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High risk and inflated: Australia’s contract for food on Manus Island

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NKW Holdings represents landowner companies from PNG’s Morobe Province. Its directors include provincial government officials and retired PNG Supreme Court judge Don Sawong, who in 2017 unsuccessfully ran as a candidate for Prime Minister Peter O’Neill’s political party. Mr Sawong was last year appointed as PNG’s next ambassador to China.

Home Affairs has come under intense political and media pressure in the past month amid revelations about more than $1 billion awarded under limited tenders for refugee services in PNG and Nauru.

One of these contracts, now worth $423 million, was awarded to little-known security company Paladin group for garrison services on Manus Island.

Other limited tender contracts involve private health provider Pacific International Hospital, Queensland construction company Construct, and security firm C5 Management Solutions.

‘I suspect there are some inflated quotations’

The $82 million paid to NKW means that it is costing Australian taxpayers just under $1400 per person per day to feed and house 209 asylum seekers at camps at West Lorengau Haus and Hillside Haus.

In one of the emails obtained by The Age and Sydney Morning Herald, the Bank South Pacific manager responsible for the NKW account assured colleagues that one of the reasons his client was no longer a credit risk was because Australia was paying the company’s invoices without question.

Photos from West Lorengau on Manus Island show the area of the new camp under construction.

Photos from West Lorengau on Manus Island show the area of the new camp under construction.Credit:Refugee Action Coalition

“Australian Department of Immigration and Border Protection are paying every invoice – I suspect there are some inflated quotations and invoices,” the manager wrote in November 2017.

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The emails give a breakdown of NKW’s costings and show the Australian contract will generate a huge profit, potentially running into tens of millions of dollars.

One email states landowners would receive less than $30,000 per month for the lease of camp sites while NKW would be paid more than $500,000 per month by Home Affairs for access to the sites.

The leaked emails show Home Affairs directly approached NKW in early September 2017 just days after a planned Manus Island building project involving Toll Group was abruptly cancelled by the Australian government.

NKW was the only company approached to provide catering and site management services.

The leaked emails show Home Affairs advanced more than $5 million to NKW between September and November 2017. But a proper contract between Home Affairs and NKW was not signed until well into 2018. The government’s Austender website shows the initial contract was valued at $21.8 million for two months’ work.

But it was then increased by $49 million and then another $10 million, with the contract extended until the end of June 2018.

The Australian government has been booted out of the Naval Base in Manus and are desperately in need to accommodate their ‘guests’.

NKW’s financial controller Chris Kolomaga

Bank South Pacific emails show NKW was regarded as a “watchlist client” at the time it was approached by Home Affairs in September 2017 because of its existing debts.

The promise of a lucrative Australian government contract was viewed by senior Bank South Pacific managers as a game-changer for the struggling company.

“Appears the Australian Government has thrown our watchlist client, NKW Holdings Ltd, a much-needed lifeline,” wrote one manager. Another manager from the bank’s credit department agreed, writing “this does effectively throw a lifeline to this company”.

‘Manus Island has turned pear shaped’

Toll, which reportedly had a substantial workforce and supplies ready for deployment on Manus Island, was given a payout of $9 million. Home Affairs has never publicly explained why the Toll contract to extend the East Lorengau transition centre was cancelled.

NKW filled the breach by sourcing a disused camp from a local company for about $1.5 million and reviving an existing facility that was built to house participants in an abandoned Australian Federal Police training program.

These sites became known as West Lorengau Haus and Hillside Haus.

Sources involved in offshore detention have told The Age and Sydney Morning Herald  that procurement officials within Home Affairs were upset by the way the NKW contract was entered into, with the department’s operations command directing that it be done as one of a number of non-competitive limited tenders.

This appears to be at odds with a promise by Home Affairs to improve procurement practices after a scathing 2016 Auditor-General’s report on its management of offshore detention-related contracts.

The documents show that NKW’s financial controller Chris Kolomaga forwarded a letter of intent from the Australian government to senior Bank South Pacific managers just four days after Toll’s contract to build extra accommodation at East Lorengau was cancelled by Home Affairs.

“The Australian government has been booted out of the Naval Base in Manus and are desperately in need to accommodate their ‘guests’,” Mr Kolomaga wrote. “We have the only solution and as a matter of convenience they’ve asked us to build another 300-man camp.”

The emails indicate Bank South Pacific played a crucial role in advising NKW how to structure its contracts with Home Affairs. This appears to be because the bank planned on keeping a large portion of the Australian payments to NKW to recover its debts.

“Client was burnt by the Australian government last time and I’m insisting on a binding construction contract and contracts over post-construction services,” wrote a bank manager in an internal email.

The emails show diverging views within Bank South Pacific about how much money to advance to NKW ahead of it signing a contract with Home Affairs. A senior credit department officer cautioned “this is not a straightforward proposal” because the “whole Manus Island issue is turning pear shaped”.

The regional processing centre on Manus Island closed in October 2017 following a ruling by the PNG Supreme Court a year earlier that Australia’s policy of detaining asylum seekers was illegal because it breached their personal liberty.

‘Source documents’

The Age and Sydney Morning Herald revealed last month that Home Affairs was desperate to find contractors on Manus Island after the PNG government pulled out of taking over running asylum seeker facilities and contractual arrangements in mid-2017.

Paladin, which had won a PNG-run tender for garrison services at Manus Island before the Peter O’Neill-led government withdrew from its arrangement with Australia, had just six days to submit its bid to Home Affairs.

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Home Affairs has used the exceptional circumstances created by the decision by long-standing major Manus Island contractor Broadspectrum to stop all offshore detention work in October 2017. But Broadspectrum had publicly announced its departure from this line of work a year earlier.

NKW has undergone significant expansion off the back of the Australian contract, growing its workforce to more than 800 people.

NKW chief executive Marlen Brunskill said while he could not comment on any speculation about inflated contracts by Bank South Pacific staff, every invoice submitted was accompanied by source documents.

Mr Brunskill said NKW had never been pressured by any PNG politician or official for kickbacks from the Home Affairs contract.

“Contracting Papua New Guinean companies in Papua New Guinea ensures most of the profits are apportioned in Papua New Guinea to Papua New Guineans and this includes landowners,” he said.

The Home Affairs department and Bank South Pacific were contacted for comment.

The Age and Sydney Morning Herald make no accusation of wrongdoing against NKW, Mr Brunskill, Mr Sawong or any other of its directors, and are simply reporting the opinion of the company’s bank manager.

Richard Baker is a multi-award winning investigative reporter for The Age.

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