How Great Was The Fall! Part Two

Politicising the Public Service, Non-payment of LNG shares, & High-profile Corruption

This is a continuation of the series “How Great Was the Fall! The Rise & Fall of Peter O’Neil.” To read Part One, click on this link: https://academicnomad.home.blog/2019/06/12/how-great-was-the-fall-the-rise-and-fall-of-peter-oneil/?fbclid=IwAR25iydn-iq5lVQBajmRwHgb8C_62mo_l6dw5sdaXQCGZl23dAhjyDs9c0c

When Part One was published, there were comments suggesting that this posts make Peter O’Neil look smart, that he is a __________. That was not the intention of the posts. Not only did Peter O’Neil hang onto power loner than his peers, second only to Somare’s 2002 – 2011, in the history of PNG politics, but he defeated a vote of no confidence. This is a series attempting to explain why he was able to stay that long, not whether the strategies he used were legal or not, moral or corrupt, smart or manipulator of the dumb and the glutton.

There are questions we are not asking as all get caught up in euphoria. Questions like: Would Marape have resigned if the Supreme Court did not rule the amendment which extended the grace period to 30 months invalid in 2016? If the Supreme Court failed to do that, we would have to wait until February 2020 to start talking about vote of no confidence, not February 2019. Would the MPs have resigned enmasse if the DSIP/PSIP remained at K10-15 million and not slashed to K2 million in 2017? Would the PM fire and hire departmental heads to remain in power if the Supreme Court failed to rule the amendment to the Public Services Commission Act (2014) invalid early this year (2019). Under the amendment, the PM controlled Ministerial Executive Appointment Committee called the shots. We should be concerned about these features not repeating itself in any government in the future. These series are an attempt to remind us of what the government can do (any government), and not let them move the same posts again in the future.

So, Part One dealt with (1) Constitutional Amendments, and (2) Executive’s control of DSIP/PSIP funds, disciplining and rewarding MPs. Now we look at another three factors.

3. Politicisation of the public service 

Since 2012 the O’Neil government secured controlof appointments of senior positions by replacing the role of the Public Services Commission (PSC) by the Ministerial Executive Appointment Committee, by amendingthe Public Services Commission Act (2014). Usually, the Public Services Commission, an independent body makes the recommendation to the National Executive Council as per the Public Service Commission Act. As in a patron-client relationship, appointments to senior positions were made with the expectation that the appointee would support the government. This factor featured prominently with the dismissal of then Police Commissioner Toami Kulunga in 2014 when he approved the warrant of arrest of Prime Minister Peter O’Neill in relation to alleged illegal payments made to Paul Paraka lawyers. Geoffrey Vaki was appointed as the Head of Police. When Vaki became embroiled in a contempt of court case for conspiring to prevent the arrest warrant being served on the Prime Minister, Gary Baki was appointed as the Police Commissioner. Gary Baki prevented the arrest of the Prime Minister by vettinghigh profile cases. Similar accusations were made for departmental heads in the country.

Why did O’Neil fall:On the 2ndof April 2019, the Supreme Court ruledthat the amendment to the PSC Act was unconstitutional and therefore invalid. This removed the influence the prime minister had over selections of key individuals, and potentially removed the fear for these individuals to follow instructions from Peter O’Neil. Though this factor may not have featured as prominently as other factors in O’Neil’s downfall, it was an indication for those MPs in the government and the ruling party that the prime minister was no longer invincible, and they began to reign en masse.  

4. Dissatisfaction among resource rich provinces

Since 2012, Peter O’Neil had the backing of MPs from the resources rich provinces of the Highlands. Specifically he had the support of MPs from Hela and Southern Highlands provinces where the LNG project is located, and Enga province, where the Pogera Gold Mine is located. James Marape is MP for Tari-Pori Open, a district within Hela Province. He resigned as Minister for Finance and member of PNC on the 11thof April 2019 following the signing of the USD 13 million Papua LNG gas agreement on the 9thof April 2019 that allocated only allocated 2% to landowners which is located in Gulf Province. As he resigned, he specifically mentioned the lack of honoring existing resource project agreements such as the 4.25%shares from Kroton, a subsidiary of the state entity Kumul Consolidated participating in the existing LNG project, for Hela and Southern Highlands. Fourteen of the forty-two MPs who either resigned or left the coalition were from the Highlands region, including the governors of Southern Highlands, Hela and Enga Provinces. Seven other MPs from Morobe Province, a coastal resource rich province, also moved to the opposition camp. They were members of the Pangu Pati in the coalition government led by Peter O’Neil. Morobe Governor had taken the government to courtover the signing of the Waffi Gold Mine in early 2019, which he claimed did not benefit the people of Morobe and the landowners.

