REPUBLIC OF VANUATU

OFFICE OF THE OMBUDSMAN

PUBLIC REPORT

ON THE BREACHES OF THE GOVERNMENT CONTRACTS AND TENDERS ACT, THE LEADERSHIP CODE ACT AND FINANCIAL REGULATIONS IN RELATION TO VANUATU HOLDINGS LIMITED

2 May 2008

5080/2008/03

PUBLIC REPORT ON THE BREACH OF THE GOVERNMENT CONTRACT AND TENDERS ACT AND THE LEADERSHIP CODE ACT BY FORMER PRIME MINISTER EDWARD NATAPEI AND HIS COUNCIL OF MINISTERS

SUMMARY

The Ombudsman is issuing this public report to illustrate how the Government has misused aid money that was given by the Chinese Government.

In 2004, the Vanuatu Government received a VT 8 million grant from the Chinese Government to revive a government entity known as the Vanuatu Holdings Limited.

In April 2004, the Honourable Minister Edward Natapei who was at that time the Prime Minister of Vanuatu entered into a 6 month contract with a local consultancy firm, H & D (Pacific) Consultants; owned by Messrs Aaron Hanghangkon and Alan Palmer. H & D (Pacific) Consultants were to use the Vt 8 million grant from the Chinese Government to revive Vanuatu Holdings Limited.

The Ombudsman has found in this enquiry that the VT 8 million grant from the Chinese Government became public money as soon as it was handed to the state. Therefore, how the grant is spent should be done in accordance with the relevant laws governing public money.

In this case, the Honourable Prime Minister and his Council of Ministers have been found to have breached the Government Contracts and Tenders Act, the Leadership Code Act and Financial Regulations when awarding H & D (Pacific) Consultants with the contract to revive Vanuatu Holdings Limited as per the agreement between the Chinese Government and the Vanuatu Government. It is also found that H & D (Pacific) Consultants have breached section 30 of the Leadership Code Act

Thus, the Ombudsman now recommends that:

•	The former Prime Minister Edward Natapei and his Ministers should be dealt with in accordance with Part Six of the Government Contracts and Tenders Act 1998, Part 6 of the Leadership Code Act and Part 14 of the Financial Regulations of Vanuatu.

•	Section 46 (1) (f) of the Public Finance and Economic Management Act 1998 should be amended so that it specifically states that "grants" received by way of donor aid should be deemed as public money and be subject to all laws and regulations governing the use of public moneys.

•	The former Prime Minister Edward Natapei must personally refund the amount of money that was used by the H & D (Pacific) Consultants during its six months consultancy period as the agreement that he had entered into on behalf of the Vanuatu Government was void.

•	H & D (Pacific) Consultants must refund the amount of money (from the VT8 million grant from the Chinese Government) that was used by them during the six months consultancy period as the agreement signed between them and the former Prime Minister was void. Further, they did not fulfil the work they were engaged to do as per the Terms of Reference of the agreement.

•	The current Prime Minister's Ministry must refund the amount of money taken from the VT 8 million grant from the Chinese Government for Vanuatu Holdings Limited that was used for other purposes.

•	The Attorney General must institute a civil proceeding against the former Prime Minister Edward Natapei and H & D (Pacific) Consultants to recover the VT8 million that was misused by them.

TABLE OF CONTENTS

SUMMARY

1. JURISDICTION
2. PURPOSE, SCOPE OF INVESTIGATION AND METHODS USED
3. RELEVANT LAWS
4. OUTLINE OF EVENTS
5. RESPONSES BY THOSE WITH FINDINGS AGAINST THEM
6. FINDINGS
7. RECOMMENDATIONS
8. INDEX OF APPENDICES

1. JURISDICTION

1.1 The Constitution, the Ombudsman Act and the Leadership Code Act allow the Ombudsman to look into the conduct of government, related bodies, and Leaders. This includes the Prime Minister of the Republic of Vanuatu. The Ombudsman can also look into defects in laws or administrative practices, including the decisions taken by the Council of Ministers.

2. PURPOSE, SCOPE OF INVESTIGATION AND METHODS USED

2.1 The purpose of this report is to present the Ombudsman's findings as required by the Constitution, the Ombudsman Act and the Leadership Code Act.
2.2 The scope of this investigation is to establish the facts about the decision taken by the Honourable Prime Minister (former) Edward Natapei and his Council of Ministers to engage H & D (Pacific) Consultant to use a VT 8 million grant from the Chinese Government to revive Vanuatu Holdings Limited and to determine whether this decision was proper.

2.3 This Office collects information and documents by informal request, summons, letters, interviews and research.

3. RELEVANT LAWS

3.1 Relevant parts of the following laws are reproduced in Annex "A".

4. OUTLINE OF EVENTS

4.1 On 2 June 2005, the Ombudsman received a complaint alleging that in 2004, the former Prime Minister Edward Nipake Natapel signed a six month contract with a private consultant -- H & D Consultants which belongs to Messrs Aaron Hanghangkon and Alan Palmer (please refer to Annex 'B'). This Consultant was engaged to propose a new Vanuatu Holdings Limited (VHL) structure, to identify the costs of the new entity using VT 8 million allocated to them that was a special budgetary allocation from the Chinese Government. The Consultant was paid a rage of VT 800,000 per month to do this work and they operated within a government office which was the Prime Minister's office and used all the existing office facilities.

