From Kpress article: Congress standing committee ups the ante for China loan

Written by Bill Jaynes
Friday, 19 November 2010
Palikir, Pohnpei, FSM—Congress is being very cautious as it considers a bill (16-124) that would authorize President Mori to negotiate a concessional soft loan agreement with the Government of the People’s Republic of China (PRC). The bill as presented would authorize the President to borrow as much as $22 million from the PRC which would then be used to rehabilitate or to create onshore fisheries operations in each of the FSM’s four states in order for the FSM to capture more of the revenue generated in its waters through fishing activities.

The Resources and Development Committee, chaired by Chuuk’s Senator Roger Mori, recommended amendments to the bill which would authorize the President to negotiate an agreement for as much as $11 million more for a total of $33 million on a 20 year term.

By way of comparison, $33 million is just over $6 million short of what Congress approved during its last session as the entire budget for the National Government this year.

The additional $11 million would be “on-loaned” by the National Government to the States for infrastructure improvements that State representatives say are needed in order to insure the success of the rehabilitation of the port facilities and onshore fisheries activities. The money would be available for draw down by the States for a three year period if R&D’s recommended amendments are adopted by Congress and the bill is passed.

R&D’s proposed amendments were not officially introduced during the session that ended in early October and Congress has not yet voted to adopt any of those amendments.

During the hearing on the bill that was held in Yap on July 6, James Movick, consultant for the FSM’s Department of Resources and Development told witnesses that the proposed loan figure of $22 million only covers the implementation of the project.

At least according to “John Q Public” the proposed project or projects still have not been completely defined. But others both inside and outside of the FSM are apparently quite aware of what the project entails. Movick explained during the Yap hearing that “With the due diligent work of the Forum Fisheries Agency and others, $22 million is the figure that is considered to be viable for the project and does not include the other components the states want.”

The R&D report says that improvements are needed in each of the States because the current state infrastructure is unable to handle the increased usage resulting from the overall “Luen Thai project.”

That title, coined by the R&D Committee might be a misnomer.

Marion Henry, Secretary of the Department of Resources and Development, and James Movick indicated during an interview in August of this year that the proposed loan didn’t carry with it the encumbrance that the chosen contractor must be a Chinese company.

However, an extremely highly placed official of the FSM National Government said that his understanding was that Luen Thai, since it is not considered to be a Chinese contractor does not qualify to operate a project under the proposed concessional loan offer from the PRC. He said that he understood that in order to qualify, Luen Thai took up a partnership with another corporation that does qualify as a Chinese contractor.

“Luen Thai has been an excellent corporate citizen of the FSM,” he added.

In the final days of the most recent session of Congress, former FSM President, Senator Joseph Urusemal said of the R&D report, “The numbers don’t add up.”

The R&D report listed a total cost of State infrastructure needs to support the project at $9,686,000, $1,314,000 less than the R&D committee recommended that the National Government should borrow from the PRC for the infrastructure needs of the States in order to ensure the success of the projects being proposed in each State.

Specifically, the report says that Yap needs a new generator for additional power needs at a cost of one million dollars. Chuuk needs a new ferry boat dock to allow the contractor to use the State’s existing dock for project purposes. Chuuk estimates that the new dock would cost four million dollars. The State of Pohnpei says it needs $3,800,000 for wastewater treatment and additional transformers. The State of Kosrae says that it needs $886,000 for a new generator to improve their power delivery capacity.

The listed needs of the States indicate that Government officials on nearly every level across the nation are at least basically aware of what projects the “Luen Thai Project,” funded by an FSM-PRC concessionary loan package would entail but those projects are not at all defined or described by CB 16-124.

The R&D committee report was not very helpful along those lines either.

Apparently the proposed projects are in other documents that are not currently available to the public as was true in the case of the proceedings that ended in the establishment of the Micronesia Petroleum Corporation.

Even if R&D’s suggested amendments to 16-124 had already been adopted by Congress, the bill would still not contain any language about a previously mentioned “five year grace period,” before repayment of the soft loan must begin. There were no specifics regarding how the loan money would be utilized other than that it would be used “for the rehabilitation of the shore-side fisheries infrastructure, processing infrastructure, and related infrastructure requirements in the four states pursuant to the Chinese Government Concessional Loan program generally that was offered to eligible Pacific Islands governments by the Government of the People’s Republic of China in April, 2004.”