What Caused O’Neil’s Downfall: The dissatisfaction of the MPs from resource rich Highlands provinces and Morobe Province can best be described as the trigger, for the fall of Peter O’Neil. This is because not all MPs who moved to the opposition side in an attempt to topple the prime minister were necessarily from the resource rich areas. But the movement by MPs from the resource rich provinces was a major crack in the coalition. 

5. UBS Loan, Parakagate, and Corruption

There Ombudsman Commission’s report implicatingthe prime minister for breaking at least 15 laws of the country was leaked via social media in the lead up to the change of prime minister. When the parliament met on the 7thof May 2019, the opposition camp had 50 MPs, six short of the majority in parliament, and could not stop the government from adjourning the parliament to 28thof May 2019. After the UBS report was leaked, the numbers of the opposition increased to 63 MPs, six more than the required majority to change the government. The prime minister authorised UBS loan of AUD 1.239 billion to purchase shares from Oil Search on behalf of the state. However, the report showed that the prime minister’s actions amounted to misconduct in office as he failed to comply with relevant legislations, including the failure to get both the National Executive Council and parliament approval. Parakagate is another high level corruption case against Peter O’Neil. In 2014, an arrest warrant was granted for Peter O’Neill in relation to alleged illegal payments made to Paul Paraka lawyers by removing police commissioners at his convenience to avoided arrest. 

What Caused O’Neil’s Downfall: The leaked UBS report was devastating. This report was the first from Ombudsman Commission directly implicating Peter O’Neil for corruption, and for breaking the laws. This may have contributed to more MPs resigning from the party and coalition. 

It is difficult to pinpoint one factor as the main cause for Peter O’Neil’s downfall. It can best be described as an accumulation of factors discussed above. A more important question is: why did MPs start resigning in April 2019, and not earlier. After all, all factors discussed above precede 2018. Peter O’Neil got himself into a situation where, all it required was a crack, and it came from dissatisfaction from MPs from resource rich provinces

In Part 4, we will look at how the emphasis on Districts and Open MPs, and the amendments to the Organic Law on the National and Local Level Governments in 1995 weakened and marganilized the provincial governors. And how they resigned in droves when the crack started. We will also look at how O’Neil rejected advise of his own ministers and dealt directly with the departmental heads. It was the resignation of ministers Marape and Davis, the two senior ministers, who have become PM & Deputy PM, that led to the change of the downfall of PO.


PNG’s fluid politics: Winners & Losers from O’Neil to Marape

What determines ministerial portfolio allocations in PNG? Do MP numbers per region matter? Why do parties with big numbers allocated few portfolios or no portfolios? Winners and losers in from O’Neil to Marape.

Click the link below to read.

Dear Mr Prime Minister, As for me and my house……

This I promise, As for me and my House…..

Dear Prime Minister James Marape, congratulations on you ascension to Prime Minister position. I share your dream of transforming this nation. So I promise you this:

I will go to work tomorrow, on time!

I will let the mother and her daughter get on the bus ahead of me. 

I will get my morning coffee, and let the young girl keep the change.

I will take yesterday’s trash out and throw it in the bin as my first chore.

I will not chew buai whilst at work, and make sure my assistant follow.

I think my wantoks who come to my office to charge their mobile phones is wrong, including my uncle who uses the office machine to print his land appeal papers.

I’ll pay the full bus fare fee, and pay the bus fare for the high school student who rides on the same bus I get to work.

I promise to get home early to help my child with his math assignment.

My pick for the position vacant in our organization is the young graduate who has volunteered for NGOs for two years, even though my nephew graduated this year with the same qualification.

I will refund the extra change the trade store down the road gave me last Wednesday (I need the money but I guess its not fair to cheat a fellow Papua New Guinean, right?)