It was alleged by the complainant that the procedure that was used to engage H & D Consultants was not done in accordance with the Government Tenders and Procedures Act. Furthermore, at the end of the six month contract, none of the original tasks that this Consultancy firm was appointed to do was carried out and the reports that were produced were so far of a very low quality. It was further alleged that the Consultancy firm focused its time and efforts in duplicating the functions of the Vanuatu Investment Promotion Authority (VIPA); functions that fall outside the primary function of VHL by making deals to attract foreign investors.

The complainant concluded by stating that Honourable Natapei and Mr Hanghangkon are trying to convince the Government to revive VHL even though the Chinese Government special budgetary allocation of VT 8 million has not been accounted for.

4.2 On 14 June 2005, the Ombudsman commenced an enquiry into the matter. The Secretary of the Council of Ministers (COM) was requested to provide the following information and documents:

• A copy of the Council of Ministers meeting that approved a Government Contract for H & D Consultant to revive Vanuatu Holding Limited.

• Any documents to prove that a tender process was followed prior to awarding the Government Contract to H & D Consultants.

• Any other information and documents that are relevant to this matter.

4.3 On 30 June 2005, the Ombudsman received a response from the Secretary of the COM, Mrs Nadine Alatoa ("Mrs. Alatoa"). Mrs Alatoa advised in her response that the COM did not approve the contract that was awarded to H & D Consultants and there was no tender process prior to the contract being awarded to the said Consultants. Mrs Alatoa was however, able to provide copies of the following documents:

• Copy of council paper 84 and its decision 97. This paper was tabled by Prime Minister Natapei in a COM meeting on 18 December 2002 and its purpose was to seek the COM's approval to:

(i) Revive Vanuatu Holdings Limited;

(ii) Appoint an interim steering committee to coordinate consultations and

(iii) Approve the appointment of a short term consultant to prepare groundwork for VHL and work with Fijian Holdings delegation.

Decision 97 by the COM approved the following:

(i) To revive VHL

(ii) The PM shall appoint an interim steering committee and appoint a short term consultant

(iii) Approved the visit of the Fijian delegation in January 2003

(iv) The outcome of the consultation will go before the COM for decision

(v) The steering committee's work will end once the Consultant's report is produced.

• Copy of council paper 247 and its decision 13512003. This paper was tabled by Prime Minister Natapei in a COM meeting on 18 December 2003 and its purpose was for the COM to endorse the report that was produced by the Meridian Consultant Group of Fiji and to make a decision on the recommendations that were in this report.

Decision 13512003 by the COM approved the following:

(i) Accept the Consultant's report

(ii) Endorse the recommendation that the forme VHL be properly closed down.

(iii) Endorse the recommendation that a suitable person be appointed to carry out the next phase of the report

(iv) Endorse the recommendation that the Government seeks aid from an aid donor.

• Copy of council paper 129 and decision 7112005. This paper was tabled by the Prime Minister Ham Lini in a COM meeting on 13 June 2005 and its purpose was to:

(i) seek the COM's approval to re-establish VHL following the study that was undertaken by the consultant company of Fiji.

The former Prime Minister has signed an agreement with another private company, H & D Consultants to draw up a company structure and establish VHL.

Decision 7112005 by the COM approved the following:

(i) That the decision taken to re-establish VHL be deferred until the COM receives the report from H & D Consultants, receives the copy of the contract that H & D Consultants signed with the Government and a detailed breakdown of how the VT 8 million grant from the Chinese Government was spent.

4.4 On 7 July 2005, the Ombudsman issued a letter of enquiry to the Director General of the Prime Minister's Ministry, Mr Jean Sese ("Mr. Sese"). Mr Sese was asked to provide the following documents and information:

• Provide a copy of the contract that was signed between the former Prime Minister Natapei, on behalf of the Government and H & D Consultants.

• Who drafted the contract?

• Did the State Law Office provide its legal opinion on the contract? If yes, please provide the relevant documents as proof.

• A copy of the report that H & D Consultant produced as a result of the work that they were engaged to do, if any.

• Any other information and documents that he considers relevant to this matter.

4.5 On 12 July 2005, the Ombudsman received a response from Mr Sese, Director General of the Prime Minister's Ministry. Mr Sese provided the following information and documents:

• A copy of the contract that was signed between the former Prime Minister Natapei and H & D Consultants was provided.

• There is no information as to who drafted the contract except that it was not drafted by the State Law Office.

• The DG was not aware if any legal opinion on the contract was sought from the State Law Office (SLO). The Ombudsman may wish to verify this with the SLO.

• A copy of the report that was produced by the H & D Consultants was also provided

4.6 On 15 July 2005, the Ombudsman issued letters of enquiry to the following people:

• Mr Sampson Endehipa ("Mr. Endehipa"), Attorney General of the Republic of Vanuatu. Mr Endehipa was requested to inform the Ombudsman if he has been requested by the former PM Natapei to provide any legal advice on the decision to engage H & D Consultants. If not, then was he or a meeting that discussed the paper that was tabled by PM Natapei and if the legal opinion of this person was sought at the time of the meeting.

