev ery in ves tm en t
    op p ortu n ity eva luated.
    17. The Board should ensure they are kept abreast of modern
    governance con cep ts b y reg istering on cou rses d esign ed to h elp
    t h em d ischa rg e their responsibilities eff ectively.
    18. All memb ers of th e Boa rd shou ld undergo p eriodic t rain in g to en sure

  • Page 38 of 55

  • that they maintain an appropriate and current knowledge of techniques
    of investment appraisal, risk assessment, fraud control and awareness
    and other modern governance principles.
    32. Members of both the Investment Committee and the Board should
    undergo training to ensure that they have a sound and current
    understanding of investment analysis.
    34. A strategy should be established to communicate the intention to fill or
    abolish currently vacant positions and/or to confirm the substantive
    appointment of people who have acted for long periods.

    We note that the Deloitte report focussed primarily on the need to establish new
    systems and procedures to guarantee proper corporate governance. The Deloitte
    report also emphasised the need to ensure that the systems and procedures
    currently in place were consistently followed. To this end, the Deloitte report
    made numerous recommendations regarding the strengthening of the Internal Audit
    Division of the POSF. We strongly support those recommendations.

    Overview
    The Deloitte report appears to be a thorough investigation into the corporate
    governance of the POSFB. It makes many constructive recommendations
    regarding the Board and senior management. However this is only the first step in
    ensuring that the management of the POSFB is both efficient and accountable. We
    will be following the implementation of the Deloitte report’s proposals with
    interest. Overall, we are satisfied with the implementation of our
    recommendation.
    Recommendation N°14

    That Hon Chris Haiveta MP make a public retraction and apology, at his
    own expense, fora his misleading statements to the public and the Parliament
    in November 1995 regarding the purchase of The Conservatory.
    The Prime Minister (Sir Mekere Morauta)
    At the time the 1999 report was finalised, Mr Haiveta was a Minister. As such,
    we considered that the Prime Minister had responsibility for ensuring that Mr
    Haiveta properly considered making a retraction and apology.

    Mr Haiveta subsequently fell out of favour and was not a member of the
    National Executive Council for most of 2000. However, Mr Haiveta was
    recently reinstated to the Ministry after a Cabinet reshuffle in November 2000.

    As Mr Haiveta is again a Minister, we consider that the Prime Minister has a
    role to play in relation to this recommendation.
    Mr Haiveta

  • Page 39 of 55

  • On 4 February 2000, Mr Haiveta’s First Secretary, Mr Peter Eka, responded to
    this recommendation on Mr Haiveta’s behalf. He advised that Mr Haiveta was
    perusing the issues raised and would respond directly. No further response has
    been received from Mr Haiveta, despite a reminder letter sent to him by the
    Commission on 3 August 2000.

    Overview

    This recommendation has not been considered at all. We have received no
    response from Mr Haiveta personally. We made this recommendation on the
    basis of Mr Haiveta’s press release of 3 November 1995 and his statements in
    the Parliament during November 1995. Both the press release and the
    statements contained obvious errors and inaccurate comments about The
    Conservatory.

    Misleading and deceptive comments made in Parliament are an affront to the
    Parliament as an institution.

    We remain of the opinion that Mr Haiveta should publicly retract his comments
    and apologise for misleading both the public and the Parliament.

    Recommendation N°15

    That Rupa Mulina make a public retraction and apology, at his own
    expense, for his misleading statements to the public in November 1995
    regarding the purchase of The Conservatory.
    Mr Mulina has not responded to this recommendation. We made this
    recommendation on the basis of several statements made by Mr Mulina, as the
    Secretary of the Department of Finance, regarding The Conservatory. In
    November 1995, Mr Mulina gave a briefing to the Minister for Finance and
    issued an open letter to the contributors to the POSF regarding The
    Conservatory. Both the briefing and the open letter contained many statements
    that were either misleading or completely wrong.

    Mr Mulina was in a key government position at the time he gave this advice.
    He had serious responsibilities and failed to live up to them. He then failed to
    respond to this recommendation.

