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Papua New Guinea’s corruption scandals continue to dog its government, and threaten to envelop Prime Minister Peter O’Neill as he courts Australian investors. By Hamish McDonald.

PNG PM dragged into corruption scandals

Change comes from the skies in Papua New Guinea, fast-forwarding the arrival of the contemporary world into communities still deep in the cultures formed during millennia of isolation from all but warring neighbours.

In the 1930s it was Australian goldminers flying components of massive dredges into roadless valleys aboard rickety tri-motor planes, watched by near-naked tribespeople.

Last year it was oil major ExxonMobil, using huge Antonov jets to bring in 64-tonne vessels for a natural gas conditioning plant to a specially built 3.2-kilometre airstrip carved out of the jagged Southern Highlands, and local big men calculated the good times in Port Moresby and Cairns flowing from it.

ExxonMobil shipped its first liquefied natural gas (LNG) out to Japan in May, after spending $US19 billion on development. Next year this one project is expected to bring a jump in Papua New Guinea’s gross national product of 15 per cent to 21 per cent, and big oil companies are fighting for ownership of two more gas discoveries in the Papuan Gulf that could add further LNG projects.

It should be a triumphant time for Papua New Guinea and its prime minister, Peter O’Neill, who has led the country since wresting government from the ailing independence leader Sir Michael Somare in 2011 and then putting together a dominating coalition after national elections in 2012. Instead, O’Neill is manoeuvring in a fight for political survival.

When he took power, the former businessman, son of a colonial-era magistrate and his local wife, was hailed as a competent political manager who might get government finances ready to apply the billions of new tax revenues and dividends from LNG to services for the country’s nearly eight million people.

In his last spell as prime minister between 2002 and 2011, Somare had kept public finances in balance, but allowed massive plunder of forests by Malaysian and other loggers while politicians and cronies siphoned funds out of state enterprises and departments. A new study by PNG’s National Research Institute and the Australian National University (titled “A Lost Decade?”) has just reported that while primary school attendance, especially by girls, rose significantly over that period, public health clinics saw fewer people and had fewer medicines in 2012 than in 2002. The picture would be much worse but for the schools and health services run by churches.

Immediately on becoming prime minister in 2011, O’Neill appointed government lawyer Sam Koim to head a new anti-corruption team named Task Force Sweep. Staffed by police, legal and tax officials, it had powers to investigate, prosecute and seize the proceeds of crime. Soon the taskforce was busting open dozens of scams and sending senior politicians, public servants and business figures to the courts. Among them was former Somare government minister Paul Tiensten, sentenced to nine years’ prison in March this year for misappropriating funds.

By October 2012, Koim was reporting that about half of the 6.7 billion kinas (then $3.5 billion) allocated for development in the PNG budget over the previous three years had been lost through corruption. “Given the trend of corruption and seeing that there is nothing on the ground level to show for the expenditure of public funds, we have reason to believe that at least half of the budget we were investigating was wasted, mismanaged or stolen,” he said.

The fight has gone on, with 74 prosecutions launched so far out of some 150 investigations, and 270 million kinas recovered, Koim said last week. But by late 2013, Task Force Sweep arrived at an existential moment. “All this good work almost came to an end when we tried to touch the very person who appointed us,” Koim told The Saturday Paper.

The unit’s audits concluded that payments of 39 million kinas had been made to Port Moresby lawyer Paul Paraka’s firm over 2010 and 2011, while O’Neill was finance minister in the Somare government, for legal advice that had never been provided. A letter instructing officials to make the payment carried O’Neill’s signature. O’Neill says the letter is a forgery; an Australian forensic consultant found it to be authentic. In June, the taskforce obtained arrest warrants against O’Neill.

He had earlier moved to protect himself by appointing a police commissioner widely regarded as more sympathetic, Geoffrey Vaki. The commissioner refused to execute the warrants, while O’Neill replaced his attorney-general, and disbanded Task Force Sweep for acting out of “political” motivation.