• Mr Sese requesting that he provide the Ombudsman with relevant documents to prove the total amount of money that was awarded to H & D Consultants after their appointment. Such documents would include copies of LPOs, government cheques etc. He was also requested to inform the Ombudsman of the total cost incurred by the Prime Minister's Office to have H & D Consultants operating from its office space and using its facilities and submit the copies of the relevant documents as proof.

4.7 The Ombudsman received a response from Mr. Endehipa on 17 August 2005. Mr. Endehipa's response to the Ombudsman's letter of 15 July 2005 was as follows:

• Their records show that discussions on the concept of Vanuatu Holdings also involved the State Law Office. However, Mr. Endehipa was not aware of any specific request or instruction by the former Prime Minister to the Attorney General to provide legal advice on the Agreement itself before it was signed. Similarly, he was not aware nor was he instructed to advise on the decision to engage H & D Consultants.

• The State Law Office provided two later advices to the Government on the Agreement after it was signed. One is dated the 10 June 2004 and the latter dated 24 June 2004 (please refer to Annex `C').

• The Attorney General was present in the Council of Ministers' meeting when the paper tabled by Honourable Edward N. Natapei to revive VHL was discussed.

• There was no legal opinion sought from the Attorney General by the Council of Ministers at the meeting therefore he could not provide the Office of the Ombudsman with a copy.

4.8 The Ombudsman received a response from Mr Sese, Director General of the Prime Minister's Ministry on 26 August 2005. Mr Sese submitted the following documents in response to the Ombudsman's letter of 15 July 2005:

• Details of funds disbursed to Mr Aaron Hanghangkon and Mr Palmer as well as the office expenditures;

• Balance of VHL funds used by the PM's Office after the expiry of the Consultants' contract and the Government's decision not to renew the contract or to proceed with the project and

• Copy of his letter to the Prime Minister dated 12 July 2005.

4.9 On 1 September 2005, the Ombudsman issued another letter to Mr. Sese requesting him to provide the following information and documents:

• Did the Vanuatu Government specifically request VT 8 million from the Chinese Government to attempt to revive Vanuatu Holdings Limited?

• If yes, please provide the written copy of the request.

• If no, under which grant was this VT 8 million taken from?

• Please provide a copy of the agreement that was signed between the Chinese Government and Vanuatu Government which states how this grant will be used.

• Please confirm whether the Prime Minister's Office is the ministry responsible for administering this grant.

• Please provide any other information and documents that you consider relevant to this matter.

4.10 On 27 September 2005, the Ombudsman issued a letter to the Director of the Department of Finance, Ms Dorothy Ericson requesting her to provide the following information and documents:

• Was the Vt 8 million grant from the Chinese Government given especially for the Vanuatu Government to use in reviving Vanuatu Holdings Limited?

• Were the funds placed in a trust account or in the Vanuatu Public accounts system? Please provide the relevant documents as proof.

• Was the project recorded in the Government GIP system? If yes, please provide the relevant documents as proof.

• Please provide any other documents or information that you consider relevant to this matter.

4.11 On 9 November 2005, the Ombudsman issued another letter to Mr Benjamin Shing who was now the Director of Finance. Mr Shing was requested to provide the same information and documents that was requested of Ms Ericson in the Ombudsman's letter of 27 September 2005.

4.12 On 15 November 2005, the Ombudsman received a response from Mr Shing providing the following information and documents:

• The VT 8 million grant from the Chinese Government was given especially for the Vanuatu Holdings.

• The funds were placed in the Vanuatu Government accounts system under a project code given especially for VHL.

• The Aid section in Foreign Affairs and the Department of Economic and Social Planning can confirm whether the project was recorded in the Government Investment Program (GIP) system.

• The following reports and documents were attached with his response:

(i) Project summary report to show the running balance of the project with funds coming in and funds going out.

(ii) A transaction listing showing the funds received and payments made.

(iii) Copy of part of the Economic and Technical Cooperation between the Vanuatu Government and the Government of the People's Republic of China which states that assistance be provided for the Vanuatu Holdings Limited.

4.13 On 18 November 2005, the Ombudsman issued a letter to the Director of the Department of Economic and Social Development, Ms Nancy Wells.

Ms Wells was requested to advise if the project to revive VHL was recorded in the Government Investment Program System.

4.14 On 24 November 2005, the Ombudsman received a response from Ms Wells who confirmed that the project to revive Vanuatu Holdings Limited was recorded in the GIP and has been allocated the GIP number 04K510.

4.15 On 9 February 2006, the Ombudsman issued a letter to the former Prime Minister who was now the Minister of Infrastructure, Honourable Edward Natapei. Honourable Natapei was informed of the allegation and was also requested to provide the following information and documents:

• Who drafted the contract that was signed between himself as the PM and H & D (Pacific) Consultants? Please provide any supporting documents as proof.