The bill, including the amendments recommended by R&D simply gives power to the President to negotiate a loan package that would then be submitted to Congress for approval.

The bill instructs the President to include language in any loan contract between the two nations that details steps to be taken if it becomes apparent that the FSM cannot keep up with its loan obligation to the PRC, whether because of failure of the specific projects, project operator default, or if the FSM Government faces a situation of significant overall macro-economic duress.

It also instructs the President to “seek legal assurances regarding the utilization of state facilities.” It also talks about lease payments for facilities built with National Government money under the plan belonging to the National Government so that it can make its payments for the loan package.

At a public hearing in Palikir, Luen Thai representatives said that they are willing to enter into user agreements with and make payments to Yap, Pohnpei, and Kosrae for use of the new facilities. Those payments would provide those states streams of income that they could use for repayment from any loans they might take from the National Government.

In the case of Chuuk, the proposed ferry dock would not be used by the contractor and therefore would not generate revenue from the contractor for the project there. The R&D committee pointed out that the bill does “include language requiring each of the States to provide a general guarantee to repay their loan and to provide a plan and commitment to pay their loan.

Forum Fisheries Agency representatives were asked at one of the Palikir R&D hearings whether the project is viable in light of past failed National Government projects. They testified that past failures were mainly due to lack of competent management. They said “this project is different because experienced Luen Thai managers will be managing operations.”

FFA witnesses were also asked why this loan was different than other unsuccessful loan projects in the past. They explained to the committee that while previously, payments to the FSM were dependent upon the profitability of individual boats that won’t be the case this time around. “Boats will pay fees for privileged access to our facilities; as long as there are enough boats, which Luen Thai guarantees, payments will be made sufficient to cover the loan payments.”


  • part 2

    Compared to the August interview with Henry and Movick, the idea of “fees for privileged access” to the FSM’s facilities is new. They said then that the contractor that would manage the project would be required to meet the needs of fishing vessels on a “first come first served basis.” They specifically denied any concept of “privileged access” to the facilities during that interview.

    But then, since according to the report, “Luen Thai is contractually obligated to keep 120 boats in the FSM,” and since the FSM’s National Oceanic Resources Management Authority “has historically licensed between 100 and 150 boats per year” there would not be much room for other competing vessels in any event.

    A NORMA official told the Kaselehlie Press that they issue approximately 200 fishing licenses per year.

    The R&D Committee report said that by the time the hearings were completed, each of the States had indicated their support for the bill.

    At the Palikir hearings “the most important concern for many members was the lack of security provided to the National Government by the States to secure repayment. All loan funded infrastructure will be owned by the States while the National Government is the sole borrower. Therefore, the potential exists for the States to benefit directly from the facilities, while the National Government pays for them.”

    This seems to be the principal reason for the prudence of FSM Congress members. They don’t want the National Government to be left “holding the bag.” The R&D committee suggested amendments that would give oversight and approval authority over subsidiary agreements rather than just over the threshold authorization of the loan. Final approval of the terms of the loan, assuming that 16-124 is passed would come from Congress.

    The bill had been assigned to the Committee on R&D and also to the Committee on External Affairs chaired by Senator Paliknoa Welly of Kosrae. That committee held no hearings on the bill until after the regular Congress session had already adjourned.

    Pohnpei’s Senator Peter Christian made a motion to remove the bill from the committee and vote on it over the objections of Senator Welly. Though his committee had apparently made no moves toward holding a hearing on the proposed bill he said that he felt it was important that his committee have input. Ultimately the bill was deferred to the next session of Congress.
  • Thanks Dohper! There wasn't any expert assesssment of the flaws and faults of the past fishing loans during the period of the first compact and the governments (natl and states) washed their hands of it as it wasn't their faults - and here again, fishing is back on the agenda. It's proposed for 20 years payback period which would clearly passed 2023 and we recently heard that the governments are screwing up our trust fund created under the current compact.

    Naturally the governments going to need to secure collaterals for this 20 year loan. The question is "why China"? Would this loan be similar to the Petrol loan that instead of helping the people, it helped itself and passed off the rising cost of fuel back to the people?

