Feb 4
Rowan Callick, Asia-Pacific Editor
The Papua New Guinean government is trying to track down $1.4 billion in taxes paid by mining and oil companies between 1994 and 1997, which appears to be missing.
The resource companies paid the money, in a unique arrangement, to a Cayman Islands company, Raggiana Ltd.
But the PNG central bank and Treasury have so far failed to locate records showing that the taxes were then passed on to the government.
The scheme was devised in 1994 when the government of former prime minister Paias Wingti - now an opposition back-bencher - urgently needed funds due to a burgeoning deficit.
A syndicate of banks led by the Union Bank of Switzerland agreed to lend the government $US90 million, but only on condition that the state in effect mortgage its most dependable revenue stream, its resource royalties - which in 1994 provided 73 per cent of all foreign earnings.
As a result, the mining and oil companies were required at short notice to pay Raggiana, instead of PNG's Internal Revenue Commission. The mortgage was to be released as soon as the loan and associated costs were repaid.
The Income Tax Act, which previously required all taxes to be paid in kina, was amended under the arrangement to allow payment in foreign currency.
It now appears that the companies were required to pay taxes to Raggiana for some time after the UBS-led loan was repaid.
There may, as ever, be more than a hint of political payback in the way this issue has been raised again.
But there have been two attempts to resolve the outstanding issues: first in 1998, when then justice secretary Michael Gene instructed law firms Mallesons Stephen Jaques and former Port Moresby-based Fiocco Posman and Kua to review the arrangements; and then in 2001, when then prime minister Mekere Morauta, who was central bank governor when the scheme was introduced, commissioned PricewaterhouseCoopers to examine Raggiana.
A spokesman for the PNG Treasury said yesterday that PWC's preliminary report indicated that it was "unable to establish the flow of funds" back to PNG, and that UBS had been asked to furnish more details of remitted funds.
"Our big concern is that it appears that a lot of money is missing, even though the mining companies' tax receipts are all in order," the spokesman said.
Foreign Minister Rabbie Namaliu, who was formerly opposition finance spokesman, said that when the Raggiana scheme was established it meant "using the assets of the people of PNG in an unacceptable way, on an ad hoc basis and in secrecy".
When the arrangement was first made public, by The Australian Financial Review, then finance secretary Gerea Aopi wrote a letter to this newspaper saying that "just about all sovereign states of this region are now doing it [securitised financings], and moving off balance sheet, whether directly or through statutory organs of the state. Papua New Guinea's legal interests are fully protected, with all elements of securitisation falling away upon repayment of the financing."
Questions about the arrangement were "ill-informed, cynical and negative attacks on PNG that have the potential to harm our hard-earned and well-respected reputation".
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