Thursday, January 20, 2011

Papua New Guinea powerbrokers snap up property

By PAUL CLEARY of The Australian   

WHEN Papua New Guinea's petroleum minister bought a Cairns McMansion in 2001, the deal was so ``quick and easy'' that the agent selling the property thought he was dealing with the wealthy owner of a coffee plantation.
Despite buying in the depths of the global financial crisis, William Duma didn't aggressively negotiate for a better price.
He paid $585,000 for the 330sq m, five-bedroom, two-bathroom home with water views after securing the services of a Cairns agent to do the deal.
``I was thinking, where did he get the money from? It was all too quick and easy,'' says real estate agent Shane Trimby, who sold the property.
Duma was involved in a much more lucrative business than coffee. As petroleum minister in the government led by PNG's 74-year-old founding father Michael Somare, Duma is the country's oil supremo. At the time of the purchase he was negotiating with ExxonMobil's consortium to build a mammoth $US15 billion liquefied natural gas project.
As PNG looms as an oil-rich country verging on state failure, some of its political elite have been quietly building up assets offshore, coinciding with huge development of the country's gold, petroleum and copper riches.
In the past five years, key political figures have invested $6 million in Cairns and Brisbane property. Some have their wives and children based in Australia and shuttle regularly between Port Moresby and Cairns.
Some of these politicians may have exploited an exemption in Australia's foreign investment regime that allows non-residents to buy new properties.
In 2008, foreigners used this exemption to buy $15 billion worth of residential real estate.
PNG is emerging as an extreme case of the two-speed economy, with boom conditions in Port Moresby driven by liquefied natural gas and other resource projects, while the rest of the country sinks deeper into poverty and state dysfunction.
While proving ineffective at running the country, Sir Michael and his family have shown themselves adept at buying real estate and hanging on to power.
After a no-confidence motion back in July, Sir Michael suspended parliament for the rest of the year, and then agreed to stand down in December pending an investigation into allegations of misconduct. But PNG's ``grand chief'' still remains very powerful, with his son Arthur and other party lieutenants in control.
The push to remove Somare reflects growing concern among PNG's elder statesmen over Somare's handling of important developments. The LNG project is one, but more controversial is China's Metallurgical Construction Corp nickel mine in the Ramu Valley, which has been given special concessions to dump toxic tailings into the sea.
An investigation on behalf of a major oil company found it cost about $500,000 in payments to landholders and other interests to get an oil permit approved. The company that commissioned the research decided not to invest in the country.
Another emerging concern is that vast tracts of rainforest are being leased to foreign logging companies in opaque arrangements involving corporate fronts controlled by foreign interests. As much as 10 per cent of the country has been handed over through these arrangements.
The Somare family made its first real estate purchase in Cairns in 2007, when Michael Somare bought an apartment in Parramatta Park north of the city for $349,000. The following year, his Australian-educated son, Arthur, minister for public enterprises, bought a home at Trinity Beach north of Cairns for $685,000. Somare's daughter, Dulciana Somare-Brash, then bought a $425,000 Trinity Beach home, also in 2008.
The purchases by Somare's children followed his return to power in August 2007. Arthur Somare's home is listed under his name in the phone book and he returns there regularly.
A Somare spokesman declined to respond to questions about how these properties were purchased.
But Duma tells The Australian he was ``quite well off'' before entering parliament, having been a partner in the Port Moresby office of the law firm Blake Dawson Waldron.
``I purchased a property in Cairns using my personal savings in Port Moresby. I obtained foreign exchange approval from the PNG Central Bank to remit funds to my Australian solicitor's trust account,'' Duma says.
``My Australia solicitors also obtained Foreign Investment Review Board approval before I could purchase the property. There is a clear paper trail showing the origin of the funds which I used to purchase the property.''
Duma says he declared the property to the Ombudsman Commission, which serves as ``the watchdog for leaders in PNG''. But the commission does not publicly release this information.
Duma acknowledges ``there may be a perception that because I am the Minister for Petroleum and Energy, I may have received some form of benefit from ExxonMobil''.
``All that I can say is that I was a wealthy person before I became a politician. The funds I used were from my savings account.''
Duma denies he was ``on the take'' and says ExxonMobil was very rigorous in its running of the project.
``They want to do it the ExxonMobil way -- very bureaucratic, very thorough.''
Businessman Peter Aitsi, who heads the PNG branch of Transparency International, a global anti-corruption watchdog, says MPs are not required to tell the public about these purchases.
``Given we have a general idea of the salary levels of MPs, this raises questions of how they have financed these purchases'' Aitsi says.
``For the man in the street, this should raise serious questions. So let's make this information public.''
Some of Somare's opponents, however, are also among the biggest property owners in Australia. Key opposition figure Mekere Morauta has built up even more assets than Somare from the profits of his fishing business.
Land title records show that Morauta's Australian wife, Roslyn, bought a $3.6m riverside mansion in the Brisbane suburb of New Farm in 2008. This followed a $910,000 purchase of another New Farm property in 1999.
Former minister Allan Marat bought a Brisbane apartment in 1996 for $400,000 and then in 2005 bought a $240,000 apartment in Surfers Paradise.
Marat resigned in May last year after making comments critical of the nickel mine and the benefits for PNG from the LNG project. A spokesman for Marat -- his son Immanuel -- says the properties were acquired with proceeds from Marat's Port Moresby law firm. Immanuel Marat says the purchases have been fully disclosed.
Australia's anti-money laundering body, Austrac, declines to comment on any evidence it may have obtained on real estate purchases by foreign politicians from neighbouring countries.
A spokesman says secrecy provisions prevent it from making any comment.
While some of PNG's political elite are accumulating wealth, life expectancy is falling and infant mortality is rising as the government becomes increasingly dysfunctional, unable to deliver basic services to its poor.
The LNG project is also fanning conflict as landholder groups squabble over the spoils. Earlier this year there was as shoot-out at Port Moresby airport between rival factions of landowners.
AusAID says about 40 per cent of PNG's population lives in poverty, below the international benchmark of less than $US1 a day. HIV-AIDS is rising inexorably. The latest estimate is almost 100,000 sufferers -- 2.56 per cent of the population.
There is no evidence that Duma, the Somare family or Marat acquired their properties inappropriately, but the federal government has been pushing PNG to consider adopting an anti-corruption regime known as the ``extractive industries transparency initiative''.
This program is designed to produce a set of double accounts showing what the government receives from oil companies and what the companies pay.
The initiative has in-principle support from 32 resource-rich nations, with PNG remaining a notable exception. East Timor, which only became independent eight years ago, has become the third country to fully comply with the demanding regime.
But Australia's Oil Search, one of PNG's main oil developers for the past 20 years, is not a member of the initiative because the PNG government does not support it. Oil Search operates the Kutubu oilfield in the southern highlands and is a minority shareholder in the LNG project.
A spokesman for ExxonMobil says the company has never given any special benefits to Duma or Arthur Somare. He says there is no connection between their real estate purchases and negotiations on the LNG project.


 Paul Cleary
Senior Writer
The Australian

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