• Did he as the PM seek any legal advice from the State Law Office (SLO) regarding this contract? If yes, please submit any supporting document as proof. If no, why not?

• Did he as the PM seek any legal advice from any other law firm apart from SLO? If yes, please submit any supporting documents as proof.

• How was H & D Consultants assessed and finally engaged to carry out the work to revive VHL? Please submit a copy of the criteria that was used to identify H & D Consultancy as the appropriate company to do this work.

• Why wasn't this contract advertised for tender so that other consultancy firms could apply?

• Please provide the names (s) of any other person (s) who may have assisted you in making the decision to engage H & D Consultants.

• Please provide any other documents or information that you consider relevant to this matter.

4.16 On 3 March 2006, the Ombudsman received a response from Honourable Edward Natapei. Honourable Natapei advised that he has been unable to locate the file containing information on the project as the former Private Secretary who was handling the case when he was Prime Minister had passed away in 2005 thus he does not have any document to hand. He recalls that a report was produced by H & D (Pacific) Consultants which indicated that there is over VT 2 million left in the account.

He shall endeavour to find the documents that have been requested and provide some queries as soon as possible.

4.17 On 10 July 2006, the Ombudsman issued a letter to Honourable Natapei advising him that he has not provided any response to the Ombudsman as per his advice in his letter of 28 February 2006 that was received by the Ombudsman on 3 March 2006.

4.18 On 31 August 2006, the Ombudsman received a response from Honourable . Edward Natapei. Honourable Natapei submitted the following documents with his response:

• His letter to Mr Sese dated 15 June 2004 (please refer to Annex `D');

• Mr Sese's letter to Mr Mark Bebe (please refer to Annex `E');

• The Solicitor General's advice to Mr Sese (please refer to Annex `C') and

• Mr Hanghangkon's letter to Mr Sope (Acting Prime Minister) (please refer to Annex `F).

4.19 On 22 March 2007, the Ombudsman issued a letter to Mr Aaron Hanghangkon. Mr Hanghangkon was informed of the allegation and was requested to provide the following information and documents:

• Who drafted the contract that was signed between the former Prime Minister Natapei and H & D (Pacific) Consultants? Please provide any supporting documents as proof.

• How did H & D (Pacific) Consultants apply for this work? Did it respond to an advertisement or from a special request from Honourable Natapei? Please submit any relevant documents as proof.

• Please submit a copy of the final report that was issued by H & D (Pacific) Consultants at the end of its contract.

• Please submit a copy of relevant documents showing how H & D (Pacific) Consultants used the VT 8 million grant given by the Chinese Government.

• Please provide any other documents or information that you consider relevant to this matter.

4.20 On 14 May 2007, the Ombudsman received a response from Mr Aaron Hanghangkon who is a partner in H & D (Pacific) Consulting Group. Mr Hanghangkon provided the following information and documents:

• Allegation that the procedure used to engage H & D consultants was not in accordance with the Government Contracts and Tenders Act.

Refer to State Law office clarification [letter attached dated 10 June 2004]. Issue 1 refers to the amount to engage the consultants were below the sum that would normally be called for public tender. The fund provided by the Chinese by way of a trust fund was deposited with the government treasury and they were fully responsible for the disbursements. The Prime Minister acted within his discretion to appoint consultants, after getting the necessary approval from his cabinet as total remuneration was VT 4,&00,000 below the required sum under the Tenders Act. However, he was given a mandate by the Council of Ministers to appoint a suitable person and he did so under his power. Tenders Act is only applicable where contract sum must exceed VT 5,000,000 as the remaining balance from the grant was kept under the Dept. of Finance to meet office expenses, administration and secretarial services. Attached State Law Office advice on a letter which comments on all issues raised in your enquiries and the Prime Minister's DG comment on the advice. (Refer to Annex `C')

• Alleged at the end of a six month contract, H & D did not carry out its tasks and reports were of low quality. Report submitted on a monthly basis to the Prime Minister was strictly in line with the TOR. The tasks given during the six months were for VHL to be revived and formally instituted. The monthly reports were deliberately ignored by the Chairman of the steering committee, Mr. Sese, DG for the Prime Minister and no action or feedback was made on issues raised. They were term as low quality, the issued raised must have been difficult for the responsible quality of those civil servants as fit to hold a high office in government. Also implementation report has to be brief and to the point for quick comments or actions and was not intended for another long report to duplicate that of the independent consultant.

• The consultancy firm focused its time and efforts in duplication the functions of VIPA. This misconception was repeatedly raised during the wide consultations involving all government agencies, NGOs and other stakeholders prior to the approval of setting up the VHL. All were in agreement that they were two distinct views that VIPA was for promotion and attracting investors to invest in Vanuatu while VHL was to operate under two entities recommended by the independent consultants that (i) Vanuatu Investment Company [VIC] was to deal with investments with commercial objectives and (ii) State Holding Company [SHC] was to oversee and improve the efficiency of State-Owned Enterprises. (Refer to Annex `G").