I can go on, but to put it in short, Mr Prime Minister, the challenges ahead are tough, so I promise you this:

As for me and my house, we will do the little things right

As for me and my friends, we will be transparent,

As for me and my organization, we will be accountable,

As for me and my church, we will love and care for the widow and the orphan,

I think we have given enough advise to the PM, so my fellow Papua New Guineans, “Ask not what your country can do for you, but what you can do for your country” JFK.

God bless PNG

How Great Was The Fall! – The Part One.

Part One: Constitutional Amendments & Discretionary Funds

While many people are happy to see O’Neil go, it is important to assess how this one man became almost invincible. Many seem to forget that he is only the second PM to ever complete a full 5 year term in parliament, and successfully defeat a vote of no confidence in 2016. But the cost is a K20 billion loan, weakened legislature to the extend best described as “legislature on her knees”, and great deal of loss of confidence in the public sector. As we get caught up in the ascension of Marape and the hope of better PNG ahead, we must not forget the lessons we must avoid. So how did O’Neil become alsmot invincible? This is first of three parts, investigating factors that gave rise to O’Neil’s rise, causes for his fall, and challenges ahead.

To understand what led to Peter O’Neil’s downfall, first you have to know why he succeeded in completing a full Parliament term, from 2012 – 2017. O’Neil is only the second prime minister to complete a full parliamentary term since independence in 1975. The other prime minister to have completed a full term is Michael Somare, from 2002 to 2007. All other prime ministers since the first post-independence in 1977 were removed either through a vote of no confidence, or resigned as vote of no confidence became eminent. The success of Peter O’Neil can be attributed to several factors explained below, and the undoing of the same factors may help explain his downfall. 

  1. Amendments to the Constitution to prevent vote of no confidence

Peter O’Neill used his numerical majority (MPs) to increase the grace periodafter elections in 2012, from 18 months to 30 months. Grace period is the set period after elections and before the next election where a vote of no confidence is not allowed. Since there are 60 months within the five-year term, 42 months or three and half years (30 months after 2012 elections and 12 months before 2017 elections) were covered by grace periods, leaving only a short 18-month or one and half year window where the prime minister could be challenged. In addition to that extension of grace period, the minimum parliamentary sitting days – mandatory number of days the parliament must meet in a year – was reduced from 63 days to 40 days.

After the first 30 months grace period was over, the O’Neil government used the reduced sitting days to avoid a vote of no confidence. They spread the limited sitting days over 2015 to mid-2016, and would adjourn whenever the opposition seemed to push for a vote of no confidence. As the 12 remaining months before the issue of writs in July 2016 for 2017 elections drew near, parliament was adjourned to 2ndof August 2017. The next parliamentary sitting August was scheduled to fall well within the grace period (12 months before 2017 elections), eliminating any chance of a vote of no confidence. The Supreme Court ruled this adjournment and amendment invalid in 2016 and ordered the parliament to re-convene to dealwith the vote of no continence. The parliament met but the prime minister successfully overcame the vote of no confidence, and a few weeks later, the next 12 months grace period before the 2017 elections started.

Why did O’Neil fall:The Supreme Court ruling that the amendment was unconstitutional is a very important factor, because after the return of writes in 2017 elections, the grace period would only last for 18 months, 12 months less than the grace period in 2012. The grace for 2017 post-elections ended in January of 2019, and though parliament was adjourned twice to avoid vote of no confidence, first on 1stJanuary 2019 and again on 7thMarch 2019, the MPs began resigning from Peter O’Neil’s People’s National Congress (PNC) and the coalition in general. On the 29thof March 2019 the prime minister did not have the numbers to adjourn the parliament any more, and he resigned. James Marape was elected as the new prime minister on 30thMay 2019, five months after the grace period expired. 

