Public Report on the purchase, repair, management, operation and sale of Prince II - December 12, 1998 - Emalus Campus



Public Report on the purchase, repair, management, operation and sale of Prince II - December 12, 1998

98-25

This report looks into the purchase in 1993 of a ship, Prince II, in breach of all the existing financial procedures and tender rules.  The report also deals with the questionable actions of the people involved in arranging loans and investing funds in a project destined from the outset to be loss-making.

On October 14, 1993, the Government of Vanuatu purchased the Prince II, a cargo vessel.  The purchase was initiated and led by Mr Serge Vohor, Minister for Economic Affairs, his 1st Secretary, Mr Alfred Maliu who was also Vice Chairman of the Board of the Development Bank, the Director of the Cooperatives Department, Mr Robert Figa, the manager of VCMB, Mr Franklin Kere, and the Executive Board of the Development Bank of Vanuatu, namely Mr Petre Malsungai, Mr Amos Andeng, Mr Alfred Maliu.

Around 1991 or 1992, Mr Serge Vohor met with a New Caledonian, ship broker, Mr Franck Gallo who was also an old personal friend, and asked him to find a ship to service the islands of Vanuatu.  Prince II was found in Singapore.  It was just over 43.6 metres in length.  It was significantly bigger than any locally owned vessel.  In August 1993, Mr Vohor addressed the Council of Ministers about purchasing this ship.  No proper survey was conducted before the ship was purchased.

Mr Vohor informed the Council of Ministers that the price was US$560,000 (67.2 million vatu).  (Later, it was increased by 15 million without the authority of the Council of Ministers.)  At the same meeting, although he was provided with information by the Cooperatives Department that the shipping project would be making a loss of 35 million vatu each year, Mr Vohor deceived the Council of Ministers by indicating that the ship would be generating a total income of Vt20 million annually.

Mr Gallo had purchased Prince II for US$ 370,000 and resold it to the Republic of Vanuatu for US$ 670.000 (82 million vatu).  The Government paid 67 million vatu from its budget in October 1993, while the balance of 15 million vatu was borrowed from the Development Bank and paid in February 1994. The loan was for 17 million vatu. The other 2 million vatu was used to set up a company, the Melanesian Shipping Line (MSL), to operate the ship.  MSL was to be managed by Vanuatu Commodities Marketing Board.  The loan of 17 million vatu from the Development Bank was made on the instructions of Mr. Vohor to his political appointee, Mr. Maliu.

After the decision of the Council of Ministers to approve the purchase of Prince II at 67 million, Mr Vohor increased the price by 15 million vatu which was financed by instructing the Vanuatu Development Bank (through his own political appointee Mr Maliu) to grant a loan.

Mr Alfred Maliu as First Secretary, Ministry of Economic Affairs and Vice President of Development Bank, applied for a loan of Vt30 million to complete the payment for the purchase of the ship and for working capital for MSL to operate the ship.  The loan was rejected by the Development Bank, however, on the same day, the board of the bank met and approved the loan.  Mr Maliu was a member of the board; he moved the application and voted on it.  He was in a position of conflict of interest. While the entire amount requested was approved by the board, for some reason only Vt 17 million was disbursed to MSL.

When Prince II arrived in Vanuatu it was not seaworthy.  It sat at wharf in Port Vila undergoing repairs for 13 months.  After having been repaired, it operated for only 14 months and was again laid up.  A further 43 million vatu was spent on repairs to the ship, bringing the total cost of bringing the ship up to a seaworthy standard to 125 million vatu.

The ship was too big for local demands. Its total usage amounted to the equivalent of 6 full trips.  Prince II ceased operating in late 1995.  Between that time and the issuance of the Ombudsmanís report, she was laid up and deteriorating in Port Vila harbour.

This operation caused the loss to the Government and the people of Vanuatu of a total sum of 172 million vatu (USD 14,500,000).

The Ombudsman found that Mr Serge Vohorís conduct was blatantly unreasonable and unjustified; in breach of the Leadership Code and lead to losses to the Government and people of Vanuatu of 172 million vatu.  Mr Vohor did not carry out a feasibility study of the shipping project, nor did he arrange to have the price of the ship assessed.  Even though the Finance Regulations had been introduced by the time the purchase of the ship was made, Mr Vohor did not follow them in that no tender was made to the public for the supply of a ship.  After misleading the Council of Ministers, he went ahead and purchased the ship from an old friend.  Mr Vohor knew the ship would operate at a loss.

The Ombudsman also found that the loan approval by the Development Bank Board members was improper and based on irrelevant considerations as it was made against the bank managementís own assessment report.  Possible economic loss to the bank was not considered and the end result was that the Development Bank made a loss of Vt25 million.  Mr Maliu was found to have a conflict of interest as political secretary of Serge Vohor and Vice Chairman of the Development Bank and acted contrary to section 15 of the Development Bank Act and s.208 of the Companies Act.

The Ombudsman found that Mr. Robert Figa acted unreasonably by approving the Vanuatu Cooperative Federation investment in a project that had already been assessed as non-viable.  Mr Franklin Kere also acted unreasonably by injecting Vanuatu Commodities Marketing Board funds under his management after having been made fully aware of the non-viability of the entire project.
Recommendations

∑       That Mr. Serge Vohor not be appointed to any ministerial post in the Government.

∑       That Messrs. Alfred Maliu, Petre Malsungai and Amos Andeng, former members of the Development Bank Board not be appointed to any statutory board  and that they compensate the Development Bank of Vanuatu (either voluntarily or by court action) for loses due to their negligence.

∑       That Mr. Figa and Mr. Kere not be appointed to any position where investment decisions are made.

∑       That the Director General of Finance and the Director General of Trade and Commerce co-ordinate efforts to liquidate MSLís assets and decide on the future of Prince II.

∑        That the Director General of Finance ensure that every incoming Council of Ministers is informed of the Finance Regulations to avoid any unintentional approvals for purchase or sale that are contrary to law.

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Written by Edward R. Hill
UNDP Governance and Accountability Project
January, 2001
Van/97/001
© Ombudsman of Vanuatu
Published here by University of the South Pacific, School of Law Web Site - www.vanuatu.usp.ac.fj






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