    Why not Australia or even Japan? And how does the natl government plan to pay off this loan? NORMA's collection and the few measly tax collection? I didn't vote in my Congress to decide for my future, my children's and their children. The national government stopped funding T-3 Program which could provide the manpower needs for the infrastructure projects and even these fishing on-shore industries, so just how viable and useful is this fishing crap? Are they going to increase taxes on the Compact funds to help pay off this loan, in case NORMA and tax collection would not?
  • What is PRC's long term interest in the islands? Will all the (120 or so) boats be fishing boats? Will there be accompanying submarines monitoring the US military build up on Guam? Any hidden aggenda we need to look into? Do we need to consult the US, Japan and South Korea on this one?

    Just some thoughts in this islander's head.
  • PRC to negotiate fisheries with them? Just some insights about how China deal with their own water, please consult china south seas with India on google and you'll know what is china doing with her high seas...
  • stop..stop please not with the chinese.
    Please, people for a start CHINA is a communist country. I know these people. They are planning a huge harvest from us.
    For their own benefit.
  • We sure are into MONOPOLISTIC THINGS... I sometimes wonder why this nation is limiting itself....
  • I think the bill 16-124 is not something that chuuk need right now. Chuuk need something that will protecting the people as well as the government of chuuk state. If the congress pass the bill, more burden to our state. Their is no repayment for chuuk, chuuk already falling into doubt at this time, so why are we keep on getting more loans, Instead of looking for some grands from the US? Please take a look at CNMI, government gone to far from US and they end up loosing all those opportunity. And yet, congress keep on appropreating more money for them, just to satisfying people to vote for them, instead of using those money to upgrade their state. I thought this congress are econmist? they should know what best for their state.
  • It doesn't matter who we get the loan from its the same bank. Its the bankers that run the world. We would be indebt to China and China would then get the supports its needs in the UN council and also long term be dependent on them like we are to the US. The FSM should consider first the impact it will have on in the long run and also the we need to manage our natural resource wisely. Shouldn't we consider fish farming in deep ocean rather than fishing boats.
  • Today, Fish Marketing adds to one of the most challenging issues faced by all human race after Climate Change and Global Warming. Tons of tuna caught in our ocean (EEZ) does in fact feed an enourmous percentage of the population in China and often canned and then shipped back to the FSM for buying and consuming. The way I look at it, China has become a rapid eating machine, that can devour almost anything that could contribute to their economy and their people. As the FSM faces over-fishing of tuna in its water, tuna will one day be impossible to catch or too expensive to buy because of the rapid declination of the FSMs' tuna if we do not slow down. Which is why we have a Tuna Commission headquartering in Pohnpei to monitor the number of tuna caught in FSM waters including the Pacific as a whole. So, be it resolved and accept the China to fish and perform businesses in the FSM water, the FSM's only biggest natural resouce. They said, "We know about yesterday and we see today, but can we see tomorrow?"
  • Why is the FSM President given the negotiating power? Why don't we have assessment teams from the US, Autralia or Japan? Do we really need all these factories in all the four states? Why not do a "pilot" run with one state and the rest observe? Keep in mind that the fish/tuna migrates in and out of our EEZ. The tuna is depleting and the method of harveting the sea is wasteful (throwing away of undersize or different species of fish).

    If my memory serves me right, there was a fish factory in Palau in the 1970s (Van Camp). It is long gone. Why don't we send some of our delegates to Palau and find out the true story. If we can send delegates on a fact finding trip like they did with the casinos on Saipan and Tinian, why not with this millions of dollars fish factories (loan from PRC)? My opinion.
  • DON'T DO IT. The damage will without a doubt take decades to fix, if it's even possible at all, if the president goes through with a deal like this one. Dear Mr. President, think long term and put your pen down!
  • We should think this one through wisely. Better not to rush into it. As some others have advised, it would probably be wiser to conduct "IMPACT STUDIES" on both the economy and environment. Has any of these been done prior to approving this deal? Remember the Hawaii State Ferry fiasco with Maui lawmakers who sued the State of Hawaii and the the Super Ferry company for not doing an environmental impact study before allowing the giant ferry boat to dock at Maui harbor?