The new attorney-general then “discovered” the Paraka payments were legal after all. But Vaki found himself under arrest by anti-fraud officials on a charge of perverting the course of justice. In a welter of cross-cases in the country’s top law courts since then, it has been ruled that Vaki had no power to cancel the warrants in this case and may be in contempt of the court that ordered them. While various appeals and cases continue, O’Neill remains untouched but is a lot closer to being taken in for questioning.

While this goes on, O’Neill battles accusation of wrongdoing on another legal front. The Ombudsman Commission, an independent investigation agency that preceded Task Force Sweep and works closely with it, found earlier this year that the prime minister had flouted regular procedures in obtaining a $1.3 billion loan from the Swiss-based bank UBS. The loan was to allow the government to buy a large shareholding in the Australian firm Oil Search, a partner in the ExxonMobil project and other petroleum discoveries.

The ombudsman and public prosecutor argued successfully in the Supreme Court to have the case referred to a leadership tribunal, an ad hoc panel of three judges (from Papua New Guinea, Australia and New Zealand) that will have the power to dismiss, suspend or fine O’Neill if it finds he acted improperly. It is due to sit on January 26, but last week O’Neill launched a challenge to the prosecutor’s constitutional powers to refer him to such a tribunal. He also argues the loan was validly authorised by the cabinet and in the national interest. The challenge will be heard again next Tuesday.

On February 4, O’Neill emerges from the 30-month “grace period” since his swearing-in of freedom from no-confidence motions. He now has about 100 of the 111 members of parliament onside, but plotting may already have started with Somare quitting government benches over the UBS loan issue.

He also faces a more subdued economy, despite the one-time GDP leap. With the construction phase over, employment at the LNG project has fallen from a peak of 21,000 (including 8500 Papua New Guineans) to about 1000 specialists and security personnel. About 80 per cent of dividends will go to foreign shareholders, and for the first three years most of the PNG tax and dividend flow is committed to repaying borrowings, with government debt and liabilities having doubled to nearly 50 per cent of GDP under O’Neill.

The PNG Treasury forecasts growth back to 2.7 per cent in 2016. This may be the longer-term outlook barring new LNG projects or a sustained rise in the prices of coffee, copra, cocoa and palm oil on which the non-subsistence village economy is based. The PNG economy remains, as Paul Barker of Port Moresby’s Institute of National Affairs puts it, a “development paradox” of world-class resource projects and a population with some of the worst welfare indicators in Asia thanks to poor investment in education, health and police.

Juggling his economic and political problems, O’Neill has just announced a budget for 2015 that cuts back overall spending to allow debt repayment, while increasing the discretionary funds allocated to each MP to hand out in electorates − an entrenchment of pork-barrelling that further undermines state delivery of services.

In a talk last week to a well-attended PNG Mining and Petroleum Investment Conference, O’Neill tried to talk up the investment climate, somewhat damaged by his abrupt September 2013 takeover of the environmentally troubled Ok Tedi gold and copper mine from a trust chaired by Australian economist Ross Garnaut.

As for Task Force Sweep, it, too, went to the courts and obtained a stay against its abolition. But its days seem numbered. “We haven’t got any funding all of this year; we’ve survived on funds carried over from last year,” Sam Koim said. “Now we are running dry this month.”

As O’Neill talked to a packed room of businessmen in Sydney, Koim was in Canberra seeking support for his beleaguered taskforce. He complains that so far Canberra’s agencies have been passive in preventing the flow of corruptly gained funds from Papua New Guinea into Australia, which he has previously called “PNG’s Cayman Islands”. With the Abbott government relying on Port Moresby’s co-operation for its Manus Island detention camp, O’Neill seems to have protected himself on that flank, too. And some of the possible alternative leaders are much more contentious, such as former deputy prime minister Belden Namah.

Papua New Guinea meanwhile continues for the third year at 145 out of 175 countries in Transparency International’s ranking of perceived corruption, and the World Bank’s annual ranking on the “ease of doing business” has Papua New Guinea slipping 22 places since 2011 to 133 out of 189 countries this year.

Its eight million people, growing at a remarkable 3.1 per cent a year, surely deserve better.

This article was first published in the print edition of The Saturday Paper on Dec 13, 2014 as "Port Moresby in a storm". Subscribe here.

Hamish McDonald
is The Saturday Paper’s world editor.