• The consultancy contract was not drafted by the State Law Office - This is a non-issue to be challenged. The contract was drafted by the steering committee responsible for advising the Prime Minister on VHL at the time. It is logical to fund exactly who drafted the contract as when the Prime Minister signature the document, he becomes fully accountable as it becomes his own property. By all account, the SLO was asked to comment on the contract and its clauses and it is submitted for your reference.

• Did H & D apply for this work? Was there an advertisement or a special request from the prime Minister? We can only gather that our one year preliminary briefs and work relating to the recommendations as to how a government business arm would be created and run privately puts us in a more advantageous position. A lot of work to gather information seek relevant advice from people and key agencies in country and overseas was done at our own costs and without any remuneration until the Prime Minister approve the concept and submitted to the Council of Ministers. H & D assisted further in the preparation of a project submission to the forum Secretariat in Fiji to fund the tendering of seeking an independent consultant to study the proposed concept of the VHI. into a new concept that could be professionally oriented and submit to the government for final approval and implementation. This was achieved with our own contacts in the region to get funding from the Forum Secretariat and upon wide tendering the pacific, Meridian Consulting was accepted to carry out the consultancy under a $US45,000.00 contract. A professional report was made by an independent consultant and submitted to the government steering committee who sat on the report for over four months with no clear direction as to the next step of implementing its recommendations. The Prime Minister took his own initiative to follow on from a policy decision and went ahead to seek own funding to implement the report. Attached is the independent report from Meridian Consulting would have assist with the ongoing maladministration of current state own enterprises; i.e. Air Vanuatu, VCMB, VBTC, Development Bank, etc. (Refer to Annex 'D').

• Final report issued by H & D at the end of its contract - Enclosed our report for your perusal. It is important to note that our contract was stopped after four months by publicising it in the media [not in writing] by the new prime minister; Hon Serge Vohor after a change of government. We tried unsuccessfully to meet PM Vohor after a change of government. We tried unsuccessfully to meet PM Vohor to get his support as he was the first leader in coalition with Natapei that fully supported the revival of VHL. It was to our amazement that he took this decision and we never had the chance to meet him during the two months of our consultancy. Copy of our letter to PM Vohor is on Annex 'H'.

• Relevant documents on how H & D expended the VT 8 million grant from the Chinese government -- Attached is the approved budget estimates for the six months consultancy (Annex 'I'). We were not granted vote controllers of the funds, after confirmation from the Department of Finance who would take over the responsibility and account for the funds. The final expenditure showed a balance of around VT 2,400,000 remaining in the account after our consultancy. The overspending occurred due to other expenditures approved by the DG for the Prime Minister who was the vote controller of the funds. A separate letter was sent from our office dated 29 June 2005 to the Acting Prime Minister voicing our concern on how the funds were used for other purposes other than VHL. We have not received any response to date and no action taken to recover the funds or get the DG to face disciplinary action. (Refer to Annex 'F).

• Other relevant information that may assist you in your inquiry. It is important to note that:

• The end of consultancy report attached to this submission

• The former PM Natapei did convince the Chinese government to support the setting up of VHL; it was a way forward to the proper functioning of the government business arm and this was endorsed by the independent consultants to restructure the new VHL. This entity was to be governed by law and solely independent from the government. (See press release Annex `J').

• The Hon. Serge Vohor who was implicated in the former VHL again without consultation prematurely terminated our services and used the balance of funds on other activities authorised under his tenure as Prime Minister. The engagement of RK Warsal Lawyers for VT 1,142,844 s to defend him on his arrest case.

• Hon. Serge Vohor should be investigated for former VHL, the illegal termination of our services prior in breach of contract and his improper use of the funds on their expenditures that are not related to VHL activities.

• The Director of Finance should be disciplined for allowing Chinese funds to be used for other purposes as he was given the role to safeguard the use of the funds for VHL purposes only.

• Front copy of Meridian Consulting report, the independent consultant who produced the report that was subject to the Prime Minister to appoint local consultants to implement the recommendations. Should you wish to see the whole report, we can make one available. (Refer to Annex `K').

• In our opinion, we trust that former Prime Minister and his government had a vision to deal constructively with the affairs of the state through the VHL and he complied fully within the law in the process of implementation. The forces of opposition were within the political ranks that supported the idea but failed to follow through with the process when a change of government took place. We believed that this was the way forward for the country to move economically including the government of China who provided the funds and further the Forum Secretariat who funded the independent consultant.

• Those who may have masterminded the failure of the VHL had one aim to ridicule the Prime Minister and try to create obstacle, which is once again a set-back to policy makers. They do not present themselves to be the implementers of policy decision but rather will continue to be hindrance in major decision making in government. The country will never prosper if the same civil servants with inferior attitude continue to dictate what should be done their way rather than the elected leaders whose policy is make change and for the betterment of the Vanuatu people both socially and economically.

5. RESPONSES BY THOSE WITH FINDINGS AGAINST THEM

5.1 Before starting this enquiry, the Ombudsman notified all people or bodies complained of and gave them the right to reply whenever requested by the Ombudsman. Also, a working paper was provided on 13 September 2007 prior to preparation of this public report to give the individuals mentioned in this report another opportunity to respond.

