ANNEX II
Yumi Yet Bridge Development Programme,
Papua New Guinea
Papua New Guinea ranks as one of the poorest
of the Pacific nations in UNDP's Human Development Index. Unemployment
is running at 80%, and 37% of the population lives below the poverty
line. Its debt is currently running at 70% of GDP. So severe is
the economic crisis gripping the country that schools around the
country had to close early at the end of last year because they
had run out of money.[56]
On the face of it, the £35.7 million guarantee
issued by the ECGD to Mabey and Johnson for the building of 166
Compact 2000 bridges, under the Yumi Yet Bridge Development Programme,
should be a project that supports the UK government's sustainable
development commitments. However, within Papua New Guinea the
bridge project has been highly controversial. A closer examination
of the project moreover, reveals several concerns which suggest
that the ECGD's commitment to sustainable development and to eliminating
corruption are, in practice, still falling short of the mark.
These concerns are as follows:
— There was no tender for the bridges,
despite tendering being a legal requirement under PNG law. As
a result, according to local experts, including the World Bank's
lead transport specialist for East Asia, Hatim Hajj,[57]
the bridges in the Yumi Yet deal are overpriced and could have
been procured from a PNG firm or from New Zealand for much less.
A local bridge-building firm, Hornibrooks, asked to tender but
was refused. It says it could have provided the bridges at 26%
less cost. The British company involved, Mabey and Johnson, has
told The Corner House that there was no tender because no other
company could offer the whole financing package that it, through
the ECGD, was able to offer. This raises the question of whether
the ECGD, by backing projects that do not have competitive and
transparent tender processes, is hindering governments in Southern
countries from getting the best value in procurement.
— The Department of Works and Implementation
overseeing the project is plagued by corruption and financial
mismanagement. An investigation by PNG's Auditor General, published
in July 2001, found that: the department was "grossly mismanaged"
with "poor corporate governance practices and systems prone
to high risk of white collar crime"; there were "a very
large number of instances of financial mismanagement, fraud, misuse
of public funds, breach of procedures and abuse"; and that
the department presented "a very high-risk environment to
the Government".[58]
The Auditor General estimated that the Department had lost £16.5
million over a period of three years through corruption, fraud
and financial mismanagement. Given the fact that the ECGD's new
enhanced due diligence procedures are supposed to take into account
the track record of buyer institutions on corruption, the ECGD's
support for a project that is to be managed by a department with
such a well-documented track record of corruption is questionable.
— The appropriateness of export credit
financing for the project has been called into question. Both
AusAid, Australia's government aid programme, and the EU have
substantial grant-based infrastructure programmes in PNG. The
first secretary for civil engineering at the EU delegation in
PNG has told The Corner House that "using loans to finance
road infrastructure, or worse, maintenance, is not supported by
us, except if there is a clear return on investment available".[59]
The ECGD meanwhile made no attempt to contact the EU delegation
or other donor agencies, such as the World Bank, in Papua New
Guinea to see how the project fitted with existing infrastructure
programmes, and to ensure its local relevance. According to the
EU in PNG, "there was no communication neither on technical
nor on financial matters, where we certainly could have given
some advice".[60]
— The bridge project was not based
on a careful analysis of need and or done with any community participation—a
factor vital to ensuring the effective maintenance of infrastructure.[61]
Critics in PNG have alleged that, in fact, the project, which
promised a bridge for every electorate, was part of an electoral
gamble by the previous government in the run up to an election.
There have been some suggestions that, because the PNG government
has used up its available money on expensive road and bridge projects
such as this, it is finding it difficult to put up counterpart
funding for World Bank and ADB infrastructure projects that have
been designed on the basis of the careful evaluation of the actual
needs of, and in consultation with, local communities.[62]
— The bridge programme was not budgeted
for by the outgoing government, and has caused the new government
considerable financial problems. The current finance minister,
Bart Philemon, has called the former government's commitment to
unbudgeted political projects, including the Yumi Yet project,
"criminal".[63]
The current government has suggested that it may have to cut back
on the Yumi Yet project in order to divert money into other projects
of more urgent priority.[64]
It has also suggested that its current financial crisis has arisen
in part out of servicing loans for the Yumi Yet project.[65]
— There have been unsubstantiated allegations
that the UK company involved paid bribes to local ministers—allegations
that the company has strongly denied. These allegations are specific:
that 15 million kina (£2.7 million) was paid to the ruling
party of the time, the People's Democratic Movement, and 10 million
kina (£1.8 million) to two ministers responsible for ordering
the bridges. Several MPs and politicians from PNG, including the
former mining minister of the outgoing government, have called
for investigations to ensure there was no corruption in the project.[66]
The Corner House has been given to believe that the PNG Ombudsman
may be considering investigating the case for corruption. The
Corner House believes that it is in the public interest to raise
these allegations because they have come to our attention from
credible sources within the country. It is not within our ability
to ascertain whether they have any substance or not, and in any
case, we believe that this is the duty of the ECGD and UK law
enforcement agencies.
This case study suggests strongly, as The Corner
House noted in its submission to the Environmental Audit Committee
that among other things, it is vital that the ECGD:
— Introduce a requirement for competitive
tender in all appropriate instances.
— Establish benchmarks for institutional
integrity for buyer institutions, which must be met before a project
is supported.
— Ensure, as part of its due diligence
procedures, that it seeks advice from donor agencies within the
country as to the appropriateness of the project to be supported.
— Liase with local law enforcement
and investigatory bodies where allegations of corruption are raised.
56 James Chin, "PNG on the brink of economic
collapse", The Canberra Times, 14/11/01. Back
57
Email to The Corner House from Hatim Hajj, Lead transport specialist
for East Asia, World Bank, 3/12/02. Back
58
Auditor General's Office, Department of Works and Implementation.
Report by the Auditor-General. Investigations into allegations
of financial mismanagement, fraud and misuse of resources,
26 July 2001. Back
59
Email from Robert Ziegler, first secretary for civil engineering
at the EU delegation in PNG, 25/11/02. Back
60
Email from Robert Ziegler, 26/11/02. Back
61
See Department for International Development, "Making
Connections: Infrastructure for Poverty Reduction", Consultation
Document, August 2002, p 13, paras 3.8 and 3.9. Back
62
PNG Post-Courier, 14/11/01, "Morauta under attack". Back
63
PNG Post-Courier, 14/11/01, "Morauta under attack".
Back
64
PNG Post-Courier, 24/10/02, "Yumi bridges cut flagged". Back
65
PNG Post-Courier, 25/11/02, "Kina support high on
budget priority". Back
66
The National, 19/11/02, "Demand for Yumi Yet bridges
overwhelming"; PNG Post-Courier, 30/8/02, "Contracts
padded: MP". Back
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