Following much speculation about the new airport development by the Vanuatu Trade Development Limited, the government through the airport development’s Task-force Committee has released this lengthy statement on the airport infrastructure development, which Daily Post will run half of it in Monday’s edition. The whole statement can be accessed online on Monday in the Daily Post website.
On the 27th of July 2013, the Government of the Republic of Vanuatu signed a concession agreement with Vanuatu Trade Development Limited (VTDL) for the design, construction, operations and transfer of a new Greenfield airport in Vanuatu with the capacity to accommodate larger long haul direct flights from any country in the world. Following the signing of the concession agreement there have been a number of ill-founded arguments through the media by some political leaders and others, seemingly influenced by external or private interests. This press statement is issued to clarify the situation and provide factual information as well as serve as an update to all.
On 21st January 2013, the then Prime Minister, Sato Kilman, issued a letter in relation to the international airport to all the members of his cabinet, all Director Generals and other senior civil servants.
The letter stated his great concern on the lack of progress because of the fragmented discussions by different parties concerning the construction of the international airport with different line agencies in his government. The letter stated that the matter had been in the pipeline for the last 30 years. The then Prime Minister further advised that because of the lack of satisfactory progress in achieving this objective, he as Prime Minister decided to take it upon himself to pursue the upgrading of Bauerfield Airport and the construction of the new international airport.
He further stated that the intentions of the Government were to facilitate implementation and completion of the initiative without government having to put up any monies using a Build, Operate, and Transfer (BOT) arrangement. He further advised that the matter was under negotiation with an interested party who was prepared to consider the government’s preferences in respect of the implementation of the initiative and accordingly instructed all ministries to suspend all discussions with other parties and allow the current negotiations to be completed or if unsuccessful then the government would pursue other avenues.
Consequent to this, the then Prime Minister Sato Kilman established a task force with the specific task of examining the various options that had been put forth for the government’s consideration. The task force comprised of a broad range of experts from within government, and a representative from the private sector.
There were quite a number of expressions of interest put forth, most of which were discarded as impractical. Three of the proposals were examined as there was sufficiently enough detail provided to pursue the matter further. These included one from Shanghai Corporation Limited, a Chinese company proposing a loan for USD154 million, one from the International Finance Corporation (IFC) the private sector arm of the World Bank proposing a PPP (Public Private Partnership) part loan and part equity and finally one that was proposed by VTDL using a Private Finance mechanism and on a design, build, operate and transfer principle. It had taken the Government and the Nation over 6 years to finally engage an interested investor to answer the needs of the Government and the Nation in constructing an airport that could receive long haul flights using the Privately Financed Airport Infrastructure Act that was enacted by Parliament in 2008 under the Executive led at that time by the then Prime Minister Ham Lini.
The first two proposals focused on Bauer field in particular and certain outer island airports. Neither of them focused on building a new airport. The 3rd proposal focused on building an entirely new Greenfield airport, the upgrading of Santo Pekoa Airport, with the option to upgrade both the Tanna White Grass Airport and the Malekula Norsup Airport. All of these proposals were carefully analyzed and then a submission presented on the various options to the COM through DCO for final decision as to which option to adopt. The COM after its deliberations, decided on 18th April 2013 [COM decision 19/2013] that:
1. The COM agrees to Option 3 as it is the most economically responsible in consideration of the Governments’ resources and growth aspirations;
2. Instructs the Airport task force to work with the company concerned to finalize the concession agreement and develop the proposal further for project implementation
3. Instructs the Airport task force to work with the company concerned to renovate Bauerfield international airport as soon as possible.
It was at the direction of the COM that the airport infrastructure taskforce (herein after AITF) undertook a fact finding mission to Singapore to conduct further due diligence on the company, its directors, its shareholders and related companies and to ascertain their capacity to carry out the project as anticipated. During this mission, the AITF also completed work on the COM19/2013 directives 2 & 3, in finalizing the concession agreement. At all times the company was informed that the final document would be subject to COM approval. The AITF completed its lengthy task and presented its report and recommendations to COM through DCO.
