REPUBLIC OF VANUATU

OFFICE OF THE OMBUDSMAN

PUBLIC REPORT

ON THE

government contract
granted to ifira wharf &
stevedoring (1994) ltd

26 August 2002

0197/2002/10

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PUBLIC REPORT
ON THE
GOVERNMENT CONTRACT GRANTED
TO IFIRA WHARF & STEVEDORING (1994) LTD

SUMMARY

Outline of events (see further page 5)

In June 2000, Ifira Wharf and Stevedoring (1994) Ltd ('IWS') paid an amount of VT13.9 million to the Vanuatu Government, reportedly as dividend in respect of the Government's shareholding in IWS. In July 2000, the Council of Ministers decided to renew the existing contract with IWS for stevedoring services for 15 years, without reviewing the terms of the contract. This was notwithstanding advice from the Development Committee of Officials that the contract for operation of stevedoring services at Ifira Wharf be put to tender for three years after reviewing the existing contract.

The Ministry for Infrastructures and Public Utilities and the Central Tenders Board subsequently confirmed that no tender process was undertaken in relation to the stevedoring contract. The State Law Office stated that advice had been given both to the Hon. Reginald Stanley and the Council of Ministers that the contract with IWS could not legally be extended and that the provision of stevedoring services must be put to tender in accordance with the Government Contracts & Tenders Act.

Findings (see further page 7)

∑	There is evidence that the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley acted unlawfully, committing breaches of the Government Contracts and Tenders Act, Financial Regulations of the Republic of Vanuatu and the Leadership Code Act.

∑	There is also evidence that all members of the Council of Ministers at the time committed breaches of the Leadership Code Act.

∑	There is no presently enforceable contract for the provision of stevedoring services at Ifira Wharf.

∑	IWS acted unreasonably when it ended into a purported contract for stevedoring services that was legally void.

∑	The Ombudsman cannot determine whether there is any link between the decision by the Government to extend the contract to IWS for 15 years and the decision by IWS, shortly beforehand, to pay a dividend of VT13.9 million to the Government.

∑	There is confusion about the Government's actual shareholding in IWS and a planned transfer of part of its shareholding to Vila Municipality, SHEFA and TAFEA provinces has not occurred.

Recommendations (see further page 10)

The Ombudsman recommends that the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, be prosecuted without delay for multiple breaches of Government Contracts and Tenders Act, Financial Regulations of the Republic of Vanuatu and the Leadership Code Act. Prosecution of all members of the Council of Ministers at 13 July 2000 for breaches of the Leadership Code Act should also be considered.

The Ombudsman also recommends that stevedoring services at Ifira Wharf should be properly put to tender, that uncertainly about the Government's present and proposed shareholding in IWS be resolved and that the management of IWS familiarise itself with legal requirements for any future government contract.

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TABLE OF CONTENTS

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

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1.	JURISDICTION

1.1	The Constitution and the Ombudsman Act and the Leadership Code Act allow the Ombudsman to look into the conduct of government, government agencies, related bodies, and Leaders.

1.2	Under section 1 of the Ombudsman Act, a 'government agency' includes any company incorporated under the Companies Act in which the Government has an interest, such as Ifira Wharf & Stevedoring (1994) Limited ('IWS').

1.3	The Ombudsman can also enquire into the conduct of the Hon. Reginald Stanley, the then Minister of Infrastructure & Public Utilities, and the then Council of Ministers, as they were all 'leaders' under article 67 of the Constitution and the Leadership Code Act.

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, Ombudsman Act and Leadership Code Act.

2.2	The scope of this investigation is to establish the facts about the decision by the Council of Ministers purporting to grant an extension of 15 years to the contract allowing IWS to operate Ifira Wharf, without seeking tenders as required by law.

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

3.	RELEVANT LAWS, REGULATIONS AND RULES

Relevant parts of the following laws are reproduce din Appendix L

OMBUDSMAN ACT NO. 27 OF 1998
GOVERNMENT CONTRACTS AND TENDERS ACT NO.10 OF 1998
FINANCIAL REGULATIONS OF THE REPUBLIC OF VANUATU
CONSTITUTION OF THE REPUBLIC OF VANUATU
LEADERSHIP CODE ACT NO.2 OF 1998

4.	OUTLINE OF EVENTS

4.1	On 16 June 2000, IWS made a payment of VT13.9 million to the Government of the Republic of Vanuatu. This payment was reported as representing a dividend to the Government of profits for the previous six months, determined by reference to the Government's beneficial shareholding in the company - said to be 49%.

