Following the events of November 16 BP Oil, the supplier of diesel fuel for Tonga's electricity supply refused to make further deliveries of critical fuel supplies, while demanding full payment and guarantees from the government, a Shoreline executive charges.

David Dunkley, the Chief Operating Officer of Tonga's Shoreline Group of Companies said in a statement yesterday that the government in late November had made a payment of just under $2 million directly to BP Oil, in order to resume the supplies of diesel fuel to Shoreline for power generation.

He said that the approval by the Tongan Cabinet to pay Shoreline's diesel fuel bill was very important.

"Immediately following the riots, BP declined to deliver any further fuel supplies, this required Shoreline to ration power to preserve fuel stocks," he said.

Rationing

The rationing was imposed on a community that was trying to recover from the shocks of November 16 and caused further problems for surviving businesses.

David stated that, "In addition BP demanded full payment and guarantees from the Government before they would resume fuel deliveries.

"BP have now imposed more severe terms and reduced credit periods on all its clients as it claims that the risks of doing business in Tonga have greatly increased as a result of the November riots."

David said that the government funding was provided as a loan pending Shoreline's sale of the electricity assets, and the government did so, "in order to ensure the continuity of the electricity supply to all consumers."

He confirmed that Shoreline is currently discussing with government, the sales of its electricity assets back to government.

Northpower

On October 31, 2006, Shoreline announced that it had signed a Preliminary Sales Agreement with Northpower of New Zealand, and the negotiation for a sale contract was supposed to be on-going by representatives from the three parties involved, the Tonga Government, Shoreline and Northpower. A conclusive Sale Contract was pending awaiting the passing by Parliament of new Electricity and Taxation Legislation.

The debate on the Bills however, ended abruptly with the November 16 riot, and according to David terminated any sale contract with Northpower. A clause in the contract allowed the purchaser to terminate the agreement should a 'Material Adverse Event' occur.

"The events of 16 November greatly increased the 'Country Risk', 'Insurance Risk', and 'Currency Risk' that an overseas investor would be exposed to . . . and are enough for any foreign investor (including their Bankers and Insurance providers) to withdraw their support for the proposed Contract," he stated.

Shoreline Power took over the generation of electricity for Tonga in 1998 after it was given a licence to generate electricity.

David stated that during the next six years Shoreline totally replaced the generating capacity throughout the Kingdom. "Total expenditure on generation facilities has been over $30 million. In 2003 Shoreline purchased the electricity distribution network from the government and commenced an extensive upgrading program. The total investment in the electricity distribution network has been over $34 million, and the extent of the investments had been confirmed by a review undertaken by Price Waterhouse and Coopers of Auckland," he said.

"For Shoreline the sale proceeds will allow the repayment of borrowings and return of capital to those investors ho have funded the redevelopment of Tongas electricity system," he stated.