On 04 July 2013 the COM unanimously decided via decision 88/2013 that:
a. Took note of the presentation (from the task force)
b. Mandated the Task-force to conclude the concession agreement
c. Mandated the Task-force to draft the promissory note for tabling at the August parliamentary session
d. Mandated the Hon DPM and Minister of Foreign Affairs to get a second legal opinion on the concession agreement
e. Mandated the Prime Minister to sign the concession agreement
Further to this COM decision, the Prime Minister on 07 July 2013 instructed the task force to consult with certain private sector individuals as well as a lawyer from the law firm John Mulally and Associates based in Australia in order to obtain a second legal opinion, which was provided in a report to the Prime Minister on 17th July 2013.
The Prime Minister then instructed the now expanded Task-force on July 18, 2013 to consider the relevant points that should be incorporated into the concession agreement. Having acted on this, the expanded task-force met with the company for the final round of the negotiations on the 24th of July and finalized the document as directed by Hon. Prime Minister and the COM.
On 27th July, prior to the signing the Prime Minister and the Deputy Prime Minister had the opportunity to discuss with the private sector representative about certain concerns and it was confirmed that all the concerns raised had been addressed in the final document. The final document was then referred to the PM for his perusal and final decision as per the mandate provided given to him by the COM. That decision resulted in the signing of the concession agreement on the 27th of July 2013.
Other Public Concerns.
GMR Maldives connection.
Failed Project of Maldives- The Government has already advised that GMR is a different company promoted by different people not the same promoters as VTDL. This has also been confirmed in writing through a letter from GMR that it has no connection to VTDL.
There have been a number of concerns raised in the formal media and also via the social media in relation to the promissory notes. The concerns are primarily that the promissory notes represent a borrowing for the government and will exceed the nations stock of debt. Furthermore it was also stated that if we give the promissory notes, they are like a bank guarantee and that the issuance of the promissory notes would be fraud as the government does not have this amount of money in the reserve bank. The other allegations are that the promissory notes if issued will be used a trade able financial instruments to raise money for the financing of the project. All of these concerns are misconceived or perhaps simply because there is a lack of understanding of the nature of the promissory notes and the fundamentals of public finance. Alternatively, it could simply be an attempt to mislead the public and make a contentious issue that can be used for political purposes, especially given the pending by-election in the Port Vila constituency.
The Government of the Republic of Vanuatu has engaged with a private sector company to invest its own monies, which are estimated to be to the tune of over $350 million, in the aviation sector of the country. The investor however is also rightly concerned that it will be investing in a country that is very politically volatile, i.e very high political instability and frequent changes in government. The concern here is that armed with the concession agreement, there is no assurance that if the government changes in four years time or based on historical experience of Vanuatu sooner, that the new government would not terminate the agreement and then boot the company out. As this is a significant amount of money and also a significant undertaking in terms of scope and magnitude, no private sector investor in its right mind would want to invest money without some form of security that its investment will be protected and it will be given adequate time to operate to be able to first recover the cost if its investment and then make a return. The company is well aware that the Government does not have this kind of funding in the bank and as such have advised that they are willing to accept a promissory note and not a bank guarantee, which was initially requested. The use of promissory note in this agreement is a form of assurance to the company that the government will not default on its commitments made under the concession. There is concern from the public in reference to our previous experience on the issue of bank guarantee. This is not a bank guarantee in the sense of the previously issued “Swanson” bonds or lately the “Gosh” bonds. Those financial instruments were issued specifically for the purpose of trading in the financial markets with the aim of raising money and were supposedly backed by funding of the government or the official reserves of the government. At the amounts that the bank guarantees were given to both Swanson and Gosh, they were in fact fraudulent instruments as there was no money to back up the guarantees.The promissory notes to be issued here do not have to be backed up by the RBV or from official government reserves upon issuance; they are merely documents that guarantee the security of the tenure of the concession and by association the company’s investment with the threat that will only crystallize upon default by the government. In short if the government honors its commitments, then there will be no risk. Any promissory note that may be issued under this agreement will be done strictly in accordance with the relevant laws of the Republic of Vanuatu, which in this case requires the approval of parliament, then the Minister of Finance to issue the notes in accordance with the provisions of the Public Finance and Economic Management Act (PFEM Act) There is also concern that the promissory note will increase the value of our national stock of debt thereby reducing the chances of the government borrowing for future projects. It must be emphasized here that this is not the case as it is not a borrowing for the government. It will be treated in the books of the government as a contingent liability and as per the nature of the instrument will only become a liability if and when the government fails its commitments under the concession agreement. As such it will not increase nor affect the countries stock of debt or its ability to borrow for other projects. The Promissory Notes in this instance is divided into four parts, 3 lots of USD$100 million and one USD$50 million and will be issued under following conditions:
– the promoters provide confirmation of the source of funding
– feasibility studies of Bauerfield, the Greenfield and Pekoa completed and agreed by the Government.