    The Commission remains of the opinion that Mr Mulina should apologise for
    misleading the public. This recommendation has not been implemented.

    Recommendation N° 16

  • Page 40 of 55

  • That the Attorney-General issue guidelines to all government departments
    and governmental bodies, advising that Pato Lawyers should not act for the
    State, ‘any government department or other governmental body, for a
    period of five years from the date of this report.

    Minister for Justice (Mr Kilroy Genia to November 2000; Mr Andrew Baing
    from November to December 2000; Mr Puri Ruing since December 2000)

    On 14 February 2000 the then Minister for Justice, Kilroy Genia, responded to
    this recommendation. The Minister advised that he had been briefed by the then
    Attorney-General, Mr Gene, on this matter and was satisfied that the
    appropriate course of action was being taken.

    The Minister made a further response on 18 August 2000, advising that Mr
    Gene had submitted a set of guidelines to the Central Agencies Coordinating
    Committee. The Minister also advised that expressions of interest had been
    called for from legal firms to provide legal services to the State. The Minister
    said that a number of legal firms would be pre-selected to outsource the State’s
    legal work.

    The Attorney-General (Mr Michael Gene to July 2000; Mr Sao Gabi since
    July 2000)

    On 27 January 2000, the then Attorney-General, Michael Gene, advised that he
    was further considering the State’s position on this matter. But he did not
    anticipate that further steps would be taken, for two reasons. The first was
    preliminary advice which indicated that the recommended action may be
    unconstitutional. The second reason was that the Commission’s investigation did
    not appear to provide sufficient support for such action against Pato Lawyers.

    On 19 May 2000, the Attorney-General wrote again in response to the
    Commission’s letter to the Prime Minister. In this letter, he advised that his
    previous concerns about this recommendation had lessened. Accordingly, he
    intended to issue guidelines for government departments and governmental bodies
    in line with our recommendation. He enclosed draft guidelines for comment.

    We responded to this letter on 8 June 2000. We suggested some amendments to
    the draft guidelines. On 3 August 2000 we wrote again to the Attorney-General,
    requesting further advice on implementation of this recommendation.

    On 18 August and 21 August 2000, the current Attorney-General, Sao Gabi, made
    further responses on this recommendation. He advised that Mr Gene had
    submitted a set of guidelines to the Central Agencies Coordinating Committee. Mr

  • Page 41 of 55

  • Gabi enclosed a copy of the guidelines and a letter from Mr Gene to the Chief
    Secretary to Government, Mr Robert Igara. In the enclosed letter, the Attorney-
    General sought Mr Igara’s advice and facilitation for the Central Agencies
    Coordinating Committee’s deliberation and general endorsement before settling
    on the final text.

    On 12 December 2000, the Attorney-General wrote to the Ombudsman
    C o mmis s io n , ad v is in g th e g u id e lin es ” h av e b een ap p r o v ed an d d is tr ib u ted to a ll
    Government Departments and Agencies”.

    Other comment involvement of the Privatisation Commission

    On 22 February 2000, Mr Charlie Turi, the Acting Secretary of the
    Privatisation Commission, wrote to the Chief Ombudsman requesting advice:
    … whether the Minister for Corporatisation and Privatisation or entities which are under his
    Ministerial determination and responsibilities from time to time, the Executive Chairman,
    Privatisation Commission or the Privatisation Commission itself will render themselves open to
    conduct which may raise implications for the persons/offices if they engaged Pato Lawyers in a
    client/lawyer relationship.

    Mr Turi enclosed a letter from Pato Lawyers to the Minister for Privatisation
    and Corporatisation which repeated the Attorney-General’s initial view that
    action against Pato Lawyers may be unconstitutional and/or unwarranted. On
    11 May 2000 the Ombudsman Commission wrote to the Prime Minister stating
    its concerns about the proposed employment of Pato Lawyers by the
    Privatisation Commission.

