The completion of the $118 million pa'anga reconstruction of central Nuku'alofa funded by a loan from the EXIM Bank of China is now hanging on a knife-edge. An investigative report leaked to the public this week reveals that high level political manoeuvring to take over the operation could derail the reconstruction by undermining its legally contracted project management. The sensitive report goes to Cabinet today, June 24.

It reveals that the contractors are confused by an attempt by government officials to interfere in the administration of the project.

The critical enquiry into the Nuku'alofa Central Business District Reconstruction claims that the Prime Minister was misinformed by his own people, including one official who promoted that his government unit must assume the project management role.

The outspoken report came as a shock to the Prime Minister Lord Tu'ivakano, who commissioned the enquiry, "to provide more transparency and accountability to the people of Tonga." The final report received by him on June 10, did not support his advisors' allegations and the investigators found the opposite of what was expected.

But now the Prime Minister's Office has disagreed with the report's findings and recommendations. On June 15, and before the report had been presented to Cabinet the Prime Minister's Office terminated the assignments of the two investigators, academic Dr Teena Brown Pulu and business advisor Melino Maka of Auckland, New Zealand. They were told in a letter of termination that the report they wrote "falls quite outside the scope of the assignment".

The Prime Minister's Report

When the research for their work entitled, "Nuku'alofa Central Business District Reconstruction, The Prime Minister's Report" was first commissioned on April 29, Lord Tu'ivakano, Tonga's new Prime Minister, required a better understanding of the major reconstruction project that had started under the previous government. Along with 'Ahongalu Fusimalohi, the PM's new communications advisor, the two investigators were authorised to gather accurate information and verifiable documents relating to the NDC projects
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"This is a high priority assignment of national economic development importance," the Prime Minister told them in a letter on April 29.

The Cabinet as the state's national executive owns the Nuku'alofa Central Business District Reconstruction Project. The Cabinet sub-committee, Nuku'alofa Development Corporation (or Council) known as the NDC is chaired by the Prime Minister and governs the project. It includes three other Ministers (who hold collectively Finance and National Planning as the government agent, with Lands, Environment, Works, and Transport).

The Prime Minister required that the NDC, government ministries and departments and the contracted companies, Ca'Bella Pacific Construction Ltd, China Civil Engineering and Construction Corporation (CCECC ), Fletcher Construction Company and BECA International Ltd. would provide relevant information and verifiable documents for the report.

The investigators, Pulu and Maka, were initially briefed by the Prime Minister's people including 'Akau'ola the Special Adviser on Foreign Affairs, 'Ahongalu Fusimalohi the Communications Advisor and Mahe Tupouniua the Secretary for Foreign Affairs on May 9 this year. (The Prime Minister is also the Minister for Foreign Affairs).

The PM wanted transparent information on six specific queries. These included finding out the exact amount of funding allocated to the NCD under the former government administration, the source of the funding and the original work plan.

They were to determine the exact amount of allocated funding spent on the project to date, the completed outputs and the amount that had not been spent.

They were also to find out which companies were contracted by the former government administration and what was the tender and recruitment process and what was the status of the companies.

Finally, the PM, who is chairman of the NDC, wanted the investigators to find out: "What is the governance and management process by which the NDC conducts its work and specifically, what is the reporting process to the Prime Minister and Cabinet in reference to project milestones and timeframes, financial statements and completed work outputs?"

Allegations unfounded

At their briefing the investigators heard the personal opinions of the PM's advisors who expressed tension over the borrowing of the TOP$118 million from the EXIM Bank of China for the reconstruction.

According the investigators, the advisors made "verbal unconfirmed reports, personalized allegations against the former government for missing funds . . . ."

But on completing the research the investigators found that these "allegations and opinions were not proven as factual or reliable during the course of research for the present Prime Minister's report."

They concluded that the allegations were without proof, prefabricated and damaging to the progress of the reconstruction project.

During their research the investigators exposed a culture of "personal gripes" in government and stated that: "NDC had become an explosive football kicked and passed from one set of political and personal issues to another."

Take over

In May two civil servants were authorized by the Prime Minister Lord Tu'ivakano to take over the management of the project.

