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Shoreline: Royal power

Moss Beach,California, USA

Editor,

Crown Prince Tupouto…’a is not only the next in line to be king he is widely speculated to be the prime architect of this TOP$60 million tactical scheme that will severely paralyze Tonga and leave the people fighting for survival for generations to come. There was high hope in the newly appointed Prime Minister, Feleti Sevele, to restore moral integrity, dignity, justice and honor to the government. However, Sevele…’s support of this $60M loan leaves the impression he has sold out to Tupouto…’a.

This $60M loan is a serious threat to the future economic development of Tonga. The people, their representatives and pro-democracy committees should not go wobbly on this issue. If it is not a priority, it ought to be because it is the people, their children and future generations that will be adversely impacted by government…’s ill-considered (or worse) actions. The willingness of the government to put the nation at great risk without any legitimate documentation to substantiate the deal is just plain stupid. A quick calculation of this $60M loan equates to $500 per man, woman and child to pay off the loan. This is in addition to what is already too high a price for electricity. Why are the people tolerating such contemptible practice?

Government-owned 10 year lease

After my 4/27/06 posting on the Matangi Tonga website regarding Shoreline, I received a number of documents including the Asia Development Bank (ADB) …– Country Assistance Plan (2000-02) for Tonga dated December 1999 and the National Renewable Energy Policy Framework …– Inception Report for Tonga (September 2005) funded by the government of Denmark and conducted by Pacific Islands Energy Policy and Strategic Action Planning (PIEPSAP). Both these reports articulate the absurdity of this $60M deal. The power generation and distribution is owned by Government and being leased to Shoreline on a 10 year term. Why is Government willing to spend $60M to buy back a power distribution they already own?

When the Privy Council made a decision to transfer the responsibility of power generation, distribution and supply for Tongatapu to Shoreline in 1998, Tupouto…’a was chairman of Tonga Electric Power Board (TEPB). Tupouto…’a was essentially the seller and the buyer; an economic genius. In most countries, such transactions would never be allowed nor entertained in the first place. However, this strategic disaster was doomed to fail from the start because neither TEPB nor Shoreline apparently had capable people to manage power generation and distribution. TEPB was already in financial trouble at the time and why was it that Tuopouto…’a (as chairman of TEPB) could not implement at TEPB the same business plan he intended for Shoreline? Thus far, Shoreline…’s claims to deliver cheaper and efficient electricity to the people has failed to manifest. Yet, in 2002 Shoreline was successful in expanding to areas of operation (Vava…’u and Ha…’apai Groups) formerly covered by TEPB. The lease agreement between Shoreline and TEPB is for Shoreline to manage the power generation and distribution, use of TEPB…’s facilities including the generation sets, transmission and distribution systems in all the three island groups.

TEPB still responsible for loan and liabilities

A loan was approved by ADB in December 1996 for TEPB to upgrade its existing power plant. TEPB…’s liabilities and the loan were not transferred to Shoreline. Shoreline was only responsible for managing the assets until its 10-year lease/contract expires. In 1998 a second power generation loan was submitted to ADB. Due to government privatized power generation in March 1998, manipulation of legal terms of the loan to power distribution vs. power generation, weak project management and cumbersome government policy, ADB…’s assessment of the second loan was unlikely to be economically or financially viable. Hence ADB in January 1999 recommended that the loan be allowed to lapse. The significant moral here is ADB recognized the manipulation and graft of Shoreline where ADB is not going to benefit from the deal because there is no profit except a generation system that is ill maintained. How does Shoreline substantiate their $60M value when TEPB was and is still responsible for the infrastructure, loan, and liabilities? Why does government want to spend $60M on worthless power generations that have not been properly maintained?

In September 2003, Shoreline Group approached Broadmark Captial, LLC (a Seattle based national investment bank) to assist on a US$30M financing (US$15M to refinance existing senior debt and US$15M for capital expansion). The transaction closed in September 2004 thus leads us to the practical and logical question of why Shoreline wants to give back the power generation and distribution to government after 2 years of refinancing. It is most likely that Shoreline never intended to transfer management back to TEPB but their blunders and costly mistakes leaves them with no choice but to get rid of the power generation and distribution business.

A billion pa’anga in revenue

Lack of detailed cost information from Shoreline makes it difficult to ascertain Shoreline…’s actual asset and liability. People can make assumptions on how many households (and businesses) that are paying monthly electricity bill x an average cost of approximately $100/month (+/-) x 12 months x 8 years (the duration of the management thus far). It probably comes close to a billion dollars in revenue if we really do the math. We have to keep in mind that none of the assets projected here is shared with TEPB so while TEPB is responsible for the liabilities, Shoreline is pocketing the assets that neither government nor TEPB is regulating. So why does government want to take on the responsibility when they lack competent people to manage, maintain and regulate a power company? Outsourcing is a viable option but with vigorous and stringent regulations.