– Parliamentary approval is obtained to enable the Minister of Finance and Economic Management to invoke the provisions of the PFEM Act to issue the notes.
Loss of control of Airports
The public has also raised statements that once the concessionaire comes in; the Government will lose all its control over the airport, its operations and the skies. These statements are completely false, as under the concession all sovereign functions will continue to remain with the Government and the operations of the airport will be governed under the laws of the Republic of Vanuatu. It is also important to note that under the ICAO convention, Sovereignty is paramount, so certain roles and functions will always remain State obligations and can only be handled by the State
AVL board appointments, conflicts of interest and removal of AVL CEO.
Allegations have been raised that the appointment of the board of AVL is illegal and that the appointment of the Chairman of Air Vanuatu onto the board of AVL is a conflict of interest.
Both of these allegations are false. Firstly, the appointment of the Board of Directors of AVL is properly constituted and made in accordance with article 76 of the Articles of Association of the AVL. Article 76 of the Articles of Association provides for the requisite composition of the Board of Directors. The said article 76 also provides for the company to otherwise determine another composition of the Board of Directors. The appointments made by the Shareholders were and are appointments made in accordance with this latter aspect of the requirements of the said article 76. Hence there is no question as to the legality of the appointments of the board of directors.
On the issue of conflict of interest, Air Vanuatu is an AOC (Air Operator Certificate) holder whereas AVL is an Airport Operator. AVL has also been delegated some powers as an airport authority, such as the power to run aviation security services, amongst others. While the two companies play different roles, the airline is still required to pay airport and air navigation service charges as any other airline operating into and out of Bauerfield (AVL). Inversely, the airline would require that such services being purchased meet certain standards and are reliable so as to enable the airline to offer its customers a safe and secure service. Both of the services are regulated by the Civil Aviation Authority of Vanuatu (CAAV). There is no conflict of interest and the ICAO in its last general assembly approved the ASBU Methodology as the way forward for future development in civil aviation. ASBU stands for Aviation System Block Upgrade where it is recommended for states to develop their aviation infrastructure and systems in blocks so as to ensure affordability and taking into consideration advancements in technology. ACDM or Airport Collaborative Decision Making is one such block that is considered as a low-hanging fruit. As such, from the Governments perspective, members being in both boards would allow for greater understanding between the two state owned entities thus contributing towards ACDM.
There is also some speculation that the CEO of AVL has been removed, this again is totally false. Mr Peter Bong is still the CEO of Airports Vanuatu Limited. He is simply on suspension pending the outcome of investigations into allegations of conduct in the company. As per the principles of natural justice, once the investigations are complete and should there be findings answerable, he will be given the opportunity to respond and a final decision will be made in regards to reinstatement or termination. The AVL board will be issuing its own press release providing details on this matter in due course.