4.2	On 28 June 2000, the Development Committee of Officials met in a normal session and, after considering a Council of Ministers paper (Annexure E) in relation to the stevedoring contract for Ifira Wharf, made various recommendations (see Annexure D) including:

(a)	That stevedoring services for Ifira Wharf should be tendered out for a period of three years. This three year term would allow Ports and Marine to enter into a new contract for stevedoring in Port Vila and Luganville after being corporatised.

(b)	That the Government's 49% shareholding should be re-allocated:

Government	19%
Port Vila Municipality	10%
SHEFA province	10%
TAFEA province	10%

(c)	The existing contract for stevedoring services should be reviewed.

4.3	On 13 July 2000, the Council of Ministers met for their ordinary meeting No. 97 and decided (see Annexure F):

(a)	That the existing contract be renewed for a further period of 15 years, without being reviewed;

(b)	That the Government's 49% shareholding should be re-allocated:

Government	34%
Port Vila Municipality	5%
SHEFA province	5%
TAFEA province	5%

(c)	That the State Law Office was to be instructed to prepare an instrument documenting the extension for signing.

4.4	In a letter dated 8 January 2001, the Ministry for Infrastructures & public Utilities confirmed to the Ombudsman that there 'was no tender for the Stevedoring at Port Vila Wharf' (Annexure B).

4.5	In a letter dated 8 January 2001, Ifira Trustees Limited disputed the jurisdiction of the Ombudsman to investigate the affairs of IWS 'as the nature Company of chair [sic] is private' (Annexure C).

4.6	In a letter dated 26 January 2001, the Central Tenders Board advised the Ombudsman that the Board had no records on file relating to any tender process for Ifira Wharf stevedoring (Annexure G).

4.7	By a letter dated 25 July 2001, the State Law Office advised the Ombudsman that it 'did not prepare any documents or instruments for execution last year by the Maautamate Government in relation to Ifira Stevedoring' (Annexure H).

4.8	In a letter dated 13 December 2001, the State Law Office further advised the Ombudsman that advice had been given both to the Hon. Reginald Stanley and the Council of Ministers that the contract with IWS:

∑	Could not legally be extended; and

∑	That the provision of stevedoring services must be tendered in accordance with the Government Contracts & Tenders Act (Annexure I).

4.9	In a letter dated 14 January 2001, the Ministry for Infrastructures & Public Utilities made the following comments in relation to the extension to IWS (Annexure J):

(a)	The extension of the concession contract to IWS-94 appear [sic] to have been executed on the decision of the previous Vanuatu Government through the Council of Ministers;

(b)	The execution of the CoM decision was done without first obtaining the State Law Office's comments of the Final Draft;

(c)	It has always been the general view that precedents were set with UNELCO and Telecom Vanuatu extension agreements where s7 of the Act has not been followed.

While this Ministry does not wish to steer away from the rule of law I believe it would be wise to bring to your awareness that we are dealing with a full fledged Ni-Vanuatu owned company that is managed by the very land owners of the site where the main wharf and facilities are located.

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. Also a working paper was provided prior to preparation of this public report to give the individuals mentioned in this report another opportunity to respond.

5.2	No responses were received to the working paper.
6.	FINDINGS

6.1	Finding 1:	The Ombudsman finds there is evidence that the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, acted unlawfully in obtaining the extension of the Ifira Wharf contact without complying with the provisions of the Government Contracts and Tenders Act.