Force Shoreline to pay off the loan

The maintenance, repair and retrofit of the generators are Shoreline…’s problem and should be taken into account when the management is transferred back to government. Shoreline…’s asking price of $60M needs to be substantiated. I believe it is a reasonable approach to collaborate with experts on power generation (technical and management) as well as legal (outsourcing/leasing/purchase agreements) either from New Zealand, Australia, Fiji, or any foreign countries to evaluate and analyze Shoreline…’s power generation prior to making any financial commitment. Is it possible that Shoreline is presenting a hyperbolic value in an unconscionable effort to have government pay for their US$30M refinancing of Shoreline (and Tonfon)? It seems that the government was the guarantor of the US$30M loan from Broadmark Capital. However, the government needs to level with Shoreline Group and force Shoreline to pay off the loan before settling the transfer of the power generation to government. Until there is accountability and transparency in this deal, Shoreline and government are wide open to various degrees of supposition.

Better to invest in renewable energy

National Renewable Energy Policy Framework …– Inception Report by PIEPSAP indicates that even though Tonga has not formally adopted a national energy policy, although a draft policy was prepared by the Energy Planning Unit (EPU) in the Ministry of Lands, Survey and Natural Resources and was considered by Cabinet in 1995, nothing has been done since 1997. The policy framework by PIEPSAP is targeting a time frame of ten (10) years with a vision …“that by the year 2015, the Kingdom of Tonga achieves an optimal socio-economic structure achieved by sustainable energy development…”. So why would government spend $60M on Shoreline…’s worthless power generation system when they can invest on different renewable energy and power resources available in Tonga such as solar, wind, biomass, geothermal and wind?

Global warming is a serious thread to humankind and Tonga…’s dependency on fossil fuel for power generation and distribution despite its abysmal environment and energy policy and escalating fuel cost is detrimental to Tonga…’s economic development and environment. The government will do better with their investment on alternative resources. Perhaps for safety and maximum efficiency, they can rebuild its infrastructure by implementing a partial underground system in the most densely populated areas such as Nuku…’alofa.

Dismal economy

Government needs to seriously analyze why its economy is at such a dismal stage. Here are some obvious factors to consider:

Royal Family: Monopoly on business investments
…· Shoreline Group …– Crown Prince Tupouto…’a
…· TongaSat …– Princess Pilolevu. A private company that acts as the exclusive agent for Tongan satellite affairs (a lucrative geostationary orbit) that is owned by the government.
…· Tonga Communication Corps - Prince Lavaka (?)

…· Government:

…· Misappropriation of foreign aid and funds
…· Poor management, incompetence and complacency
…· Restructuring and outsourcing public service: In 2002 IMF and ADB provided funds (US$10M loan) to privatize and downsize the public service. Government spent the money on issuing redundancy packages to department heads and squandered the rest of the money in lieu of restructuring. This action infuriated ADB and a meeting was called to put things in order and perspective. Tonga must downsize because it is out of money. Now the Board of Commissioners has been established to administer the downsizing. This is something that Prince Lavaka initiated before he resigned as PM. I understand more now some of the politics during the PS strike. These commissioners are also being paid handsomely for the work. It is crucial we keep a close watch on these commissioners because there can be potential conflict of interest here with whom they select to outsource the work to. We want to avoid monopoly like that of Haliburton who was the prime contractor (without competitive bidding) on oil field maintenance and military supplies in Iraq.

Outside Tonga legal jurisdiction

Shoreline…’s modus operandi is probably no different from that of Tongasat, a private company that is serving as an exclusive agent for Tonga…’s satellite affairs (a very lucrative geostationary orbit). Princess Pilolevu is suspected to be earning US$55M/year on the management of this government owned property where the money does not go directly to the government. The money goes to the Tonga Trust Fund deposits at the Bank of America in San Francisco. A convenient scheme because it is outside Tonga legal jurisdiction and direct control. Why does the government allow such business ventures to be operated without regulations? Both Shoreline and Tongasat are not paying commission to the government like the set up of Tonga Communication Corps (TCC), another private company managing government venture. But it they are, it is probably an insignificant amount that it is not going to resuscitate Tonga…’s economy.

Royalty or not, this practice and apparent legalized theft is shameful and unjust. King and law draw their authority from the same source. His command should be just and that he should not transgress the law. We need people with a moral compass, honor, integrity, a deep respect, love and affection for the nation to elevate Tonga to a new level of civilization without losing the true meaning of life and justice.

When the people fear their government, there is tyranny; when the government fears the people, there is liberty……Thomas Jefferson (the third President of the United States; 1801-1809).

Ad absurdum!

Mele Payne Lynch

Correction: TCC is 100% owned by the government i.e. no other shareholders. Prince Lavakas term of office expired on 31 January 2006. TCC is a scrupulous in paying their income tax and CT when it is due and are committed to continue to do so as part of our commitment to running a reputable business in Tonga. TCC pays an agreed dividend percentage, set by the board of directors, to the government of TCC and no other party is paid from TCC accounts other than their business creditors as verified by our external auditors KPMG of Fiji….Mele Payne Lynch.

mlpayne222 [at] aol [dot] com