2. DSIP/PSIP funds 

Electoral development funds (the same is referred to as discretionary funds) played a big role in maintaining O’Neil in power. Though these funds were around since 1984 (K10, 000 back then), the amount given to MPs increased exponentiallyas a result of high commodity prices after the 2000. By 2013, K10 million was allocated per year for each of the MPs representing the 89 open electorates/districts through the District Services Improvement Program (DSIP) funds; and K5 million per electorate for each provincial MP through the Provincial Service Improvement Program fund (PSIP), that is, K5 million multiplied by the number of electorates in a province. The Administrative Guidelines 2013 governing these funds do not state the specific dates and amounts to be given to the respective MPs. The government has been accused of exploiting this vacuum by deliberately withholdingthe DSIP and PSIP funds belonging to MPs in the opposition, while releasing the funds to MPs who support the government. For instance in August 2016, the governor for Oro Province, Gary Juffa, who was critical of the government decisions, claimed that the national government only released K1 million for Oro Province instead of K10 million (K5 million each for the two open electorates in Oro). Sam Basil, the MP for Bulolo Open, Belden Namah, the MP for Vanimo Green Open, and others made similar claims as they missed out on their K10 million DSIP components. A month after Peter O’Neil formed government in 2017; Sam Basil led 14 other MPs from Pangu Pati to cross over to the government side. As Pangu joined the government, Basil explained this decision as being driven by his MPs’ need to be able access DSIP funds, which he claimed may have been denied had they stayed in opposition. 

Why did O’Neil fall:As the country ran into high debts (officially K20 billion), and low commodity prices affected the country’s budget, the government decided to cut these funds to K2 million per MP starting in 2017. There was no official announcement on whether this decision has been changed. This may have removed the motivation for supporting the government, as well as the fear MPs had of risking moving to the opposition as in the previous term.

Part Two will look at the Politicization of Appointment Committees, Marginalization of and Grievances of Resource Rich MPs & Corruption Scandals

Read Part Two, Clink here: https://academicnomad.home.blog/2019/06/14/how-great-was-the-fall-part-two/

PNG Tuna Revenues: Lost Opportunities, Lost Revenues

Fresh raw Skipjack tuna fish in market

Was there substance on Gary Juffa’s claim on tax exemptions and holidays? 

Read Part One here, focus on RD Cannery:


Post Two: Tuna Revenues – Lost Opportunity, Lost Revenue

“[extract if GJ’s speech]…Meanwhile we have given too much tax exemptions and tax holidays to all types of criminal pirates and cartels that have come here to enrich themselves at our cost.” Gary Juffa.

In the first post [see link above] we looked at whether Gary Juffa’s claims [see quote above] was backed by evidence, using RD Tuna Cannery in Madang as a case study. In this piece we look at PNG’s potential loss [or revenue already lost] as a result of tax exemptions, and discount to license and access fees to fishing companies. These posts are derived from a paper I wrote for the National Research Institute titled “Generating Internal Revenues and Employment from the Tuna Industry for Bougainville” which will be published later this month. As a result, I’m leaving gaps in the posts (so you can look forward to reading the paper from NRI :-)). 

The main revenues from tuna for PNG at the moment are collected from license and access fees, the revenues from these fees alone in 2016, year for which the latest data is available is K436.23 million (USD 128.8 million). That’s a lot of money, but the question is, if PNG Government did not give discounts to license and access fees would it have earned more? 

What was the discount for anyway? Well the government decided that any fishing company that agreed to land “at least” 10% of the catch onshore for processing be given discounts. Instead of paying the full fees, they would pay less. This is not the equivalent of tax exemption given to companies like RD Cannery, where canning companies don’t have to pay any taxes and fees on tuna caught for the next 10 years after its establishment. 

So how did the fishing vessels behave given these discounts? In 2018, reviews of the rebates by PNG officials revealed that about 80% of the tuna were processed offshore (not in PNG), whilst PNG-flagged tuna vessels sometimes did not visit PNG ports for a year (ABC Pacific Beat, December, 2017). Not only did PNG miss out on much by giving all kinds of discounts and tax exemptions (see the post on RD Cannery), but the fact that the fishing vessels were processing 80% of the catch overseas took away jobs, spin-off benefits, and potential taxes after the 10 years tax holidays were up. 

Tax exemptions and discounts would only make sense if there is net gains, that is, if you gave exemptions, but the benefits far exceeded the value of money you lost by giving tax exemptions or discounts. In this case, PNG lost both value of money it could have earned by implementing strict license and access fees as well as taxes, employment, etc. As stated earlier, this led to a loss of K300 million (USD 88.74 million) in direct incomes, K1 billion in taxes (USD 294 million) and about 15,000 jobs between 2008 and 2018 (Post Courier, 4th January 2018).

There is something PNG Government needs to be aware of: that when it comes to tuna, PNG controls about 50% of skipjack (most commonly canned tuna) and about 20% of yellowfin of the world. You cannot find that magnitude anywhere else in the world. These fishing vessels and canneries will not leave PNG and go elsewhere if you negotiate your fair share. Where else would they go? 