5.2 Responses to the working paper were received from the following on the following dates:

• On 10 September 2007, the Ombudsman received a response from the Solicitor General, Mr Dudley Aru. Mr Aru advised that he has reviewed the Working Paper and would add that as far as the State Law Office was concerned, advice was provided as per instructions received to advise. Otherwise, he has no further comments to add or documents to provide in relation to this inquiry.

• On 26 September 2007, the Office of the Ombudsman received a response from Mr Aaron Hanghangkon, Senior Partner in the H & D (Pacific) Consulting Group. Mr Hanghangkon firstly clarified the position of Mr Allan Palmer who was recruited by H & D Pacific Consulting Group for his professional contribution in this particular assignment but he is not a shareholder. Mr Hanghangkon then proceeded to make the following comments

(1) Mr Hanghangkon finds the ongoing tirade against their Group to be inconsistent and without substance. From their view, they were contracted by the government in good faith to undertake a consultancy assignment within the period provided for in the contract. This means, they had to reorganise their busy commitment to respond to government request and deal with the tasks outlined in the Term of Reference for a period of six months.

(2) It would be more appropriate that the Ombudsman directs his complaints to the DG, Prime Minister's office who was the Chairman of the steering committee overlooking the implementation of VHL. They are an independent private sector firm who were contracted to carry out a government assignment and it is sad to see the ongoing politicking and in-fighting among officials which have lead them to suffer and face the criticisms currently being labelled against their company.

(3) They are accused of not complying with certain laws which they find unacceptable when private sector are asked by the government to carry out tasks and through no fault of their own, they are blamed for irregularities that are created from within the government. They were tasked to set up the groundwork for VHL structure and would have completed everything on time had Prime Minister Serge Vohor and key civil servants cooperated fully with them during the consultancy period.

(4) Their own observations to the following saga would deem to have no basis as the then Prime Minister acted within his powers mandated by COM decision 13512003. It is important to note that all COM papers are cleared from the technical Development Committee of Officials (DCO) and some of those members are now questioning the legality of the decision that they are a party to. The Ombudsman may need to consult with various attachments on annexures D, E, G, H, J to the report that would clearly elaborate on the concept of VHL revival.

(5) The issue of trust money and public money is clearly explained by the Attorney General's advice in their letter of 10 June 2004. Further, Mr Sese concurred with the advice in his letter of 16 June 2004 to Mr Bebe. It is unfortunate to note that incumbents Ms Dorothy Erickson and Mr Mark Bebe were seen to have pressured the State Law Office for a second advice. The Attorney General repeated his final advice in a letter dated 24 June 2004 to reaffirm what was already given in their letter of 10 June 2004.

Relating to the State Law advices, they consider the Ombudsman report findings 1, 2 and 3 to be inconsistent and irrelevant to any existing laws. The recommendations on 7.1 and 7.3 do not apply based on the same advice. Instead of crying over spilt milk, advices given prompted the suggestion to amend the PFEM Act accordingly that would avoid future repetition. And the Ombudsman rightly agreed to this in recommendation 7.2.

(6) Overall, Mr Hanghangkon wishes to state that by all the actions of the complainants and the Office of the Ombudsman that this matter is leading to a more personal vendetta against their Group. Despite all the legal advice provided, the matter should rightly be put to rest. They are the innocent party in this matter as the frustrations and hindrances were masterminded by certain officials of the state with the aim of damaging their professional image and reputation.

(7) Their responses point to the fact that there is a cause for financial misappropriations by certain leaders and officials, and it would be fair to know what action the Ombudsman is going to take into the matter. Public finance regulations refer to appropriate action to be taken, however, the PSC has not responded to their letter of 29 June 2005.

In conclusion, Mr Hanghangkon stated that while he awaits the final verdict of the Ombudsman's consideration to this report, he will be seeking legal advice to defend the professional reputation of their business and to seek damages in a court of law.

• On 26 September 2007, the Ombudsman received a response from Director General of the Prime Minister's Office, Mr Jean Sese.

Mr Sese made the following points in his response.

(1) Despite good intentions to revive the Vanuatu Holdings Limited, the consultancy work carried out by H & D (Pacific) Consultants failed to produce the outcomes within the agreed timeframe as directed by the Council of Ministers in 2004;

(2) H & D (Pacific) Consultants have been paid fully for their six months of engagement as provided for under the Agreement between the then Prime Minister (Hon. Edward Natapei) and the consultants;

(3) With a change of Government in 2004, the engagement of H & D (Pacific) Consultants was not renewed by the then successor Prime Minister (Hon. Serge Vohor). As such, there was no further obligation on the Government to make any further payment to H & D (Pacific) Consultants.

• On 28 September 2007, the Ombudsman received a response from the Deputy Prime Minister and Minister of Infrastructure and Public Utilities Edward Nipake Natapei. Mr Natapei stated that he was advised that any contract for amounts less than VT 5,000,000 did not require to be put through the tender process so when the agreement which was for a maximum payment (Clause 9) of VT 4,800,000 was put before him, he signed it.

