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NDC parliamentary select committee questions legality of $119m loan from China

Nuku'alofa, Tonga

From the House, by Pesi Fonua

Dr Sitiveni Halapua, Lord Fakafanua, 'Akilisi Pohiva

A Parliamentary Select Committee that investigated the rebuilding of the Nuku'alofa CBD claims that a $119 million loan to Tonga from the Exim Bank of China was illegal, in a report released on Friday August 31.

The Committee claimed that the loan failed to meet three legal requirements, which are stipulated under Tonga's Public Finance Management Act 2002.

The report of the Select Committee that was tabled into the House on August 28 had been read in Legislature, but has yet to be debated in the Whole House Committee.

The report also claimed that about 58 percent of the $119 million loan was illegally spent and was indifferent to the initial loan agreement that the Tonga parliament agreed to, which was for the reconstruction of buildings that were burnt in the 2006 riots. Among projects the report claimed were illegally funded with the Chinese loan were the $31.9 million Vuna Wharf Project and the $13.7 million Royal Palace Extension Project.

Meanwhile, none of the owners of the five properties that were built with the loan money from China had signed a loan agreement with government of Tonga, according to the report.

Among the recommendations in the report now before parliament, is for government to urgently carry out a structural survey of the multi-storey properties that were built, to ensure that they can withstand an earthquake, and that they match the value of the loan.

Export credit

Copies of the report were distributed to the Tongan media on August 31, by the Chairman of the Parliamentary Select Committee, Lord Fakafanua, and two members of the committee, 'Akilisi Pohiva and Dr Sitiveni Halapua.

Other members of the committee have included the former Speaker of the House, Lord Lasike; the former Deputy Speaker, who is now the Minister of Health, Lord Tu'i'afitu, the government's auditor general, Pohiva Tui'onetoa, and a lawyer, Posesi Bloomfield.

The report stated that the China loan was proposed to the Legislative Assembly by the Minister of Finance in June 2007, and approved by parliament on 2 July 2007 without any supporting documentation, other than a brief covering letter from the Minister of Finance. The letter mentioned that the loan money would be used to rebuild premises that were burnt during the 16 November 2006 riot, and that the loan money would be on-lent by the government to those rebuilding, and for those recipients to repay the loans.

At the time, the then Minister of Finance, Sosiua 'Utoikamanu further elaborated to the House that, “the loan is known as 'Export Credit' – the way the Export Credit works is that the Bank pays a contractor to come and construct the buildings. None of the money is given to the government. The government picks the work that needs to be done and then informs them.”

Public Finance

The Select Committee now submitted that the loan was illegal because it failed to meet three legal requirements, which were stipulated under the Public Finance Management Act 2002:

1.  Because the $TOP119 million loan far exceeded the $15 million limit, the parliament should have approved the loan by Resolution.

2. The loan amount, once approved by Parliament, must be used only for the purpose proposed by government and approved by the Legislative Assembly.

3. Once a loan had been approved by the Legislative Assembly, the loan amount must be treated as public money and as a statutory expenditure. It must be paid into an account agreed to by the government and the lender. This subjects the loan funds to the Public Finance Management Act, allowing its expenditure to be protected by the checks and balances of the public accounting system provided by the act.

Hand-over ceremony

Shortly before the report of the Select Committee was presented to parliament, the completion of the $119 million project was marked with a hand-over ceremony on August 14, attended by HM Queen Nanasipau'u, the Chinese Ambassador Tonga HE Mr Wang Donghua, the Prime Minister, Lord Tu'ivakano and guests.

The report made four recommendations:

1. For government to urgently carry out a structural survey of the properties built to ensure that they can withstand an earthquake, and that they match the value of the loan.

2. To assess the possible illegal activities that might have taken place during the spending of the $119 million loan.

3. Proposed further investigation into the whereabouts of $23.5 million that was supposed to have been spent locally, and the reason for the transference of USD$22.8 million.

Despite these strong recommendations, when the Select Committee was asked what they thought should be done, Dr Sitiveni Halapua responded  “we should learn from all the wrong doings that took place.”

This week the House may respond to its Select Committee's recommendations.


The parliamentary Select Committee was the third attempt by the Prime Minister Lord Tu'ivakano and his government, since it came into office in December 2010, to investigate and report back to government how the former government of Lord Feleti Sevele and the Nuku'alofa Development Corporation (NDC) had spent the loan that the then Minister of Finance, Hon. Sosiua 'Utoikamanu had signed with the Export-Import (Exim) Bank of China on November 19, 2007.

The first group that was authorized by the Prime Minister on April 29, 2011 to investigate the NDC included Dr Teena Brown Pulu of AUT University New Zealand; Melino Maka  of the Pasefika Solution, New Zealand, and 'Ahongalu Fusimalohi of the Prime Minister's Office. The Prime Minister received the report of this group on 10 June 2011and then on 15 June 2011 cancelled the letter of engagement because he said that their report “falls quite outside the scope of the assignment.”

On 26 July 2011 approved the establishment of a Parliamentary Special Committee, led by 'Akilisi Pohiva and Dr Sitiveni Halapua to carry out the task that the committee of Dr Teena Brown Pulu, Melino Maka and 'Ahongalu Fusimalohi was supposed to have been doing.

In December 2011 the Special Committee proposed for parliament to turn the Special Committee into a Royal Commission, so that they could have the legal authority to demand the information that they needed. Parliament instead established a Select Committee with the inclusion of the then Speaker, Lord Lasike and the Deputy Speaker, Lord Tu'i'afitu as members.

The projects completed under the loan were:
- Vuna Wharf Project - $31.9 million
- Civil Works - $23.5 million (94% complete)
- Tungi Arcade Building Project - $15.6 million
- Royal Palace Extension Project - $13.7 million
- O.G. Sanft building Project - $9.6 million
- Taumoepeau Building Project - $6.7 million
- City Assets (Molisi Tonga) Building Project - $3 million
- Royco Building Renovation Project - $1.6 million
- City Park Project - $1,315,536
- Golden Apple Building Design Project - $211,900.


Thanks for the update on the work of this Committee. I look forward to reading the full report when it becomes available. In the meantime, a few quick questions: Can you or someone please let us know more about the item - Civil Works - $23.5 million (94% complete). Specifically,
1. does this include the cost of the roads that led to the flooding of parts of the country during Tropical Cyclone Jasmine earlier this year?
2. Who was responsible for the lack of drainage that resulted in so much damage?
3. Can a case be made for a reduction of the debt because of this mishap and/or some compensation for the landowners that were seriously affected?
4. Were there any contracts signed to identify who was responsible?
We must learn from past mistakes.
Stephen Vete
Suva, Fiji

The Kingdom has an Anti Corruption Commission Act and has had since 2007. It would be best to appoint an independent Anti Corruption Commissioner and make a reference to the Anti Corruption Commission along the lines of a Royal Commission about the matters which are of concern. I do not agree that the politicians can be seen as independent even if they think they are. Someone will always say they have some political goal to achieve.
These checks and balances type tools are there to be used. Independence is the key. It is an essential part of a working democracy.
John Cauchi