    The Attorney-General responded on 19 May 2000, as discussed above.
    Executive Chairman of the Privatisation Commission Ben Micah responded on 9
    June 2000. Mr Micah stated that the Privatisation Commission was not
    considering awarding a retainer to Pato Lawyers and further had never
    considered a retainer or otherwise engaging Pato Lawyers in any capacity. Mr
    Micah assured the Ombudsman Commission that the Privatisation Commission
    was committed to a high degree of transparency and was aware of the
    recommendations contained in The Conservatory report.

    We responded to this letter on the same day, 9 June 2000, expressing our
    support of the Privatisation Commission’s awareness of its duty to maintain
    transparency.

  • Page 42 of 55

  • Litigation by Pato Lawyers

    On Thursday 27 July 2000 the Post-Courier’s front-page headline read “Pato to
    sue Ombudsman”. The accompanying story said Pato Lawyers had sought legal
    advice from an Australian-based Queen’s Counsel. Pato Lawyers were quoted
    as saying they believed the Ombudsman Commission’s recommendation was
    “harsh and oppressive” and “illegal and unconstitutional”.

    At the time of the newspaper report there was a great deal of media and public
    interest in the alleged K300,000 per month Mr Rimbink Pato was receiving as
    Executive Director of the State-owned Finance Pacific group of companies. Mr
    Pato was principal of Pato Lawyers at the time the law firm was acting for the
    POSFB on the purchase of The Conservatory.

    On 21 November 2000, the Ombudsman Commission was served with court
    documents filed by “Alfred Manase trading as Pato Lawyers” as plaintiff. the
    Ombudsman Commission is named as the first defendant; the Attorney-General
    is the second defendant; the State is the third defendant. The plaintiff is
    seeking, amongst other things, a declaration that Recommendation N° 16 is
    unconstitutional and damages for misfeasance in public office and breach of
    public duty.

    The Ombudsman Commission intends to defend these court proceedings
    vigorously.

    Overview

    This recommendation has faced more opposition than any of the other
    recommendations to come out of the Cairns Conservatory report.

    While the Commission is pleased that the Attorney-General appears to have
    issued the guidelines, we are well aware that further action may be required
    before this recommendation can be considered fully implemented.
    Recommendation N° 17

    That the National Executive Council make a policy decision that neither the
    State nor any government department or other governmental body should
    conduct any further business with Warren Anderson or Solly Benn or any
    company or business wholly or partly owned or controlled by them,
    separately or together; and that the policy decision be conveyed formally to
    all
    departmental heads and all heads of governmental bodies.

  • Page 43 of 55

  • The Chairman of the National Executive Council, the Prime Minister (Sir
    Mekere Morauta)

    The Prime Minister, Sir Mekere Morauta, responded on 29 February 2000.
    The Prime Minister advised that he accepted the recommendation and that any
    such policy decision would be conveyed to all departmental heads and all heads
    of other government bodies.

    On 18 August 2000 the Prime Minister further advised us that he had discussed
    this matter with the Chief Secretary and had requested him to advise on the
    recommendation and on any implications to the State.

    We made this recommendation because we considered that Mr Anderson and
    Mr Benn had acted below normal ethical standards during the sale of The
    Conservatory. The effect of an NEC decision would be twofold. Firstly, as a
    direction to protect the State against two men who had showed a marked
    propensity to involve the Government in grand schemes resulting in large profits
    for themselves and little in return for the Government. Secondly, the decision
    would be an authoritative statement that unethical behaviour would not be
    tolerated by the State and would carry consequences. We consider a decision
    under this recommendation would be an important public declaration.

    We are pleased that the Prime Minister accepts this recommendation. However
    we would like to see some more substantive action on this matter. We see this
    as a chance for the Prime Minister to do the right thing publicly and
    unequivocally.

    Recommendation N°18

    That the Prime Minister make all future determinations of Ministerial
    portfolios, under Section 148 of the Constitution, in writing, and that such
    determinations be published in the National Gazette as soon as possible
    after being made.
    The Prime Minister (Sir Mekere Morauta)

    On 29 February 2000 Sir Mekere Morauta advised that this recommendation was a
    non-issue, as it reflected current practice.

