By PNG Echo
The dubious conditions of the sale of an asset of the Papua New Guinea Sustainable Development Program (PNGSDP) called Cloudy Bay Sustainable Forestry (Cloudy Bay) to the brothers Elomar through their company Lifese continues to scandalise.
Given the nature of the fund with its stringent and conservative investment regulations, how did PNGSDP end up doing business with these controversial brothers (one of whose son, Mohamed, became an Islamic State fighter in Syria and has been photographed holding severed heads)?
Familial ties notwithstanding: last year both brothers would be jailed for arranging a $US1 million bribe for Iraqi construction contracts.
The connection between the brothers and PNGSDP goes back to 2013/2014 when the brothers contracted to buy Cloudy Bay but arguably the saga started back in 2007 when PNGSDP first purchased Cloudy Bay from the Constantinou Group of Companies.
Cloudy Bay – the acquisition – PNGSDP their culpability
PNGSDP put the blame for the necessity of the sale squarely on the shoulders of the O’Neill government because when it expropriated Ok Tedi in 2013, it left no funds to prop up a company that had been losing millions from the get go.
But what was PNGSDP thinking when they bought Cloudy Bay?
For in its first year of operation under PNGSDP (2007) when the program acquired an 80% equity share in Cloudy Bay, the company lost over $US4 million from July to December of that year – they had paid almost $US13 million to acquire the company.
It became clear to PNGSDPs external auditors that the value of Cloudy Bay was much less than the amount invested (now $US 17 million). So, the carried value of Cloudy Bay in PNGSDP’s accounts was “impaired” and adjusted to reflect its real value – zero, in 2008.
That’s outrageous! Questions should be asked about what due diligence was carried out by PNGSDP before the sale.
And it gets worse: Over the next few years, PNGSDP poured a further $US44 million into Cloudy Bay and, once again, each year its value was adjusted back to zero.
What’s more, PNGSDP resisted having to disclose the details of this, until it was ordered to do so by Justice Prakash in the Singapore courts. So much for transparency!
The ‘sweetheart deal’.
So, it’s true that in 2013, Cloudy Bay became a liability PNGSDP could ill afford especially as there was no cash flow after the mine had been expropriated– they needed to sell it.
The eventual sale, (according to PNGSDP) was to Lifese owned by the controversial Elomar Brothers and was “driven” by a person whom PNGSDP referred to as the person in question.
The sale soon proved problematic and it is still a mystery why, when it looked as if the people who had bought Cloudy Bay would default on paying the balance of the loan for its purchase ($US5 million deposit paid on a sale price of almost $US14 million), PNGSDP didn’t take back the company – they certainly could have – as prescribed by the loan agreement. But they didn’t.
Instead, PNGSDP negotiated a settlement deal with Lifese and the Elomar Bros to take back a Port Moresby property that Cloudy Bay owned and then they gave (yes you heard it correctly): they gave the Elomar Bros $US9 million – more than Lifese had shelled out as a deposit for the initial investment. Why?
When Cloudy Bay defaulted on the loan to PNGSDP, Cloudy Bay said they’d discovered that assets were missing and that contracts signed (by whom?) shortly before settlement of the sale had significantly eroded the value of the company.
And so the agreement – that seems to favour Lifese and to be far too one-sided was struck.
An investigation
PNGSDP describes itself as a good corporate citizen so prior to the ‘sweetheart deal’ that forgave Lifese its debt and put some additional millions in its pocket, an investigation ensued. It found what has been described as massive theft and identified the culprit.
“It was while in [a] position of influence [as a board (?) member of PNGSDP and a board member of Cloudy Bay] that the person in question [my emphasis] surreptitiously obtained money and other benefits to which he was not entitled.”
Further:
“When the purchase of Cloudy Bay was agreed to in 2014, Lifese granted a 25 per cent carried interest to OPPA Limited, a British Virgin Islands company owned by Nick Roniotis and associates including the person in question [my emphasis].”
Apparently, this person did not reveal his involvement with its principle shareholder, to PNGSDP at any point during the sale process despite the clear conflict of interest.
PNGSDP has stated that: “…the Cloudy Bay shareholders (Lifese and OPPA) are now in dispute before the PNG courts as the businessman in question [aka the person in question] and his associates seek to extract further gains from the Cloudy Bay situation.”
Could it be that the litigation ensued because Nick Roniotis and associates, including that person in question, were left out of the deal, circumvented by PNGSDP who agreed to pay the $9 million straight to the Elomar Brothers rather than to Lifese? Was it to stop the person in question getting his hands on that money and thus benefitting from his own venality?
Who is ‘the person in question?’
It seems that the person in question used his influence corruptly, according to PNGSDP. He was an insider who held a position within PNGSDP and was also a board member of Cloudy Bay (a PNGSDP appointee and representative). He was also a co-owner, with Nick Roniotis of OPPA Ltd who stood to benefit from the settlement – that was arguably forced upon PNGSDP partly by the person in question’s own theft.
So, if we find someone who was connected to PNGSDP and on the board of Cloudy Bay at the same time, there should emerge a list of possibles. But if we can also identify from that list of possibles, the business partner of Nick Roniotis in OPPA Ltd – we would have our man (and it is a man).
I have found three people who held both positions with PNGSDP and were on the board of Cloudy Bay simultaneously. They are: David Sode, Robert Igara and Rex Paki.
David Sode and Robert Igara’s tenure with Cloudy Bay ended in 2009 – so given the sale of Cloudy Bay to Lifese occurred in 2014, it is unlikely to be either one of them.
Rex Paki was on the board of Cloudy bay from September 2013 to February 2014 (while also on the board of PNGSDP). The date he left the board of Cloudy bay was just a few days apart from completion of the initial sale to Lifese.
Unfortunately, being given where OPPA Ltd is located (the British Virgin Islands), it has proved difficult (nigh on impossible) to find out all the owners OPPA other than Nick Roniotis.
PNGSDP gives us another clue when it says that after conducting an internal investigation, the person in question was dismissed from his role with PNGSDP and legal action was mounted against him in multiple jurisdictions.
Rex Paki was still listed as a board member of PNGSDP in their 2016 Annual Report. This is the latest published Annual Report. PNGSDP has not made it clear in what year the person in question was dismissed.
Thank you Susan. One hell of an investigative journalism work.
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