The government in 2018 announced that discounts will now only be given to vessels that process 100% of their catch in PNG. This is a good start. The challenge will to make sure they do that. 

Also, visit their processing facilities to see their capacities (how many tonnes can their tuna processing facility accommodate). If its small, they can either expand it to process 100% of the tuna caught, pay taxes, and create more employment, or they can maintain their small capacity, but have to pay for access tuna before they send overseas. By charging them high prices on excess tuna sent overseas, they will be forced to process 100% in PNG. Removing tax exemptions alone is not enough. The value, in terms of revenues to PNG, is higher when tuna is processed than when it is exported raw.

Having said all that, the cost of doing business in PNG is high, including lack of necessary infrastructure and services, and distance to markets (EU is far far away). I’m not arguing for complete elimination of preferences such as rebates. But there should be a balance, where PNG has a “net-benefit” at the end.

NB: For those who asked whether the analysis for RD Cannery in the first post applied to canneries in Wewak and Lae, generally the answer is Yes. I understand that canneries in Lae were also given tax holidays, so I assume Wewak would be the same. I don’t know of their processing capacity. But if its small, then they probably send the balance tuna overseas. 

As I stated above, I left most details and analysis out, as it is part. You can read it when full paper is published.

Was there substance in Gary Juffa’s claim in Parliament on tax exemptions and holidays? Part One: RD Tuna

Hon Gary Juffa, Governor, Northern (Oro) Province

Part One: RD Tuna Cannery

Exact quotes, televised by EMTV yesterday evening (02/05/19) are as follows:

“[on resources] …we must own tuna canneries….. [on taxes]…Meanwhile we have given too much tax exemptions and tax holidays to all types of criminal pirates and cartels that have come here to enrich themselves at our cost.” Gary Juffa.

I was working on a piece for NRI on how Bougainville can increase it’s internal revenues from tuna, and came across something that makes me think GJ’s right. RD Cannery [tuna manufacturing company] in Madang received the land parcel at the ‘discounted price’ of US$2.19 million, a 10-year tax holiday, and domestic-class fishing licenses that grant RD vessels fishing rights in PNG’s archipelagic waters and exempt them from paying fees on all fish captured. Tax holidays means they did not pay tax for manufacturing and exporting tuna to EU (where we don’t pay tariff, so they retained all profits), plus discounted or no fees at all for access and licenses, which are the two main revenue generators in tuna industry in the Pacific.

So what have we received in return? It did provide employment, but if you watched the documentary “Canning Paradise” you know how low the wages are.

Furthermore, RD’s processing capacity in Madang (tuna canning facility) is not sufficient to process all the tuna that RD vessels catch. What happens to the excess catch? The excess is send to RD Canneries in the Philippines. 

Why Philippines? Because tuna stock in their waters are very low due to unsustainable fishing. RD keeps its canning facility in Madang low, but we gave them more liscenses to their vessels to fish, logically they catch more than the facility in Madang. They then export the access to their facilities in the Philippines that don’t have enough raw tuna stock. RD is here to exploit tuna for its facilities in Philippines. 70% of Skipjack tuna population of the world, the stock of tuna commonly canned, is found in the Pacific, and 50% of that is within PNG waters. 

What is the grand result? Such exemptions resulted in a loss of K300 million (USD 88.74 million) in direct incomes, K1 billion in taxes (USD 294 million) and about 15,000 jobs between 2008 and 2018 (Post Courier, 4th January 2018). 

To know more, watch for National Research Institute’s publication titled: 

“Generating Internal Revenues and Employment from the Tuna Industry for Bougainville” 

I wrote it specifically for Bougainville, on how tuna can contribute to fiscal autonomy, whether it becomes independent or not. It will be published soon. You can also read:

Havic, E., Reed, K. (2012). Fishing for Development? Tuna Resource Access and Industrial Change in Papua New Guinea. Journal of Agrarian Change, Vol. 12 Nos. 2 and 3, April and July 2012, pp. 413–435.

Update: Since I posted this 6 hours ago, it got shared 80 times (and counting). If it’s useful, I’ll write something similar on Other Sectors/Industries later, as Part 2, 3 etc.