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

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$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