    The Commission is satisfied with the implementation of this recommendation.

  • Page 44 of 55

  • Recommendation N° 19
    That the Minister for Public Service, with the advice and assistance of the
    Secretary of the Department of Personnel Management and the Secret- -y of
    the Department of Finance and Treasury, initiate legislation to ensure that
    the powers, authority and procedures of the Office Allocation Committee be
    more clearly defined; in particular so that
    • the jurisdiction of the Committee is clearly stated;
    • the power of the Committee to give final approval is clearly
    differentiated from the power of the Secretary for Personnel
    Management to “consider” all-requests for office space; and
    • the powers of the Chairman of the Committee, in particular his
    authority to act on behalf of the Committee, is defined and restricted.

    The Minister for Public Service (Mr Philemon Embel to May 2000; Mr Iairo
    Lasaro from May to November 2000; Mr Philemon Embel again since
    November 2000)

    Neither Mr Embel or Mr Lasaro responded to this recommendation.

    Secretary of the Department of Personnel Management (Mr Bill Kua to
    March 2000; Mr Isaac Lupari from March to June 2000; Mr Soiat Williams
    from June to November 2000; Mr Peter Tsiamalili since November 2000)

    The then Secretary of the Department of Personnel Management, Mr Soiat
    Williams, responded to this recommendation on 18 August 2000. The Secretary
    advised that he had already obtained advice on drafting legislation on office
    allocation. The Secretary did not provide any further information on this
    legislation.

    Secretary of the Department of Finance and Treasury (Mr Koiari Tarata)

    The Secretary of the Department of Finance and Treasury, Mr Koiari Tarata,
    responded to our original report on 1 June 2000. This letter enclosed an earlier
    letter, dated “31 February 2000”, which Mr Tarata advised had been misplaced in
    his files and was not sent to us. In this letter Mr Tarata did not address this
    recommendation.

    Mr Tarata made a further response to our report on 18 August 2000. The
    Secretary agreed that the status and role of the Office Allocation Committee
    needed to be reviewed and advised that he would consult with the Secretary of the
    Department of Personnel Management on proposed legislative changes.

  • Page 45 of 55

  • Overview

    There has been no real attempt to implement this recommendation. Although the
    Secretary of the Department of Personnel Management has advised us that
    legislation is being considered, we have received no information on the details of
    such legislation and when it is expected to take effect.
    The Commission considers that the ill-defined status and role of the Office
    Allocation Committee was a major contributing factor to the difficulties
    surrounding the lease of The Conservatory to the State. Because the Office
    Allocation Committee does not have a clear basis for its authority, it is susceptible
    to behind-the-scenes dealing and improper influences.
    The Commission considers this is an important recommendation and is
    disappointed with the lack of consideration given to it.

    That the Minister for Finance and Treasury, with the advice and assistance
    of the Secretary of Department of the Finance and Treasury and the.
    Attorney-General, initiate amendments to the POSF Act 1990 to alter the
    composition of the Board of the POSF;

    In particular*by amending Section 4 of the Act by removing from the Board
    both the Secretary of the Department of Finance and Treasury and the
    Secretary of the Department of Personnel Management.

    Minister for Finance and Treasury (Sir Mekere Morauta)

    On 29 February 2000, the Minister for Finance and Treasury, Prime Minister Sir Mekere
    Morauta, advised that he had discussed this recommendation with Mr Tarata, the
    Secretary of the Department of Finance and Treasury. The Prime Minister agreed that
    it was necessary to have skilled, diligent and independent persons appointed to the
    POSFB, and further that he was satisfied that the Secretary of the Department of
    Finance and Treasury possessed those qualities.

    The Prime Minister also pointed out that the State guarantees the POSF.
    Therefore, the Prime Minister argued, it is essential that the State is represented on the
    Board in order to prevent a “moral hazard problem” and to protect the interests of the
    State.