6.1.1	There is evidence that the Hon. Reginald Stanley breached the following provisions of the Government Contracts and Tenders Act:

Section	Provision	Penalty on conviction	
Section 3(1)	All Government contracts must be in
writing	Fine nor exceeding VT 1 million or 
imprisonment not exceeding one 
year	
Section 3(3)(d)	Must obtain legal advice on the legal
aspects, implications and appropriateness 
of the contract 	Fine not exceeding VT 1 million or
imprisonment not exceeding one
year	
Section 3(3)(f)	Must use a competitive and transparent
process when deciding to whom the
contract should be awarded, including
tender processes when prescribed	Fine not exceeding VT 1 million or
imprisonment not exceeding one
year	
Section 3(3)(g)	Must include certain information with a
written submission to Council of Ministers,
including draft of proposed agreement
and certification by Attorney-General that
procedures required by law have been
followed	Fine not exceeding VT 1 million or
imprisonment not exceeding one
year	
Section 8	Must comply with the tendering process
specified in the Finance Regulations	Fine not exceeding VT 1 million or
imprisonment not exceeding one
year	

6.2	Finding 2:	The Ombudsman finds there is evidence that the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, acted unlawfully by not obtaining three written tenders for the contract.

6.2.1	Regulation 361(3) of the Financial Regulations of the Republic of Vanuatu states that, where the cost of services exceeds VT 1 million, at least three written tenders must be obtained and submitted to the Central Tenders Board for evaluation and awarding of the contract. The Central Tenders Board has no awarding of being involved with any tender process for stevedoring at Ifira Wharf.

6.3	Finding 3:	The Ombudsman finds there is evidence that members of the then Council of Ministers, including the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, breached the Leadership Code Act.

6.3.1	The following is a list of the breaches of the Leadership Code Act (and, where applicable, the Constitution) for which the Ombudsman has found evidence. The breaches arise from unlawfully entering into the contract with IWS, as well as purporting to ender into a contract that is no longer legally binding:

Section	Provision	Penalty on conviction	
Article 66(1)(d)	A leader must not endanger or diminish 
respect for and confidence in the integrity 
of the Government of Vanuatu	Fine not exceeding VT 5 million or
imprisonment not exceeding 10
years	
Section 3	A leader must avoid behaviour likely to
bring his or her office into disrepute	Fine not exceeding VT 2 million	
Section 3	A leader must ensure that he or she is
familiar with and understands the laws
that affects the area or role of his or her
leadership	Fine not exceeding VT 2 million	
Section 13(1)(a)	A leader must comply with and observe
the law.	Fine not exceeding VT 5 million or
imprisonment not exceeding 10
years.	
Section 28, 29	Failing to comply with another enactment
is a breach of the Code.	Fine not exceeding VT 2 million.	

6.3.2	Additional penalties such as dismissal, disqualification and loss of employment benefits may also be imposed by the Court on conviction.

6.3.3	Section 16 of the Government Contracts and Tenders Act makes it clear that the law intends leaders to be subject, on conviction, to penalties under the Government Contracts and Tenders Act, as well as penalties under the Leadership Code Act.

6.3.4	A list of the members of the Council of Ministers as at 13 July 2000 (the date of the decision) is included as Annexure K.

6.4	Finding 4:	The Ombudsman finds there is evidence that the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, and the then Council of Ministers, acted unreasonably, failed to take into account relevant consideration by ignoring the recommendations of the Development Committee of Officials and may have taken into account irrelevant considerations in reaching their decision.

6.4.1	The Development Committee of Officials specifically recommended (Annexure D) that the contract should be:

∑	Tendered out;

∑	Awarded for three years only, to facilitate corporatisation of Ports and Marine; and

∑	Reviewed by the State Law Office.

6.4.2	The decision reached by the then Minister and Council of Ministers was contrary to all three of these recommendations and the record of decision (Annexure F) makes no mention of the recommendations having been considered.

6.4.3	The record the decision does not indicate what considerations were taken into account by the Council of Ministers in making its decision.

6.5	Finding 5:	The Ombudsman finds that there is at present no legally enforceable contract for the provision of stevedoring services at Ifira Wharf.

6.5.1	Under section 7 of the Government Contracts and Tenders Act, the purported contract between the Government and IWS is of no effect and not binding on the Government.

6.5.2	This prejudices both the people and businesses of Vanuatu, who rely on orderly stevedoring services being provided in the future, and IWS as a government agency, since the Government can decide to put stevedoring services to tender at any time.

6.6	Finding 6:	The Ombudsman finds evidence that IWS, as a government agency, acted unreasonably by purporting to enter into a contract that was not legally binding.