It is very clear from the Solicitor General's advice dated 10 June 2004 and re¬affirmed by the Attorney General in his letter dated 24 June 2004 that "the Agreement between the Prime Minister and Mr Hanghangkon and Mr Palmer is not a Government contract" as defined in the Government Contracts and Tenders Act.

Honourable Natapei concluded by stating that he believes he has not breached the Government Contract and Tenders Act and the Leadership Code Act.

• On 28 September 2007, the Ombudsman obtained a statement from the Secretary to the Council of Ministers, Mrs Nadine Alatoa. Mrs Alatoa confirmed the information and documents that she provided to the Ombudsman as per section 4.3 of the Working Paper.

• On 1 October 2007, the Ombudsman received a letter from Mr Juris Ozols of Juris Ozois & Associates Attorneys. This letter was first received by fax on 26 September 2007. Mr Ozols stated that as the Ombudsman's letter of 13 September 2007 was only delivered to Mr Alan Palmer on Friday 21 September 2007, he presumes that the Ombudsman will allow them fourteen days from the date of receipt in which to provide their client's comments.

For the record, their client strenuously disagrees with a number of the allegations put forward in the draft report and they will be preparing a detailed response shortly.

• On 8 October 2007, the Ombudsman received a response from Honourable Willie Jimmy Tapanga Rarua, current Minister of Finance and Economic Management (he was the Minister of Tourism in 2004 when Honourable Natapel was Prime Minister). Honourable Tapanga Rarua stated that his involvement was a collective decision of the Council of Ministers only, none other.

However, reading the content of the Preliminary findings of the Working Paper, he could hardly believe the procedures that were adopted by the then Prime Minister, Hon Edward Nipake Natapei, which seemed to be a deliberate act of ignoring the provisions of the Government Contracts and Tenders Act to appoint a consultant to do a feasibility study to revive Vanuatu Holdings in 2004.

Therefore, the Ombudsman's proposed recommendations are to be dealt with in a usual manner by appropriate authorities.

• The Ombudsman did not receive any response to the Working Paper from the following people:

(1) Honourable Ham Lini Vanuaroroa, current Prime Minister and former Minister of Infrastructure in April 2004;

(2) Honourable George Wells, current Minister of Foreign Affairs and former Minister of Internal Affairs in April 2004;

(3) Honourable Maxime Carlot Korman, current Minister of Lands and former Minister of Agriculture in April 2004;

(4) Honourable Philip Boedoro, current Member of Parliament and former Minister of CRP in April 2004;

(5) Honourable Moana Carcasses Kalosil, MP/current Leader of Opposition and former Minister of Foreign Affairs in April 2004;

(6) Honourable Sam Dan Avock, current Speaker of Parliament and former Minister of Ni-Vanuatu Business in April 2004;

(7) Honourable James Bule, current Minister of Trade and former Minister of Health in April 2004;

(8) Honourable latika Morkin Steven, current Minister of Health and former Minister of Youth & Sports in April 2004;

(9) Mr Nicholas Brown, former Minister of Education in April 2004;

(10) Mr Jimmy Nicklam, former Minister of Finance in April 2004;

(11) Mr Mark Bebe, current Secretary to the Public Service Commission and former Director to the Department of Strategic Management in 2004;

(12) Mr Benjamin Shing, Director of Finance;

(13) Mr Simeon Athy, Director General of the Ministry of Finance and

(14) Ms Nancy Wells, former Director of the Department of Economic and Social Planning.

6. FINDINGS

6.1 Finding 1: BREACH OF THE GOVERNMENT CONTRACTS AND TENDERS ACT 1998 BY THE HONOURABLE PRIME MINISTER (FORMER) EDWARD N. NATAPEI AND –HIS COUNCIL OF MINISTERS

Having considered the above stated correspondences, the Ombudsman finds that the former Prime Minister, Honourable Edward N. Natapei and his Council of Ministers have breached the Government Contracts and Tenders  (GCT) Act 1998.

In 2004, the Chinese Government gave a VT 8 million grant to the Vanuatu Government specifically for the establishment of Vanuatu Holdings. Section 46 (1) (f) of the Public Finance and Economic Management (PFEM) Act states that all money received by way of donor aid, pending expenditure in accordance with such purposes and conditions as agreed between the donor and state is trust money. Section 46 (2) of the PFEM Act further states that all trust money held by the State shall be accounted for separately from public money.

Being a grant, the money will not be refunded as per the definition of grants in section 2 (1) of the PFEM Act (please refer to Annex `A') and therefore it becomes the property of the State and as such, it is "public moneys". As per the agreement, the Chinese Government does not need reports on how this money was used. Further, as the funds were placed in the Vanuatu Government accounts system and was recorded in the Government Investment Program (GIP), it is deemed to be public money as per the PFEM Act.

Section 3 of the GCT Act states how Government Contracts that exceed VT 5 million should be awarded. It was found in this investigation that even though the agreement that was signed between Honourable Natapei and H & D (Pacific) Consultants was for the expenditure of the VT 8 million given by the Chinese Government, section 3 of the GCT Act was not adhered to.

It is also not apparent, who drafted the said agreement between Honourable Natapei on behalf of the Government and H & D (Pacific) Consultants and whether any legal opinion on the agreement was sought prior to its signing. The State Law Office was only consulted after the contract between the Government and H & D (Pacific) Consultants had been established.