200vt Company and no expertise
Concerns have also been raised in the media that the company is a so-called $2 company and that it does not have the expertise to manage the airport. These comments are at best naïve, as the company is not so a called $2 Company, it has significant paid up share capital and is also part of a group of companies. They will be financing and owning the airport, but in respect of operations and management, of course they will subcontract out to expert aviation operations and management companies. This is a common operational structure for multinational corporations that have diversified investment portfolios. This is already seen in the recent coring and sampling of the Bauerfield runway and apron, the Company has contracted Tonkin and Taylor and Webster drilling of NZ who are experts in geotechnical reports and drilling respectively and were both supervised by the Management and engineering consultant company Leading Edge Aviation Planning Professionals (LEAPP), who are also contracted by the VTDL. It is not a requirement for the owners to have to have technical knowledge on how to manage and run the airport, if this was so then more than half the international airports would not exists, as they are managed and operated by different companies other than the owning companies or individuals. These types of concerns whilst welcomed are misleading and display a remarkable ineptitude in the understanding not only of corporate finance but also in company structures and operational options.
Concession contract being unconstitutional
The media has also published concerns that the concession agreement is unconstitutional. The Government wishes to advise the legality of the concession agreement has already been decided upon by the both the Supreme Court and the Court of Appeal which is the highest court in the land. It is therefore of no use for the Government to continue to debate this matter for the sake of publicity or scoring political points. The decisions of the courts are quite clear that the concession agreement is legal and valid.
The Government appeals to the people of this nation to be united in working towards building this economy through this project and other similar projects. The Government is now working on many other very large infrastructure projects such as:
1. Vanuatu Inter island shipping support project
2. Port Vila Urban Infrastructure Development Project
3. Tourism Infrastructure project
4. Port Vila Lapetasi Multipurpose International Wharf Development Project
5. Submarine Cable – now complete and fully operational
6. Improved Rural Road Projects
These projects are targeted towards building the economic capacity of the country. One of our constraints is the lack of access to markets, therefore this project will enable Vanuatu to trade in goods and services with Asia and other countries as well as attract tourist from Asia and the larger global community to come directly to Vanuatu. It is a catalyst to encourage investment in the tourism sector and productive sector. This project will encourage big hotel names to come and invest in Vanuatu thereby create employment for our population. The rural population will benefit greatly from these projects, as agricultural production will need to meet the needs of the tourism industry. It will ensure that people do not have to sell their land because it will be a source of income generation for them to engage in the productive sector to support the increased demand for agricultural produce.
For far too long have we been dependent on aid and whilst we fully appreciate the assistance and support from our development partners, we must be in control of our destiny and as such the government must find a way to generate economic activity to create employment, generate sufficient revenue to provide and sustain services to its people. The Government will need the support of all it good citizens, residents and the continued support from our development partners as we embark on this ambitious road-map designed to create sovereign space for Vanuatu, engage in trade and not aid to build this country and finally to ensure that our destiny is in our hands as we strive towards that ever elusive goal of self- reliance.
To the people of this country, and especially the young people who make about 68% of this country, the Government has engaged itself in this and other projects to create jobs for you. The Government considers this international airport project to be a catalyst for many other developments in tourism, industry and the agriculture sector. These will increase employment opportunities and income generation activities for our citizens. We have to be united now in order to be well prepared for this project.
The Government wishes to caution the political leaders to refrain from misleading the citizens of this country. Furthermore, it also cautions foreigners and other interest groups masquerading behind private sector identities to refrain from spreading misleading information about government decisions. The Government in recently launching its right to information policy, is recognizing the role of the media in shaping public opinion and the right for people to have information, and as such the government wishes to advise the media that it must be responsible in its reporting and be sure to provide reports that are based on truth and fact rather than on speculations and sensationalism for the purpose of selling papers, profits and gaining market share.
The Government is working towards a new decade starting in 2020. It will be a new Vanuatu that is connected to the rest of the world, through modern Aviation and Information technologies. After 33 years of independence, and a struggle to achieve developments in our country, this is now an opportune time to trust ourselves and make important decisions to change our country. This is your project and your support is essential.
May God bless the people and this Republic of Vanuatu.
LONG GOD YUMI STANAP
From daily post Vanuatu 12/4/2014