    I don't oppose foreign investment in the FSM, it is just that it looks like there has been no environmental and economic impact studies done. We need to at least see some data before we commit to a deal as huge as this one.
  • James Movick and Marion Henry. Two poster boys of why FSM should look at other citizens to run any borrowed money becuause the plans smell very fishy. Movick and gang messed up Pohnpei's $26M investment in PFC (now taking in only $100,000 annually from Luen Thai) and Henry and others drove the well-intended NFC to the grounds. Any enterprise should not include these two or others with the likes of Peter Sitan and other clearly self-interest type people. Government investments like this should be run by rich citizens willing to lend their expertise (obviously the new venture will not be competing with their own type of business) and in that way, no one will be trying to get rich fast at the expense of the public. If no business people are willing, we should look for outside managment with huge control until the fisheries projects become viable.
  • Let's put this loan aside momentarily and look at which state(s) diligently paid off their annual taxes, indicating how committed and obligtated they are in meeting and fulfilling the nation's taxation laws. Clearly with strong evidences, as with the payments of the "sin taxes", only Pohnpei and Yap States paid their taxes.

    Now let's see who is pushing for this soft loan from PRC: representatives and president from the state that doesn not care to pay for its mandated taxes. Will they ever be able to make sure that their state would be able to contribute to paying off the loan, should it be approved ~ or is there a lurking and discreet purpose behind this loan scheme from PRC? Haven't we learned anything yet from the Petrocorp loan? I'd suggest we at least let the next Congress decide on granting the permission instead of this current administration.
  • This is smart discussion going on here folks. Appreciate all the inputs so far. Just reading all of this makes me think of another angle to this PRC loan. We really need to understand that the chinese are very smart people when it comes to their own interests. They are not doing this for nothing as others have mentioned. What worries me is that our government officials who are negotiating with China and Luen Tai on this loan package hasn't done their study carefully as in most cases with our government officials. They will always say yes to money without really thinking about the long term impact to the nation. It makes me wonder whether this loan will only be good for Luen Tai so that it could make their fisheries operations in Pohnpei and the rest of the other FSM states cost effective and save them bundles at the expense of the FSM paying all the loan. They are paying a measly 100K to Pohnpei state for the use of PFC plant which cost the state over 20 million in past loans. Luen Tai will make presentations that sounds flowery to mesmerize our politicians about streams of money or inflow of money to our local economy, but we always end up with the very very short end of the stick. I know of Pohnpeians today who are complaining because Luen Tai is paying minimum wage and doesn't pay any other benefits. Why would a foreign investor help the FSM barrow money from china unless it has its own profitable interests entangled all over it. Any major loan that would have citizens paying back for generations to come, need to have it's own solid basis supported by sound economic study that is leakproof and definitely not one that is pushed by Luen Tai. It all sounds like Luen Tai may have bought off a whole gang of FSM officials including FFA who are testifying in favor of this loan package with china. And for Marion Henry to say "a good corporate citizen" to Luen Tai? What have we been smoking these days? When are we going to wake up and really do things in favor of FSM citizens. I say a good corporate devourer of FSM ocean resources. What's in it for future generations. Paying back hefty chinese loan with depleted ocean resources?
  • three guys with same identification.
  • what's the status of this bill?
  • I really wonder if anyone of our officials do think about negative consequences of this close tie with China Ching Wong!

    US is lost in sauce, she thinks it is an easy game, they are not paying attention to many of our cultural "treasures"!
    I am starting to be suspicious of China and even dislike china...

    I am thinking about volunteering to work for uncle Sam in Micronesia. Any questions? hehe
  • loans and grants are diff! US has been w/ us since WWII!

    Stop obligating us to communism!
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  • I feel a sense of bias in here that seem to derive mostly on assumptions. How can the relevant facts be laid out for all to see and then to make impartial conclusions? No doubt, the emerging super power that rank itself amongst the developing nations and the huge assistance it offers to many. How can one connect the dots to one specific multi-million project?

