Auditor General says no acceptable evidence for government’s ownership of Lulutai airlines was available; Former Finance Minister demands investigation

Tonga’s Auditor General, Sefita Tangi, says that documents submitted by the government as proof of its ownership of Lulutai airlines were not what was required for its 2022 report.

Prime Minister Hu’akavameiliku

He told Kaniva News last week the audit of the Public Accounts for the year ended June 30, 2023 was in progress and due for release this week.

The government says the Ministry of Finance has now been given copies of the airline’s share certificates. We have asked the Ministry to give us a copy of the share certificates and are awaiting a response.

Prime Minister Hu‘akavameiliku told Kaniva News that Lulutai was important enough to warrant his direct involvement and that  the Retirement Fund Board’s (RFB) involvement would help financially.

The Auditor General confirmed that his office had not seen share certificates for the airline. He said this was the proof required for auditing purposes to show ownership of the company.

“The records that we expected and looking for were the shares certificates,” Mr. Tangi said.

“These certificates are to be completely kept and filed. They are to be consistent with the independent confirmations from the Ministry of Public Enterprises.”

In its original Financial and Compliance Audits reports for 2020/2021 and  2021/2022, the Auditor General’s office made this comment on Lulutai airlines:

“Audit issue still outstanding from previous years – No confirmation of government shares from the companies listed above. The Audit has no proof of the government ownership of these companies”.

The Ministry of Finance told us it had provided the auditor General with “ other records to justify government ownership such as a copy of the unaudited Financial Statements for the FY2022, the related bank statements etc, which stated the value of GOT share ownership ($13.5m) in the Lulutai Airline and the related transaction. Company registry and related Cabinet decisions were also available to confirm ownership.”

In response to questions from Kaniva News Mr. Tangi said: “The key record for our verifying and confirming the ownership issue is the share certificate. Unaudited financial statements, bank statements, registry, and Cabinet decisions are obviously not the records to directly and reliably confirm the ownership issue and they were seldom included in the report, because they did not help. Thus, our audit conclusion drawn from the sufficient and appropriate audit evidence was that there was no share certificate.”

Auditor General Sēfita Tangi

On the question of whether it had been able to update its records for Lulutai Airlines, Mr Tangi said: “Our last audit of the Government financial statements (Public Accounts) was for the financial year ended 30th  June, 2022. The audit of the Public Accounts for the year ended 30th  June 2023 is currently in progress, for which the statutory due date is 29th  February, 2024.

“We sincerely hope, as always, that appropriate actions have been implemented to resolve the issues raised in previous audits.”

According to the Tonga Business Registry record Lulutai Airlines Ltd. has only one shareholder: the Government of Tonga, holding all five million shares in the company.  The last filing of an Annual Return to the registry was on August 11, 2023.

It shows the directors of the Lulutai Airlines are Prime Minister Hu’akavameiliku, Minister of Finance Tiofilusi Titiuti, Minister of Civil Aviation Sevenitiini Toumo’ua and Deputy Prime Minister Sāmiu Kiuta Vaipulu.

Details held by the Business Registry were submitted as part of a filing of the company’s Annual Return for March 2023.

In its budget statement ending in June 2024, the government revealed it had guaranteed a loan of $3.5 million by Lulutai, apparently for the purchase of the Twin Otter.

The budget statement also showed $800,000 with ‘Lulutai’ written beside the amount and ‘Fiji Airways’ bracketed with it.

Call for investigation

Opposition MP and Former Minister of Finance Dr ‘Aisake Eke has called for an urgent investigation into the ownership of Lulutai, saying the lack of evidence about the airline’s ownership was a “serious issue.”

Dr Eke said the Auditor made his comment after the government’s budget for 2021/2022 revealed that the government had shares worth $13.5  million in the airlines.

Dr ‘Aisake Eke. Photo/Tonga Broadcasting Commission (Facebook)

Dr Eke said the problem with the government becoming a guarantor for the Lulutai loan with the RFB was that the Prime Minister was the chairman of both Lulutai and the RFB. The Minister of Finance was a member of the two boards.

Dr Eke said: “There is a conflict of interest there and it could compromise the independence. and due process of the loan”.

Dr Eke had also been concerned about the government’s failure to inform Parliament of the agreement to guarantee the Lulutai loan on time as required by the law. 

The Ministry of Finance told Kaniva News that Parliament was informed about the Government’s decision to act as guarantor of loan for Lulutai Airlines “in the Budget Statement FY 2021/22 (page 76, paragraph 3)”.

Prime Minister’s response

PM Hu’akavameiliku said his chairmanship of Lulutai was a continuation of arrangement from previous government.

“I believed Lulutai is important enough for the Prime Minister to chair its board, setting direction and ensuring it is sustainable,” he told Kaniva News

He said the partnership between Lulutai and the RFB helped Lulutai financially to acquire more additional capacity to serve Tonga. The RFB would get a good return for its investment, he said.

PM Hu’akavameiliku  said Lulutai had begun selling its shares to the private sector, including a 27% share sold to the RFB.

The Prime Minister previously said the government considered the “fragility and safety of the flight services” as something of paramount importance and claimed the best option was to keep it as a registered company.

He said the government saw its continued involvement in the airline as the “wisest decision” to make sure the company continued to operate smoothly after the Hungas eruption and tsunami and the Covid-19 pandemic.

Government intentions questioned

Auditor General Tangi’s statement that he had been unable to find evidence the government had shares of TOP$13 million in the national airline for the 2022 comes amid mounting concern at what is claimed to be the government’s obstruction of attempts to hold the airline to account.

Parliament set up a select committee to inquire into the airlines, but PM Hu’akavameiliku initially opposed it.

Trade Minister Dr Lātū warned that if Parliament passed a resolution to set up a committee to investigate Lulutai it would be a breach of the Companies Acts.

Dr Lātū said businesses registered as companies were protected under the company’s confidentiality information rules and Parliament would breach these rules if a select committee was set up.

However, Speaker Lord Fakafanua confronted Dr Latu, saying it was the government’s tax money which was used to fund Lulutai and it must be reported to the Parliament.

“Are we going to use that company confidentiality law to hide the financial statements?” the Lord Speaker asked Dr Latu, who did not respond.

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