National Court of Papua New Guinea

(3) Expenditure of monies referred to in Subsection (1) by or on behalf of an affected Local-level Government or affected Provincial Government and the implementation of grants referred to in that subsection shall be made only-

• (a) in accordance with development plans submitted by the relevant Local-level Government or Provincial Government; and
  
• (b) in accordance with the approval of the Expenditure Implementation Committee for the petroleum project in question.
  

(4) The Expenditure Implementation Committee shall be responsible for-

• (a) monitoring budgets and timetables for construction and implementation of grant and benefit expenditure on behalf of affected Local-level Governments and affected Provincial Governments, and approving such expenditure; and

(b) monitoring expenditure made pursuant to Section 219C of the Income Tax Act 1959 to ensure that project funded pursuant to that section comply with the development plans submitted by the relevant Local-level Government or Provincial Government; and

(c) monitoring the program of ongoing projects for expenditure of monies in accordance with this section.

(5) Notwithstanding the provisions of Section 219C of the Income Tax Act 1959, no expenditure by a licensee in respect of a petroleum project shall fulfil the requirements of that section unless approved by the Expenditure Implementation Committee of the petroleum project in question.” (Underlining is mine).

5. The plaintiff alleged that it submitted proposals to the EIC for the subject projects and the EIC approved them. In 2011, a sum of K9, 000,000.00 was transferred to the first and second defendants to disperse to it and they paid K5, 500,000.00 and withheld K3, 500,000.00 which is outstanding. It alleged that the first and second defendants wrongfully withheld this sum.

6. In 2012 a further K6, 000,000.00 was released by the fifth and sixth defendants to be paid to it, however, the first and second defendants withheld it. It alleged that the total withheld and owing is K9, 500,000.00.

7. The first and second defendants denied liability and argued that they have the requisite authority to withhold the funds and reasons to justify it. The reasons are:

• First, while the EIC is the authorised body to approve funding, and the funds are paid under the LBSA, there is no contract between the plaintiff and the defendants stipulating the rights and obligations of the parties as to who is responsible for managing the funds after approval by the EIC, how the funds are to be accessed by the successful applicant (contractor), acquittal of the funds and reporting conditions of the progress of the projects. In the event of a breach, there is no contract in place to enforce.
  
• Secondly, the work is incomplete and sub-standard.
  
• Thirdly, the plaintiff failed to acquit the funds and provide a report on the progress of the projects.
  
• Fourthly, the plaintiff is not a landowner company, as it claims. The company records from the Companies Office shows that it is owned by a family, the shareholders being Mr. Bomsy Boviro and his wife Helen Boviro and they are the only signatories to its account held at BSP Bank, Port Moresby.
  
• Fifthly, the National Executive Council decided and directed that upon approval of projects for funding by the EIC, the funds will be transferred to trust accounts for Provincial Governments where the projects will be undertaken and that the Provincial Administrators will be the signatories to the accounts.
  
• Sixthly, the contracts will be tendered and awarded in compliance with the Public Finance (Management) Act, 1995.
  

8. Evidence was led at trial from the Provincial Administrator Mr. Marc Orisuru Avai and Deputy Provincial Administrator Mr. Christopher Uari Haro to establish these matters. But no witnesses were called by the third to the ninth defendants to give evidence in relation to the functions of the EIC and the procedure for obtaining approval of funds for projects in the affected area.

9. The plaintiff relied on section 178 (supra) and submitted that the EIC is the sole authority to screen project proposals and approve funding for projects in the affected area. This approval is not subject to further approvals by any person or authority, eg, approval under the Public Finance (Management) Act, 1995 for awarding of contracts.

10. As it was pointed out, the first and second defendants denied liability on the grounds set out at [7] above. However, they did not specifically address the application of section 178 in their submissions.

11. In my view the application of section 178 is pivotal to the entire dispute. From my reading of this provision, the key words in this provision are “development plans”. Section 178 (3) (a).

12. This means that the “expenditure of monies” and “implementation of grants” (IDGs) are made based on development plans. The development plans are submitted by or must come from the relevant Local-level Governments or Provincial Governments. For instance, in this case the Local-level Government or Provincial Government must have a plan to build a road, or water supply, or school, or health centre or all of them in the pipeline project area.

13. Where it plans to engage in such a project, it must prepare a development plan and submit to the EIC. I should add that the development plan should not be confused with a project proposal. They are two different documents. One is a plan and the other is a proposal.

14. Secondly, in section 178 (3) (b) the key word is “approval”. In my view this means that the expenditure of funds or grants will be considered and approved by the EIC based on the development plan submitted by the Local-level Government or Provincial Government.

15. Finally, in section 178 (4) (a) the EIC is responsible for monitoring budgets and timetable for construction and implementation of grant and benefit expenditure on behalf of the affected Local-level Governments or affected Provincial Governments and approving such expenditure.

16. There is no mention of approval of awarding of contract to an applicant for project and funding by the EIC. Neither is there any reference to a “project proposal” in this provision. So where is the authority of the EIC to consider and approve “project proposal”? I am unable to find any in this provision.

17. I come to the conclusion that contrary to the plaintiff’s strong argument that the EIC has the requisite authority to screen project proposals and approve funding for projects in the affected pipeline area, I find none.