    The Prime Minister further addressed this issue in his letter to the Ombudsman
    Commission of 18 August 2000. The Prime Minister advised that the composition
    of the POSFB was being addressed as part of a broader review of the

  • Page 46 of 55

  • superannuation industry being supported by the World Bank. In addition, the
    Prime Minister considered that there are serious structural issues affecting the
    governance and management of public resources, which require in depth review,
    evaluation and structural reform. The Prime Minister requested that the
    Ombudsman Commission recognise the major reforms in this area the government
    had announced as part of the 2000 budget.

    We urge the Prime Minister to carefully consider this matter as part of the
    proposed general structural reform. The Commission still considers it is essential
    to remove the conflict of interests inherent in the system of appointment of the
    Chairman of the POSFB.

    Secretary of the Department of Finance and Treasury (Mr Koiari Tarata)

    The Secretary of the Department of Finance and Treasury, Mr Koiari Tarata,
    responded to our original report on 1 June 2000. This letter enclosed an earlier
    letter, dated 31 February 2000, which Mr Tarata advised had been misplaced in
    his files and was not sent to us. In this letter Mr Tarata said that it was important
    that the Secretary for Finance was a member of the Board because the State
    guarantees the POSF. Mr Tarata stated that although representation was
    important, it was not necessary for the Secretary to be the Chairman of the
    POSFB.

    Mr Tarata made a further response to our report on 18 August 2000. Mr Tarata
    made some general comments on the proposed review of the superannuation
    industry. However Mr Tarata did not specify how this review was to deal with the
    composition of the Board of the POSF.

    The Commission does not consider that this recommendation has been adequately
    implemented by the Secretary.

    The Attorney-General (Mr Michael Gene to July 2000; Mr Sao Gabi since
    July 2000)

    On 27 January 2000, the then Attorney-General, Michael Gene, wrote to us in
    response to the report. He did not address this recommendation. On 18 August
    2000, the current Attorney-General, Sao Gabi, made a response on this
    recommendation. The Attorney-General advised that he had consulted with the
    Secretary of the Department of Finance and Treasury, who advised him that
    government is implementing a comprehensive reform of the superannuation
    industry.

  • Page 47 of 55

  • The role of the Attorney-General in this recommendation is essentially to provide
    assistance in any reform. We consider that the Attorney-General has considered
    the issues. The failure to implement this recommendation is not the responsibility
    of the Attorney-General.

    Overview

    The Commission made Recommendation N° 20 because it was apparent that the
    Chairman of the Board of the POSF had an unavoidable conflict of interests during
    the purchase and lease of The Conservatory. He was both Chairman of the Board
    which had made a decision in favour of purchasing The Conservatory and the
    person responsible for advising the Minister for Finance on whether the contract
    for the purchase should be approved under the Public Finances (Management) Act.
    The Deloitte report also recommended that this conflict be removed. It found that
    the State owed the POSFB a substantial debt through non-payment of employer
    contribution benefits. There was therefore the following conflict:
    On the one hand the Chairman should play a key role in developing strategies for POSF to
    recover substantial debt from the State. On the other hand he holds a key position in the
    State department which owes the debt. In order to rectify this situation the POSF Act will
    have to be amended.

    It is clear that the dual role played by the Secretary of the Department of Finance
    and Treasury is hampering the efficient operation of the POSFB. Our
    recommendation must be given much more serious and urgent attention. The
    implementation of this recommendation has not been adequate:

    [2.31 TABLE OF RESPONSES TO RECOMMENDATIONS

    The following table gives a brief assessment of the responses to each
    recommendation.
    KEY:
    ADEQUATE
    S – Satisfactory
    SM – Satisfactory but requiring ongoing monitoring

    INADEQUATE D – Disagreed
    A – Agreed in principle but no action taken X – No response at all
    B – Agreed and started but not finished XI – No response on this particular issue
    C – Still under review or consideration
    OTHER
    NA – Not applicable

  • Page 48 of 55

  • N°. Recommendation Recipient
    1 The POSFB consider civil proceedings to Members of Board of POSF X
    recover money.
    Attorney-General B
    Minister for Finance and Treasury S

