To Loan or not to Loan. That is the question. When “soft loans” may have “fishhooks”

by Emoni Cama

The Soft Loans to Fiji from China for housing and infrastructure are nothing new. These loans have been available for years but were resisted by the previous Governments as having too many “fishhooks”.  The present regime has only looked at the availability of funds and not at the long term costs involved.

 Mr Hanson, formerly an Australian Department of Foreign Affairs and Trade diplomat, says China’s aid programs are wrapped in secrecy. This had unfortunate consequences, including fuelling suspicion among nations getting the aid, inhibiting donor co-ordination and undermining efforts to promote good governance and accountability.

 Much of the Chinese aid went into infrastructure projects, which could “have high maintenance costs and be poorly designed for local conditions”.

The projects were funded with concessional loans, which increased the Pacific states’ overall debt, Mr Hanson said, and the Chinese funds were normally allocated to Chinese contractors, who used Chinese labor to build the projects, cutting flow-on benefits to the local economies.

 Mr Hanson gave the example of the  combined courthouse and police headquarters in the Cook Islands was built with the signage in Mandarin, making repairs difficult, and a television tower in Niue that was constructed with materials unsuited to Pacific conditions, and would have to be rebuilt.

 Unfortunately much of China’s aid is provided in the form of ‘soft’ loans with stringent conditions. In other words Fiji repays China’s loan at a 2% interest rate and, as part of the ‘aid’ package, Fiji is then compelled to use Chinese consultants, contractors, workers and materials sourced in China to build the developments for which funding has been sourced.

 Any benefit to the Fiji economy in the form of increased employment or material purchase is therefore virtually nil – and we have to pay interest for that privilege.

This is exactly what is happening with the current project at the Nadarivatu Dam.

 “According to International Rivers’ latest report on China’s overseas dam industry, Sinohydro has a poor environmental and safety record,”

“In 2004 to 2006, China’s State Assets and Supervision Administration Commission reprimanded the company on its performance and in 2006 gave Sinohydro a grade D due to violation of environmental and safety standards.”
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The Fiji Times reports that this project is taking a similar path to previous Chinese projects like the Nasouri – Rakiraki roading venture that collapsed in 2005-6

“ The landowning units employed on the Nadarivatu Dam project have raised concerns over Sino Hydro Corporation’s non-compliance with Occupational Health and Safety laws of Fiji.

Nadarivatu Landowner Council secretary Misaele Toutou said on Friday workers staged a protest demanding proper safety gear.

He said since the villagers from the five clans started work on the site seven weeks ago, they were not provided proper safety gear from boots, gloves and helmets.

Union general secretary John Paul said the company was extensively abusing local workers by not providing essential safety gear and proper working conditions that they deserve.

He said workers had been exploited and asked to work under dangerous and hazardous conditions without safety clothing and equipment; and directed to get their own safety gear if they wanted jobs on the project.

He said the employer continuously violated OHS, employment laws and human rights.

“The conditions of work are pathetic and local workers are not provided with proper toilet and privacy, no clean drinking water, safety boots, first aid kit and personal protective equipment.

 Peoples Daily Online reports “Fiji’s interim government has approved work permits for 100 skilled Chinese workers engaged at the Nadarivatu hydro project under the Sinohydro Corporation despite concerns raised from villagers in the area over increased foreigners there.

Immigration Director Nemani Vuniwaqa confirmed that the increased Chinese presence at Nadarivatu was through a memorandum of understanding between the Fiji government and the Chinese state-owned company, Sinohydro Corporation.

The deal allows the company to bring in up to 300 skilled workers who had been contracted for the project — something many Fijians were not aware of.

Vuniwaqa’s comments came after two concerned parties, the Construction Energy and Timber Workers Union and the Nadarivatu Hydro Project Landowners Council, wrote to the Immigration department to investigate heavy Chinese presence in the area.

Till now, a total of 100 work permits had been approved while the remaining would be processed.

On the other hand, the Chinese nationals have been identified by the parent company Sinohydro as skilled legal workers.

Should there be a breach in the working conditions, said the immigration chief, it would be brought to the Labour Ministry immediately.”

The reality of why the previous Governments have avoided the soft Chinese loans are begining to hit home. 

As always with Chinese loans there are two key components. Firstly that the sucessfull tenderer is a selected Chinese Company and that this Company has the right to use large numbers of Chinese employees. Some estimates on Chinese projects suggest that 65% of the money borrowed is repatriated to China. Another feature of some Chinese projects is that all the maintenance is to be done by the selected Chinese Company who has a permanent presence after the project.

    Immigration Director Nemani Vuniwaqa confirmed  there was a memorandum of understanding between the Fiji government and the Chinese state-owned company, Sinohydro Corporation.  This MOA has not been made public so there is no scrutiny of the price or conditions. This was not declared at the time the project was first floated.

The level of local employment in this project is minimal with no programs of training or any skills passed on to locals.  It appears that a condition of the loan is that the Sinohydro Corporation has the right to work permits for 300 employees without identifying if there are any people locally qualified for these positions. All conditions normally associated with work permits have been waived.

Fiji will however benefit with better self sufficiency of power generation through this project

The hydropower generated at the Nadarivatu hydropower station, which is expected to open in mid-2011, will displace 22,000 tons of diesel fuel per annum, helping Fiji Electricity Authority (FEA)to save 25 million Fiji dollars (about 11 million U.S. dollars) a year in current diesel prices, said FEA chairman Nizam Ud-Dean.

    ”This will be a significant saving on our fuel bills, savings on foreign reserves, alleviating some problems of the balance of payment, and helping to keep FEA’s tariff low to boost investors’ confidence,” said Ud-Dean.

    ”This makes the Nadarivatu Hydro project one of national importance,” he added.

In normal times there would have been additional benefits of training and the majority of the loan monies would have been recycled and injected into the economy.

According to Fergus Hanson from Pacific Report,

“The governments of Fiji and China have both shown themselves to be remarkably sensitive to public revelations over China’s aid pledges. The permanent secretary of the Prime Minister’s Office in Fiji, Parmesh Chand, said the figures on pledged aid “are all wrong”.

Publication of the actual figures would obviously help clear up any misunderstanding, but both governments have so far refused to do this. All of which suggests a disturbing level of Chinese assistance to Fiji, right at a time when responsible governments around the world should be sending the strongest possible signals that the regime’s backpedalling is not on.”