The report claimed that the new government in taking over the handling of the NDC had returned to "the same old politics of wrangling for control over the Project Management Unit and the Employer's Representative - roles that carry out the contractual task of ensuring buildings are delivered according to the Nuku'alofa Development Corporation budget and policies."

The report questioned the legality of the setting up in May of a new management unit by the NDC National Technical Advisory Committee. This new management unit was set up by a letter written by Tukua Tonga, the Director of Planning and Urban Management Division of the Ministry of Lands, and signed by the NDC chairman on 7 May 2011 creating new roles of Project Director (Tukua Tonga) and Deputy Project Director (Taniela Kula).

The investigators published Tukua Tonga's email of 3 May to the Prime Minister's Communications advisor 'Ahongalu Fusimalohi urgently seeking the PM's signature on the letter to be presented to CCECC: "Attached herewith is the urgent delegation authority letter from NDC authorizing the Project Director and Deputy Project Director to dialogue and put our fingers in the pie 'so to speak' and in reference to contractual agreement under FIDIC (simply a global engineering standards working document) to start dialoguing with CCECC. . ."

The final letter was signed by the NDC Chairman, the Prime Minister and dated 7 May 2011, it was addressed to Mr Liu Zhiming, Chairman of the Board for China Civil Engineering Construction Corporation CCECC and titled, "Re: Delegation of Authority."

Confused

But the contractor the CCECC commended the work of the original Project Management Unit within Ca'Bella Pacific Construction Corp. under Engineer Manager, Charles Nepia, and preferred to work with him.

"CCECC was confused by the [new] Project Director and Deputy Project Director and did not see these Directors were needed," the investigators reported.

Final funding

There are only 10 months left before the final drawn-down of the loan on 31 March 2012, and when all construction works under the project are supposed to be completed.

A Tongan registered company, the Ca'Bella Pacific Construction Ltd. owned by John Walton was contracted in 2009 by the previous government of Dr Feleti Sevele to manage the project until its completion on 31 March 2012. The Project Management Unit is headed by Charles Nepia, engineer and manager, with Paul Karalus as project administrator. The report explained that private companies were brought in that year because by mid-2008 the Chinese were having difficulties in getting the project off the ground "and government's management team were proving ineffective".

The report claims the recent reorganization "signals a regression to past teething problems."

To successfully achieve the overall NDC project within a ten-month timeframe the investigators said it was now highly advisable that the Government maintains the status quo with the private contractors. "The existing operation of Project Management Unit staff and the Employer's representative on behalf of Government must be fully supported - not blocked from working by political agendas manoeuvring to take over the operation," the report stated.

Derailed

The investigators advised the Prime Minister on June 10 that the qualified building control inspectors and engineers must be allowed to do their jobs free from politically motivated obstruction, warning that, "If prevented from performing their professional role and responsibility . . . the control processes that ensure buildings are compliant with building, health and safety regulations, as well as quantifiably value-for-money, are derailed."

The investigators recommended that the NDC cabinet subcommittee withdaw the roles of the new Project Director and Deputy Project Director, stating that the May 7 appointments of the two blurred the contractual obligations and were "disrupting the day-to-day operation of the Nuku'alofa CBD Reconstruction Project".

"The pressing concern was that the NDC Chairman and Cabinet sub-committee seemed, in many ways that became apparent through the course of the report, inadequately advised by non-experts in the building industry and its public administration," the report stated.

Procedurally irregular

The report also recommended that the NDC should withdraw the participation of the Prime Minister's advisors on NDC related work, stating that "The Prime Minister's advisors are not officials and therefore, do not perform the contractual role of the State's regulatory body in the building industry. In reference to national development projects the advisors should not be permitted to interfere in governance processes . . .."

The report also noted that, "It is procedurally irregular, a conflict of interest for Cabinet to request the National Technical Advisory Committee to review NDC . . . Government cannot seriously propose to conduct an objective and politically disinterested review of itself."

What Cabinet will decide today or whether action will be taken on those recommendations remains to be seen.

Murky

Meanwhile, Mr Liu Zhiming, the Chairman of the Board for the China Civil Engineering Construction Corporation CCECC was informed of the new set up in the letter of 7 May.

