CHINA TO BID U.S. COMPACT INFRASTRUCTURE PROJECTS IN

C O N F I D E N T I A L SECTION 01 OF 02 KOLONIA 000177 SIPDIS E.O. 12958: DECL: 12/3/2018 TAGS: PREL EAID FM CH JA SUBJECT: CHINA TO BID U.S. COMPACT INFRASTRUCTURE PROJECTS IN MICRONESIA REF: KOLONIA 152 CLASSIFIED BY: Miriam K. Hughes, Ambassador, Amembassy Kolonia, State. REASON: 1.4 (b),(d) ¶1. (C) Summary. In the Federated States of Micronesia (FSM), the Chinese Ambassador has exercised broad authority from Beijing to initiate significant construction and other aid projects. The other three chiefs of mission from Japan, Australia and the United States use the limited resources at their disposal creatively. China announced it will bid major U.S. Compact infrastructure projects in the FSM that the other embassies did not previously know about. If so, China may be the sole or the most competitive bidder. End Summary. ¶2. (C) In her role as dean of the Federated States of Micronesia's (FSM) small diplomatic corps and in response to a suggestion of the U.S., China's Ambassador Liu Fei recently hosted a dinner in her embassy for her counterparts from Japan, Australia and the U.S. The four ambassadors shared information on their respective aid programs in the FSM. Ambassador Liu clearly enjoyed the broadest scope of ambassadorial authority to identify and undertake significant projects. PRC Government-sponsored builders continue to work seven days a week on erection of a Pohnpei State Government office complex, which will be the largest building in the FSM and the first to feature an elevator. Ambassador Liu also announced at dinner that China had just conducted a groundbreaking ceremony for a new high school in Kosrae. (Note: The Kosrae Education Director had complained to Embassy officers that FSM President Mori had compelled the state to demolish an existing high school that already functioned well on the same site. The state paid for the demolition. High school students have been relocated. Reftel) ¶3. (C) In Chuuk State, Ambassador Liu noted that a Chinese company, Jiang-su, had won a U.S. Federal Aviation Administration (FAA) Airport Improvement Project (AIP) USD $5 million contract to construct buildings to shelter two airport rescue and fire fighting vehicles that the FAA had donated. (Note: The FAA advised the Embassy that China was the sole bidder on this project in a formidable environment that is not attractive to competitors. Chuuk lacks electricity, construction materials, skilled labor, clean water and sewage. Chuuk's airport manager has nevertheless complained that the performance of Jiang-su has been fraught with its own difficulties arising from substandard Chinese construction material, poor workmanship and inability to communicate in English. All these shortcomings have supposedly delayed schedules.) ¶4. (C) Nevertheless, Chinese construction workers are now a significant work force element within the FSM. To take further advantage of this on-site labor pool, Ambassador Liu said that China intended to compete for all the U.S. Compact infrastructure projects that are now supposedly open to bidders. By drawing upon Chinese workers who are already based in country, Ambassador Liu opined that China was likely to be the most competitive bidder, particularly on a USD $30 million Chuuk road repair project. ¶5. (SBU) Post is now contacting local interlocutors to confirm Compact bidding announcements and China's possible bids. The only website located so far is that of the GMP Company in Hawaii, which features unofficial information on Compact projects. ¶6. (C) At dinner, the Japanese and Australian ambassadors expressed polite skepticism about Compact infrastructure. Australian Ambassador Susan Cox was generally critical of U.S. Compact implementation, which she alleged had provided a comfortable cushion for dysfunctional FSM governments, while failing to stimulate Micronesian initiative or to move the nation ahead toward sustainable development. Ambassador Cox observed that she worked closely with an AusAid officer in her Mission to administer a small amount of some USD $2.6 million worth of discretionary funds. She described trips to dilapidated schools in Chuuk - all funded with Compact money - where few teachers and students came to class or spoke English. On the island of Udot, she described a poignant incident in which one English-speaking teacher broke down and cried over deplorable conditions. "Our children have no future," she reportedly wept. Ambassador Cox said she promptly designated Australian aid for English languages tapes and tape recorders. ¶7. (C) Japanese Ambassador Shoji Sato highlighted Japan's USD KOLONIA 00000177 002 OF 002 $20 million project now underway to extend the Pohnpei airport by 800 feet. However, he wryly admitted that he personally doubted the runway expansion would bring in future jet loads of tourists, as Pohnpei remains underdeveloped and hostile to foreign investment. He noted the more effective role he was able to play with a relatively modest aid program of some USD $10 million. He said he was particularly targeting potential business projects that would serve Japanese interests while also stimulating Micronesian entrepreneurship. ¶8. (C) U.S. Ambassador Hughes alluded to the magnanimous breadth of Compact grant assistance, which exceeds $115 million and funds some 60 percent of FSM government budgets. The Chinese and Japanese ambassadors praised the Compact for providing a stable base for their own activities. Ambassador Liu said that although the Compact did not work well, it was a vital anchor that enabled other donors to contribute what they could. At the same time, she gently chided Ambassador Hughes, "You have the hardest job of any of us because you have no discretion whatsoever on how all your aid money is spent." While acknowledging that improving Compact results was a major challenge, particularly for the U.S. Department of the Interior, Ambassador asserted that there was really no basis for comparison and the United States was not engaged in aid competition. Finally, Ambassador Hughes praised the collegial exchange of views that she had called for among the small diplomatic corps and urged that they continue to share insights and information. HUGHES