    2 The head lease for The Conservatory be Managing Director of POSFB S
    terminated. Members of Board of POSF X
    Attorney-General D
    Minister for Finance and Treasury C
    Minister for Justice C
    Secretary, Dept of Attorney-General D
    The POSFB engage a specialist consultant to
    advise on The Conservatory. Managing Director of POSFB D
    Members of Board of POSF X
    4 The POSFB urgently introduce due diligence Minister for Finance and Treasury S
    and investment analysis procedures. Managing. Director of POSFB S
    Members of Board of POSF X
    5 The NEC make a policy decision regarding Minister for Finance and Treasury S
    all future Waigani precinct development. Managing Director of POSFB S
    6 The current or future employment of certain Prime Minister A
    public officials be reviewed.
    Secretaries of all Departments, or
    heads of governmental bodies
    7 The Cocoa Board review the employment of Ministers responsible for those
    Ereman Ragi. Departments, or governmental bodies
    8 The Minister for Finance and Treasury notify
    Michael Malabag of the intention to terminate Members of the Cocoa Board D
    his appointment to the POSFB. Minister for Agriculture & Livestock X
    The Minister for Finance and Treasury notify Minister for Finance and Treasury S
    Aloysius Eviaisa of the intention to terminate
    his appointment to the POSFB.
    10 The Secretary of the Dept. of Finance and Minister for Finance and Treasury S
    Treasury review the employment of Vele
    ramp. Secretary, Dept of Finance and
    11. The Managing Director of the POSFB review Treasury B
    the employment of Pe Cho. Minister for Finance and Treasury B
    12 The Managing Director of the POSFB review Managing Director of POSFB S
    the employment of Joseph Wingia.
    Minister for Finance and Treasury S
    13 The POSFB engage a consultant to conduct a
    management review of the POSFB. Managing Director of POSFB B
    Minister for Finance and Treasury B
    Members of Board of POSF X
    Minister for Finance and Treasury S

  • Page 49 of 55

  • 14 Chris Haiveta make a public retraction and
    apology. Mr Chris Haiveta MP
    Prime Minister S
    15 Rupa Mulina make a public retraction and
    apology. Mr Rupa Mulina X
    16 The Attorney-General issue guidelines
    advising that Pato Lawyers should no longer act Attorney-General S
    for the State or any governmental body. Minister for Justice S
    Secretary, Dept of Attorney-General S
    17 The NEC make a policy decision not to
    conduct business with Warren Anderson and Prime Minister A
    Solly Benn.
    18 The Prime Minister make all future
    determinations of changes of portfolio of Prime Minister S
    Ministers in writing.
    Minister for Public Service
    19 The Minister for Public Service initiate
    Secretary, Dept of Personnel
    legislation to clarify the status of the Office
    Management
    Allocation Committee.
    Secretary, Dept of Finance and
    Treasury
    Minister for Finance and Treasury.
    20 The Minister for Finance and Treasury Secretary, Dept of Finance and
    initiate amendments to the POSF Act to alter Treasury
    the composition of the Board of the POSFB.
    Attorney-General
    Secretary, Dept of Attorney-General

    * RECOMMENDATION N° 6 – SPECIFIC PEOPLE
    Kila Ai Sec Dept Personnel Management B
    John Ban Sec Dept Personnel Management B
    Minister Finance B
    Sec Finance B
    Mark Basausau NIL NA
    Gabriel Dusava NIL NA
    Zacchary Gelu Sec Dept Personnel Management
    Jacob Lemeki NIL NA
    Ugwalubu Mowana NIL NA
    Rupa Mulina NIL NA
    Tau Peruka NIL NA

  • Page 50 of 55

  • 2. CONCLUSION
    [3.1] OBSERVATIONS

    The good

    The Ombudsman Commission is heartened by the first steps taken in several
    areas. In particular, the corporate governance review of the POSFB, the
    introduction of investment guidelines and the Investment Committee, and the
    general commitment to reform of the POSFB is encouraging. However, we note
    that these reforms are only as effective as the level of compliance with them.