Charles Napia, the Project Manager for the contracted companies told Matangi Tonga this week that he aware of what was going on but nothing had changed as far as he was concerned, they are working as normal but he admitted that "things are a bit murky."

On Wednesday June 22 a Press Release from the Prime Minister's Office stated that the Secretary to Cabinet had written a letter to the researchers Pulu and Maka and terminated their working contract. They disagreed with the findings of the researchers, but the report was to be presented to Cabinet on 24 June and they would hire new researchers to carry out a thorough research.

Background

Background information in the report focused on the contracted work financed by a concessional loan that the Government of the Kingdom of Tonga committed to on 19 November 2007 from the EXIM Bank of China, Beijing, for a total sum of RMB 440 million. RMB is the Chinese Yuan and the loan amount was reported to be equivalent to TOP$118m but, in fact, the total sum varies by conversion rates into Tongan Pa'anga over the time in which the loan is active.

The Nuku'alofa Central Business District Reconstruction originated from the Nuku'alofa riot on 16 November 2006 and a Privy Council decision concurred with the intentions of the king and cabinet that the concessional loan would be focused on the reconstruction. It was approved by the Legislative Assembly in 2007. The former Minister of Finance Siosiua 'Utoikamanu signed for the loan on behalf of government with the EXIM Bank and the CCECC.

(In addition a loan from the Asian Development Bank for USD$12.5 million was approved for the Integrated Urban Development Project (IUDP), and was turned into a grant. But The Prime Minister's Report noted that the IUDP had not progressed to the same effect as the Nuku'alofa CBD reconstruction project.)

Loan contract

The terms of the loan were:

• 2% per annum interest.
• 20 years term.
• First five-years interest only (2% interest is repaid by Tonga to EXIM Bank until 2014) .
• Balance of fifteen-years= fifteen equal payments (2014-2029, loan balance is repaid by Tonga to EXIM Bank) .
• interest on diminishing amount is the outstanding loan balance.

A separate agreement was also signed by the Government of the Kingdom of Tonga and China Civil Engineering and Construction Corporation (CCEECC)

• CCECC represents the construction contract, the contractor.
• CCECC governs the central business district reconstruction projects funded by the EXIM Bank of China loan.
• Federation of Consulting Engineers (FIDIC) Conditions of Contract for EPC-Turnkey Projects apply.

Loan conditions

But the conditions of the EXIM Bank of China Loan specified that there would be: "No Transfer of Funds from EXIM Bank to the Government of Tonga." The money is not physically transferred from the bank to government.

A condition of the loan is that EXIM Bank of China required the participation of a China Corporation. Hence, China Civil Engineering and Construction Corporation (CCECC) is the recipient of the loan funds.

The government of the Kingdom of Tonga controls the use of the loan funds as the borrower. Government authorizes draw-downs against the loan. The draw-downs are made directly by EXIM Bank of China to CCECC.

There are three contractual agreements that define the draw-down conditions of the EXIM Bank of China loan. These contracts are the FIDIC Conditions of Contract for EPC/Turnkey Projects, Government of Tonga and EXIM Bank of China, and Government of Tonga and CCECC.

An advance payment of 30% of the total loan allowed the contractor to fund initial mobilization, planning and design. On receipt of the advance payment of 30% of the total loan by CCECC as authorized by government of Tonga the Loan became effective. In this case for the central business district reconstruction, the loan did not become effective until April 2009 due to delays at the Ministry of Finance and National Planning.

The loan is effective for thirty-six months duration from April 2009 until 31 March 2011.

The balance of the loan is paid out under the progress payments. Progress payments are determined by work progress as agreed to by the Project Management Unit on behalf of NDC and CCECC. Progress payments are authorized by the Ministry of Finance and National Planning and payments are made quarterly. From each progress payment 30% is deducted as having been paid by way of the initial advance payment of 30% of the total loan.

Projects funded under the loan include:

• Taumoepeau Building (completed)
• Sanft Building (completed)
• Royco Building Refurbishment (completed)
• Royal Palace extension (completed)
• Tungi Arcade (forecast completion January 2012)
• Vuna Wharf redevelopment as a cruise ship berth (August 2010- February 2012)
• Central Business District Civil Works, including roads, footpaths, drainage, park and underground power (forecast completion October 2011)