18. The term “project proposal” appears in Clause 13.1 (d) of the LBSA and appears to be the basis for the plaintiff’s argument that the EIC is the authorised body to consider project proposals and approve funding. Clause 13.1 states:

“13. IMPLEMENTATION MECHANISM

The parties acknowledge the following understandings reached by their representatives to the UBSA with regard to the Expenditure Implementation Committee (‘EIC’).

(a) That EIC plays an important role in implementing socio-economic and infrastructure projects in compliance with the requirements of the Public Finance (Management) Act 1995 and the Act.

(b) The parties agree that the EIC Guidelines are important in the implementation of the infrastructure projects either agreed under the Licence Based Benefits Sharing Agreements or any other infrastructure projects.

(c) The EIC will process and oversee the implementation of BSA infrastructure projects approved under each Licence Based Benefits Sharing Agreement.

(d) The project proposal submitted for funding under EIC Budget will only be approved by the EIC for expenditure when they are compatible with the EIC Guidelines and the Medium Term Development Strategy that is administered by the Department of National Planning and District Development and DPE.

(e) The Parties hereto agree that the EIC will be the authority responsible for the implementation of BSA infrastructure projects and that all projects to be undertaken are subject to the availability of funds.

(f) Where there is a change in law in relation to the EIC or as a result of a review under Clause 9, the Parties agree to work with and support any alternative implementing agency appointed by the State to succeed EIC. The State will ensure that this alternative implementing agency complies with the requirements of this Clause.”

19. Clause 13.1 (a) is quite clear. Where the EIC implements socio-economic and infrastructure projects, it must comply with the Public Finance (Management) Act, 1995 and the Oil & Gas Act, 1998.

20. Clause 13.1 (c) clarifies the role of the EIC with regard to the Benefit Sharing Agreement (“BSA”) infrastructure projects. It is responsible for processing and overseeing the implementation of projects approved under each LBSA.

21. Under clause 13.1 (d) the proposals for the projects are submitted for funding under the EIC Budget and will be approved when they are compatible with the EIC Guidelines and Medium Term Development Strategy administered by the fourth and eighth defendants.

22. In my view clause 13.1 (d) does not state that the EIC is the sole authorised body to consider project proposals and approve funding for projects. On the other hand, the EIC only approves the project proposals that are within the EIC Budget and in line with the guidelines and strategy of the National Government. In practical terms for instance, there would be no point in the EIC approving funding for projects that are beyond its budget or not in line with the guidelines and strategy of the National Government.

23. Again, there is no mention of awarding of contracts to successful applicants for projects. But to my mind, the intention of the LBSA in clause 13.1 (a) is very clear. It is intended to capture this requirement by making reference to the compliance requirements under the Public Finance (Management) Act, 1995. This means that the tender and awarding of contracts to successful applicants must go through the procurement procedure under Part VII of the Public Finance (Management) Act, 1995.

24. In its Decision No. 96/2010 the National Executive Council (“NEC”) saw the need when it was considering options available to control and manage the use of these funds back in 2010, especially where it had just approved payment of K1.2 billion as IDG funds to the beneficiaries within and along the LNG project area.

25. This is plain from Attachment “A” of the Decision where it stated:

“SCREENING AND PAYMENT OF IDG FUNDS

It is important to note that, although the State committed to provide K1.2 billion in IDG for the LNG project areas, no mechanism has been established to manage and monitor application of this fund.”

26. This is further clarified and put to rest two years later by its subsequent Decision No. 49/2012 where it:

“6. approved that the screening and prioritisation of project proposals must be done at the Provincial and District levels in consultation with the “affected Local Level Governments”

7. approved that after screening and prioritisation the proposals are to be submitted to the Expenditure Implementation Committee for final approval. Once approval is granted, contracts will be tendered and awarded in compliance with the Public Finance (Management) Act, 1995” (Underlining is mine).

27. In this case the first problem with the plaintiff’s claim is that there is no evidence of a development plan submitted by the Gulf Provincial Government for a plan to build a Provincial Administration Office Complex in compliance with section 178 (3) (a) of the Oil & Gas Act, 1998. Similarly, there is no evidence of a development plan for the Water Supply project. So there is no evidence to support the plaintiff’s assertion that the EIC unlawfully approved the subject projects.

28. The second problem is that the EIC does not have the sole authority to approve projects and funding for projects. The third problem is that there is no evidence that the plaintiff complied with the procurement procedure under Part VII of Public Finance (Management) Act, 1995.

29. The final problem is that there is no evidence of acquittals and progressive reports in relation to the status of these projects simply because the procurement procedure for tender and awarding of contracts under the Public Finance (Management) Act, 1995 have not been complied with.

30. I conclude that the awarding of the purported contracts for these two projects to the plaintiff by the EIC was done in breach of the section 178 of the Oil & Gas Act, 1998 and the Public Finance (Management) Act, 1995. They are null and void and of no legal effect.

31. It follows the plaintiff is not entitled to the relief sought. The proceeding is dismissed with costs to the first, second, third and fourth defendants.

Judgment and Orders accordingly,
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Kombri & Associates: Lawyers for the Plaintiff
Ketan Lawyers: Lawyers for the First & Second Defendants
Wantok Legal Group: Lawyers for the Third & Fourth Defendants
Solicitor-General: Lawyers for the Fifth to Ninth Defendants