    The management of The Conservatory building also appears to have improved.
    Although occupancy of the building is only around 35% , the agreement with
    Raine & Home is a step in the right direction.

    We were also encouraged by the initial actions of the Attorney-General and the
    POSFB in commencing court proceedings to attempt to recover some of the
    money lost in The Conservatory purchase.

    The bad

    Overall, the implementation of recommendations relating to specific public
    officials has been poor. We recommended that employers review the ongoing
    employment of these individuals on the basis of the facts given in our report.
    We wanted the employers to look at our report, ask the official for an
    explanation, think about what the official had done and what they could offer
    in the future, and make a decision.

    With one or two exceptions, recipients of the recommendations have not
    followed these simple steps through to their conclusion. The Commission
    considers this shows a general unwillingness to make people accountable for
    their actions. It is important for all people who are paid from the public purse
    to realise that they are accountable to the public.

    The level of implementation, as opposed to agreement, has also been poor.
    Some recipients of recommendations gave in-principle agreement and made very
    positive projections of future changes. However the actual implementation of
    these changes has either not happened or been long delayed. For example, the
    guidelines relating to Pato Lawyers were in draft form for many months.

  • Page 51 of 55

  • Similarly, the NEC decision not to conduct business with Mr Benn and Mr
    Anderson has been agreed to but not finalised.

    Of very serious concern are the numerous recipients who did not respond at all to
    the report and several follow up letters. These recipients have failed to fulfil
    their obligation under Section 22(3) of the Organic Law on the Ombudsman
    Commission and put themselves in jeopardy of having court proceedings brought
    against them by the Ombudsman Commission under Section 23 of the
    Constitution.

    The ugly

    Perhaps the most common and disappointing misconception that we
    encountered as a result of our report was the request from individuals (and
    supporters) to “clear” their names of “allegations”. It is important to
    appreciate that when the Ombudsman Commission compiles a final report of
    an investigation, it is reporting its final opinion on whether the investigation
    has disclosed any instances of wrong conduct, defective laws or defective or
    discriminatory administrative practices. In the 1999 report these opinions
    were recorded as findings of wrong conduct. They are not “allegations” that
    can later be “cleared”.

    Every single person who was adversely commented on in our report was given
    at least one chance to state their case. That is a person’s opportunity to clear
    their name. The Ombudsman Commission is obliged to set out a person’s
    defence in a report. We did so in the report on The Conservatory through
    extensive quotes and summaries. The final report is the Commission’s final
    findings on an issue.

    The Commission must also express its disappointment at two newspaper
    articles that appeared in The National on 3 November 2000, written by senior
    journalist John Apami. Under the headlines “Future looks bright for Cairns
    Conservatory” and “Worthwhile asset Mr Apami’s stories gave a shallow
    and superficial assessment of the current worth of the Conservatory to the
    POSFB.

    There are still some serious outstanding issues surrounding the purchase and
    tenancy arrangements at The Conservatory that the media could be getting its
    teeth into. Unfortunately the articles that appeared in The National on 3
    November did not address any of these issues.

    [3.2j ASSESSMENT OF INDIVIDUAL RECIPIENTS
    In this section we list the recipients of our recommendations and give a brief
    overview of their responses to us.

  • Page 52 of 55

  • Prime Minister and Minister for Finance and Treasury (Sir Mekere Morauta)

    The Prime Minister has accepted the majority of our recommendations. He
    responded promptly to our report. Although action has yet to be taken on some
    matters, the Ombudsman Commission is generally satisfied with the Prime
    Minister’s response.

    Minister for Justice (Mr Kilroy Genia to November 2000; Mr Andrew Baing
    from November to December 2000; Mr Puri Ruing since December 2000)

    When Kilroy Genia was Minister for Justice, he gave very general responses to
    our recommendations, advising in most cases that matters are “under
    consideration” or are “being progressed”. The Ombudsman Commission would
    like to see more concrete action from the Minister on these matters.