6.6.1	IWS should have sought advice to ensure that the extension of the contract was valid in order to protect the interests of its shareholders, including the Government.

6.7	Finding 7:	The Ombudsman is unable to say whether the decision by the Government to extend the contract to IWS for 15 years is linked to the decision by IWS, shortly beforehand, to pay a dividend of VT 13.9 million to the Government.

6.7.1	There is only circumstantial evidence, namely the proximity of the payment and the subsequent decision to extend the contract, to support this view.

6.8	Finding 8:	The Ombudsman finds that there is confusion about the Government's actual shareholding in IWS.

6.8.1	While the Government is consistently referred to as having a 49% beneficial shareholding in IWS, records from the Vanuatu Financial Services Commission dated 11 January 2002 (Annexure A) show that the shareholding structure has been, since 4 April 1995:

*	Ifira Trustees Limited	49 'A' class
*	Government of Vanuatu	51 'A' class

No special rights are listed as attaching to these shares and there are no other shares on issue.

6.9	Finding 9:	The Ombudsman finds that the proposed transfer of part of the Government's shareholding to local and provincial governments has not occurred.

6.9.1	The Development Council of Officials recommended that the Government transfer 30%, divided equally amongst Port Vila Municipality, SHEFA and TAFEA provinces. The Council of Ministers resolved only to transfer 15%, again divided equally amongst the three other governments mentioned above. Financial Services Commission records, however, show that no share transfers had taken places as at 11 January 2002 (see Annexure A).

7.	RECOMMENDATIONS

7.1	Recommendation 1:	That the then Minister of Infrastructures & Public Utilities, the Hon. Reginald Stanley, be prosecuted without delay for breaches of:

∑	Government Contracts and Tenders Act No. 10 of 1998;

∑	Financial Regulations of the Republic of Vanuatu; and

∑	Leadership Code Act No.2 of 1998.

7.2	Recommendation 2:	That the Public Prosecutor consider legal action against the remaining members of the Council of Ministers at the time of the decision (listed in Appendix K) for breaches of the Leadership Code Act No. 10 of 1998.

7.3	Recommendation 3:	That the Government put to tender the right to provide stevedoring services at Ifira Wharf, following procedures set down by law. Terms of the proposed contract should be determined in close consultation with the State Law Office.

7.4	Recommendation 4:	That the apparent misapprehension as to the Government's shareholding in IWS be corrected.

7.5	Recommendation 5:	That effect be given to the Council of Ministers' decision to re-distribute part of the Government's shareholding in IWS to Port Vila Municipality, SHEFA province and TAFEA province and the appropriate notifications lodged with the Financial Services Commission.

7.6	Recommendation 6:	That the management of IWS familiarise itself with legal requirements for government contracts and ensure that, in order to protect the interests of its shareholders, any subsequent contracts are enforceable before they are entered into.

Dated the 26th day of August 2002.

Hannington G ALATOA
OMBUDSMAN OF THE REPUBLIC OF VANUATU

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8.	INDEX OF APPENDICES

A	Financial Services Commission profile of Ifira Wharf & Stevedoring (1994) Limited.

B	Copy of letter dated 8 January 2001 from Ministry of Infrastructures & Public Utilities to the Ombudsman.

C	Copy of letter dated 8 January 2001 from Ifira Trustees Limited to the Ombudsman.

D	Copy of record of decision of Development Committee of Officials from normal session meeting held on 28 June 2000.

E	Copy of Council of Ministers paper (undated) tabled by Hon. Reginald Stanley, subject: The Stevedoring Contract - Port Vila Wharf.

F	Copy of record of decision No. 480 of Council of Ministers from ordinary meeting No. 97 held on 13 July 2000.

G	Copy of letter dated 26 January 2001 from Central Tenders Board, Ministry of Finance and Economic Management, to the Ombudsman.

H	Copy of letter dated 25 July 2001 from State Law Office to the Ombudsman.

I	Copy of letter dated 13 December 2001 from State Law Office to the Ombudsman.

J	Copy of letter dated 14 November 2001 from Ministry of Infrastructures & Public Utilities to the Ombudsman.

K	List of Ministers as at 13 July 2000.

L	Relevant laws

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