Thus, this agreement is void and of no effect as per section 7 of the GCT Act.

6.2 Finding 2: BREACH OF THE LEADERSHIP CODE ACT BY FORMER PRIME MINISTER EDWARD NATAPEI AND HIS COUNCIL OF MINISTERS

The former Prime Minister Edward Natapei and his Council of Ministers had an obligation to comply with section 3 of the GCT Act as stated above.

Their failure to do so has also caused them to be in breach of the Leadership Code Act (LCA). Section 29 (d) of the LCA states that a leader who fails to abide by the provisions of an Act that provides for government contracts and tenders is in breach of the Code.

6.3 Finding 3: BREACH OF SECTION 30 OF THE LEADERSHIP CODE ACT BY H & D (PACIFIC) CONSULTANTS

Section 30 of the Leadership Code Act provides that r`(1) A person other than a leader who: (a) fakes part in conduct that is a breach of this Code; or obtain a benefit, directly or indirectly, from an act or commission that is a breach of this Code; is guilty of a breach of this Code".

On 2nd April 2004 a Memorandum of Agreement between former Prime Minister Edward Natapei and H & D (Pacific) Consulting Group for the revival of the Vanuatu Holdings Limited was signed (Annex B - page 9 to 5) without complying with section 29 of the Leadership Code Act as mentioned above. As such, by taking part in the signing of a contract that was void and of no effect due to the failure to abide by section 3 of the GCT Act, H & D (Pacific) Consultants were in breach of section 30 of the Leadership Code Act.

6.4 Finding 4: BREACH OF THE FINANCIAL REGULATIONS BY FORMER PRIME MINISTER EDWARD NATAPEI AND HIS COUNCIL OF MINISTERS

Regulation 5.1 (3) of the Financial Regulations outlines the procedure to be used when purchasing services that are greater than VT 5 million - the Government Contracts and Tenders Act 1998 and the procedures set out in the Tenders Regulations must be followed.

Furthermore, Regulation 5.1 (5) of the Financial Regulations further states that the purchases of goods and services must not be divided up in order to fit within the lower category outlined in subsection 3.

It was found in this investigation that the former Prime Minister Natapei and his Council of Ministers did not adhere to the above regulations and have therefore committed an offence under the Financial Regulations. They should therefore be dealt with in accordance with Regulation 14.1 in Part 14 of the Financial Regulations.

7. RECOMMENDATIONS

Due to the above findings, the Ombudsman makes the following recommendations.

7.1 The former Prime Minister Edward Natapei and his Ministers should be dealt with in accordance with Part Six of the Government Contracts and Tenders Act 1998, Part 6 of the Leadership Code Act and Part 14 of the Financial Regulations of Vanuatu.

7.2 Section 46 (1) (f) of the Public Finance and Economic Management Act 1998 should be amended so that it specifically states that "grants" received by way of donor aid should be deemed as public money and be subject to all laws and regulations governing the use of public moneys.

7.3 The former Prime Minister Edward Natapei must personally refund the amount of money that was used by the H & D (Pacific) Consultants during its six months consultancy period as the agreement that he had entered into on behalf of the Vanuatu Government was void.

7.4 H & D (Pacific) Consultants must refund the amount of money (from the VT8 million grant from the Chinese Government) that was used by them during the six months consultancy period as the agreement signed between them and the former Prime Minister was void. Further, they did not fulfil the work they were engaged to do as per the Terms of Reference of the agreement.

7.5 The current Prime Minister's Ministry must refund the amount of money taken from the VT 8 million grant from the Chinese Government for Vanuatu Holdings Limited that was used for other purposes.

7.6 The Attorney General must institute a civil proceeding against the former Prime Minister Edward Natapei and H & D (Pacific) Consultants to recover the VT8 million that was misused by them.

Dated this 2nd day of May 2008

Peter K. TAURAKOTO 
OMBUDSMAN OF THE REPUBLIC OF VANUATU

8. INDEX OF APPENDICES 

A Relevant laws
B Copy of contract signed between the Honourable Prime Minister Natapei and H & D (Pacific) Consultants
C Copies of letters of advice from the State Law Office dated 10 July 2004 and 24 June 2004
D Copy of Honourable Natapei's letter to Mr Jean Sese dated 15 June 2004
E Copy of Mr Jean Sese's letter to Mr Mark Bebe dated 16 June 2004
F Mr Aaron Hanghangkon's letter to Honourable Barak Sope, Acting Prime Minister dated 29 June 2005
G Prime Minister Circular No 1 of 2004
H Copy of letter from Mr Aaron Hanghangkon to Honourable Rialuth Serge Vohor dated 17 August 2004
I Interim Budget of Vanuatu Holdings Limited from 1 April to 30 September 2004
J Press Release - Prime Minister launches the Vanuatu Holdings
K Front page of the Meridian Consulting report on the Revival of Vanuatu Holdings Limited

[PacLII's editorial note: please refer to the downloadable PDF at the top of this page for the full text of the Appendices]