    Minister for Agriculture and Livestock (Mr Ted Diro to May 2000; Mr Mao
    Zeroing from May to November; Mr Muki Taranupi since November 2000)

    There have been three different Ministers for Agriculture and Livestock since
    our final report was issued 12 months ago. None has made any response to the
    recommendations directed towards them. This is not acceptable.

    Minister for Public Service (Mr Philemon Embel to May 2000; Mr biro
    Lasaro from May to November 2000; Mr Philemon Embel again since
    November 2000)

    Neither Mr Embel nor Mr Lasaro has responded to our report. This is not
    acceptable.

    Mr Chris Haiveta

    Mr Haiveta did not make a response to our recommendation. The attitude he
    has displayed is disrespectable and unacceptable.

    Attorney-General (Mr Michael Gene to July 2000; Mr Sao Gabi since July
    2000)
    Mr Gene has generally responded to our recommendations in full. However,
    the implementation of some matters, such as the termination of the head lease
    and the Attorney-General’s role in pursuing court action to recover money lost
    as a result of the Conservatory purchase, appear to have been unduly delayed by
    Mr Gabi.

  • Page 53 of 55

  • Secretary of the Department of Finance and Treasury (Mr Koiari Tarata)

    Mr Tarata has responded unevenly to our recommendations. He has agreed in
    principle with some matters, such as the review of Vele Iamo’s employment and
    the review of the Office Allocation Committee, but has not taken any substantive
    action. The Secretary disagreed with our recommendation regarding
    amendments to the POSF Act, but did not give cogent or convincing reasons to
    support his position.

    Secretary of the Department of Personnel Management (Mr Bill Kua to
    March 2000; Mr Isaac Lupari from March to June 2000; Mr Soiat Williams
    from June to November 2000; Mr Peter Tsiamalili since November 2000)

    Mr Williams responded to our report and agreed in principle to the relevant
    recommendations. He has taken preliminary action. But these actions remain
    incomplete, with the recommendations not fully implemented.

    Members of the Board of the POSF

    The Members of the Board of the POSF did not respond individually to our
    report. We would have liked to have received individual responses from each
    Board member, if necessary advising that the Managing Director would make a
    substantive response on their behalf.

    Managing Director of the POSFB (Mr John Ban (Acting) to September 2000;
    Mr Ces Iewago since September 2000)

    The Managing Director has sufficiently implemented those recommendations
    regarding the review and reform of the POSFB and more recently the
    employment review of Mr Cho. The matter of termination of the head lease has
    yet to be properly addressed. The recommendation concerning Mr Wingia has
    not yet been properly addressed.

    Members of the. Cocoa Board

    The Chairman of the Cocoa Board has responded to the recommendation
    regarding the ongoing employment of Ereman Ragi. However, the Ombudsman
    Commission continues to be concerned that the members of the Cocoa Board
    have not properly considered the substance of our report.

    Mr Rupa Mulina
    Mr Mulina did not respond to our recommendation. This is very foolish of him.

  • Page 54 of 55

  • [3.3] NEXT STEPS

    In the past the Ombudsman Commission has had difficulty in getting its
    recommendations implemented. We have made detailed recommendations in
    comprehensive reports, such as the Report on the Upgrading of the Port
    Moresby Water Supply in 1996 and the Poreporena Freeway Report in 1992.

    Many public officials still seem to have the view that “these are only
    recommendations, so I am free to ignore them”.

    In order to overcome this misconception we decided to produce a formal statement
    and to present that statement to the Parliament in the form of this status report.

    This is a report on how our recommendations are being implemented at this
    time. It is not intended to be a once and for all summary of what action was
    taken as a result of The Conservatory report.

    The Ombudsman Commission will therefore continue to keep a close eye on the
    implementation of our recommendations. We are following ongoing events,
    such as the proposed court proceedings in Australia, with keen interest.

    We urge all recipients of recommendations to take note of the comments we
    have made in this report. Our recommendations were designed to prevent the
    mistakes and incompetence that surrounded The Conservatory purchase from
    happening again. Implementing these recommendations is one way to make
    sure that the lessons of The Conservatory have been thoroughly learnt.

  • Page 55 of 55