    The most pressing challenge before the nation today I think is post compact. If one can guarantee we will not face recession and chaos (renegotiation and continuing resolutions), then I think the nation must go easy with the fisheries proposal. Average citizens are aware that these remaining twelve years are limited and must be more than productive, maybe a miracle type solution. Congress has to stop huffing and puffing.
  • It is okay if China hears me or do know I am having these feelings toward them! I owe no apology for having them but I do owe them an apology... if having them and expressing them would offend them in anyway. I am not blind and I am not an ungrateful create, either! I am very thankful for all that they have done...I must admit, I am more familiar with Western way of living and doing things... I do not have much about China, but I have started some personal interest in studying its culture... which makes me even more nervous... I AM PURE MICRONESIAN, CHUUKESE TO BE MORE SPECIFIC AND NO, I AM NOT IN UNCLE SAM'S POCKET! Everything that I have shared on here regarding china is my own worry and understanding as a citizen...again, I AM STUDYING CHINESE CULTURE WITH WIDE OPEN EYES AND MIND!

    Here are some thing that really worry me...

    1. It is a communist! What does that mean to us? How will this affect us in the long run?

    2. China controls too much of their citizens personal lives, how many children to have and etc.. Why? Is it because of their interest in dominating the world? I dunno, so someone please enlighten me...

    3. China does not care much about females. Their culture is the opposite of Chuukese culture, everything goes to the males...

    4. I was not kidding when I said that in there is a Chinese saying that goes something like this... "Give more so that the person does not notice the taking."
    What is China trying to take from our area? Perhaps it is time to really weigh in on the consequences of our friendship... We all do know that we are SEMI-SUBSISTENCE ECONOMY, we depend a lot on our waters and lands. If China rape our ocean, WHAT DO YOU THINK WOULD HAPPEN TO THOSE WHO HAVE NO OTHER MEANS OF ENSURING SURVIVAL... beside going to the ocean and land!
    What is my government doing to ensure this does not happen? What evidence do you have to assure me and the rest who depends on the land that our resources will not be raped and taken away from us?

    What preventative measure is my country using to ensure and assure us, the citizens, that their DECISIONS AND BEHAVIORS WILL NOT AFFECT OUR FUTURE AND THE FUTURE OF OUR YOUNG GENERATION?

    5. If it is true that China hacked Whitehouse, what makes you think it is not going to do the same to Micronesia, if he has not done it yet.
    WHY DO WE HAVE A CHINESE COMPANY TAKING CARE OF OUR "TECHNOLOGY ADVANCEMENT" in Micronesia? This is like giving our country's balls to China, (sorry for the strong word, it helps delivery of the point, pwan seni wanengaw) anytime China wants to hurt us, she got the means and way to do so, of all things YOU GAVE HER THE INFORMATION TECHNO. to lay for you... THINK AGAIN! I think we are too naive, we are still stuck in the stone age thinking mode... it is 21st century and giving does not always mean we care and we have your best interest in mind.

    Enough for now, and China thanks for all that you have done for my country, but I am really worried about you in the long run! I do not know you, and I need more assurance that you are not going to deplete my natural resources and I end up begging you for more to survive!!

    Cj ---- "not responsible for Chuuk, but to self and those that matters to me"
  • If the United States of America can do trillion dollars business with China, why can't the FSM do just a little business with that same country? What is the difference when it comes to legitimate buiness? The FSM is now a member of the United Nations. What does that mean? It should conduct its business as it sees fit with any of the country that it has established formal relations. We are still thinking backwardly. Why then do we accept a Chinese Embassy to be located in Pohnpei? Back to the basic question, why can the United States do legitimate buiness with China and the FSM can't?
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  • read again, it is elementary writing... It is the consequences of that obligation...US has means to protect itself from China. We do not have much to depend on, but our waters and lands.

  • induced fear of china as perpetrated from a "known source" is a cardinal sin of over generalization. china is a good country like any other countries in the world.
  • Leave your fear behind CJ. Let's go lwith what congress is planning. We have mechanisms is place to protect us. If you are not satisfied with our own power, our dearest friend of friends, the USA, can and will keep a third eye for us. That's part of her obligation.

    Ai Tong
  • I'm with you 101% CJ. Better to weigh in on the pros and cons befoe any consideration can be made. China is a very dangerous nation and is in contention for the ownership of world mightiest superpower.
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