Caveat venditor: Sovereign risk becomes a reality in PNG
02 February 2016
SOVEREIGN risk is a term used in business and economics to refer to a national government or one of its agencies refusing to repay a loan or honour a contract.
Unlike companies and individuals, nations don't go broke, cannot be sued unless they agree to it and, if they welsh on a deal, it can be very difficult to get redress.
But there is a serious difficulty for governments that engage in such behaviour: companies can refuse to deal with them or, if they do enter into contracts, inflate the price to take account of the perceived greater risk.
It was revealed yesterday that the Papua New Guinea government has failed to pay a New Zealand company more than half a million dollars for work it was contracted to do and which it completed.
One News journalist Barbara Dreaver reported that Wellington-based company, Evaluation Consult, whose team is pictured, is owed around $600,000 after it completed a strategic development program for 35 PNG government agencies.
Even after a court order and political intervention by foreign affairs minister Murray McCully, PNG still hasn’t paid the bills.
Even as the PNG government increased the scope of the project, it stopped paying the company's invoices.
Evaluation Consult's managing director Brian Rumbelow said his company has had to seek alternative financing to keep afloat.
"It's hit us very hard,” he told Barbara Dreaver. “We've had to economise on staffing levels because we've still got vendors waiting to be paid."
The PNG government now has a court order demanding it pay the outstanding fees.
It says the bills “will be settled in due course”.
For court orders to be paid, they join the queue at the Dept of Justice & Attorney General (DJAG). That is another story of waiting for budgetary funding in the next year after the court order.
They should have been paid before it got to the courts.
This is a case of incompetence by the project managing officers in whichever government department was managing the contract.
It looks to be 3 months work for the 10 officers or 20 000 per month for 10 officers. Such short term contracts, the project manager should have the funds drawn before engaging the contractors.
It looks like a case of Mr Ten Percent in the project managers office before it got out. For a short term work, those Kiwis can afford a 10 % kick back on their 60 K each, and for three months of sitting in high offices, good hotels and good food, it would have been a small price to pay (my pun).
Check the project manager's office. I smell a Mr 10% in there somewhere.
Posted by: An Officer of the PNG Public Service (Name Supplied) | 04 February 2016 at 07:14 PM
Was this one of the reasons for O'Neill trying to put a lid over the engagement of foreign consultants and consulting agencies?
Posted by: Francis Nii | 03 February 2016 at 09:49 AM
This is shameful.Would this also be an indication of PNG's economic woes?
Posted by: Grace Waide | 03 February 2016 at 06:42 AM
Hopefully someone in the accounts payable department in Waigani just simply overlooked the bill. It is nice that this group photo helps put a human face (not faceless entities),a nice reminder so some in Waigani can send them a check.
Posted by: Joe Herman | 02 February 2016 at 09:21 AM
Is this just the tip of the emerging iceberg?
Posted by: Paul Oates | 02 February 2016 at 08:31 AM