Saturday, May 29, 2010

China support to Fiji questioned

By MICHAEL FIELD - 28 May 2010

On paper the building of a new hydro electricity scheme in Fiji's highlands looks a good idea.

The Nadarivatunts hydro scheme could significantly enhance renewable energy for the main island of Viti Levu. It would save FJ$25 million (NZ$18 million) by ending annual consumption of 22,000 tonnes a year of diesel and heavy fuel oil for power generation.

But the involvement of Chinese aid has made the case murky, while raising questions about the nature of Beijing's support of the South Pacific.

China is funding Nadarivatu and insisting its own companies and people build it.

Fiji, already trying to negotiate a US$500 million (NZ$742 million) IMF credit to cover its deficits, now faces paying interest on a project critics say may cost more than it should.

An Australian National University PhD student, Matthew Dornan, in a paper for the East Asian Bureau of Economic Research, has examined the project and concluded that China's involvement decreased Nadarivatu's value and ''exacerbated concerns about China's strategic involvement in the Pacific region''.

Viti Levu has one hydro dam at Monasavu, in the centre of the island, operated by the government-owned Fiji Electricity Authority (FEA).

It has been plagued by technical problems and land-ownership disputes.

During George Speight's 2000 coup crisis, highlanders seized the dam and cut the power for weeks at a time, leaving the capital Suva in darkness.

FEA is trying to be more conciliatory to the local land owners this time as it builds the 41.7 megawatt Nadarivatu project.

It initially was partner on the scheme with Pacific Hydro Ltd of Australia and the European Investment Bank (EIB).

The Australians eventually did not like the low rate of return on the project and pulled out.

Then military coup leader Commodore Voreqe Bainimarama made it clear he was not returning Fiji to democracy before 2014 at the earliest.

Like Australia and New Zealand, which have frozen aid to the military regime, EIB walked away and the door was open for the China Development Bank.

It's come up with a concessional loan of US$70 million (NZ$103 million).

FEA put up US$50 million (NZ$74 million) and the ANZ Bank US$30 million (NZ$44 million).

Nadarivatu sits in the rugged landscape at the headwaters of the Sigatoka and Ba Rivers, near Monasavu and close to the island's grid.

FEA chairman Nizam Ud-Dean says the hydro-project was ''one of national importance'' with a completion date now set for late next year.

China's main condition was that it be built by one of its own companies, Sinohydro, which has a poor international environmental and safety record, even by China's own standards.

It has imported 300 Chinese labourers, many unskilled.

''Sinohydro's international labour record is poor,'' Mr Dornan says in his paper.

''It has been accused of worker maltreatment and poor work quality standards in places as varied as Burma, Ecuador, and Oman.''

Fiji's Construction Energy and Timber Workers Union has protested about occupational health and safety violations.

''Local workers (have not been) provided with proper toilets and privacy, clean drinking water, safety boots, first aid kits, personal protective equipment, decent eating areas or changing facilities,'' union secretary John Paul said.

Mr Dornan says the use of Chinese labour has reduced Nadarivatu's benefits to the local economy, with Chinese even involved in local truck driving.

''Protests by landowners about this foreign presence have also presented problems, and the Fijian Police force is now stationed permanently at the construction site.''

Chinese soft loans require at least 50 percent of the construction materials procured for projects to be made in China.

''Such issues serve to fuel criticism about Chinese involvement in the Pacific islands,'' Mr Dornan says.

Commentators have argued that China is using aid strategically in order to lessen western influence in the region, he says, but notes this argument ignores the relatively small size of China's aid.

''Unfortunately, criticism of Chinese involvement in the region often fails to consider the positive benefits from Chinese aid and investment in the region.

''Construction of the Nadarivatu hydro scheme is worthwhile. Demand for electricity in Fiji is increasing and hydropower provides the cheapest form of generation. In the absence of other options, the FEA has been fortunate to receive Chinese funding.

''But the conditions attached to the soft loan by China Development Bank have backfired on two counts. They have proportionately decreased the project's value to the Fijian economy, and have exacerbated concerns about China's strategic involvement in the Pacific region.''

Last year the Australian Lowry Institute think tank said China treated its aid as a state secret.

Lowry said they believed that in 2008 China's pledged grant aid to the Pacific was US$53 million (NZ$78 million) with an additional US$153 million (NZ$227 million) pledged in soft loans. They say that in the soft loans, only the concessional rate of interest amounts to aid.

''The terms of these concessional loans appeared to be the same as in previous years - a two percent interest rate over 20 years with a five-year grace period, during which only the interest component must be repaid,'' Lowry said.

''The projects China funds also point to short-termism. China tends to focus the bulk of its aid on infrastructure projects. The Pacific is in critical need of good infrastructure; however, the criticisms levelled at China's infrastructure projects tend to focus on sustainability, debt burdening and lack of flow-on benefits,'' the institute said

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