NAURU GOVERNANCE PROBLEMS RECUR

C O N F I D E N T I A L SECTION 01 OF 03 SUVA 000135

SIPDIS

SIPDIS

E.O. 12958: DECL: 04/07/2018
TAGS: PREL PGOV PHUM NR
SUBJECT: NAURU GOVERNANCE PROBLEMS RECUR

REF: A. SUVA 424

B. SUVA 538

C. SUVA 408

Classified By: Amb. Dinger. Sec. 1.4 (B,D).

Summary
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1. (C) Tiny Nauru has slid into another period of political
instability. The landslide re-election of the reformist
Scott government in August 2007 brought a sense of hope (Ref
A); but leadership battles since have pushed Nauru back into
seesaw political squabbles that we had hoped were history.
Parliament is currently gridlocked nine-to-nine, reflecting
the settling of old and new scores among Scotty Government
ministers who are now rivals since a new Marcus Stephen
Government came to power last December. A demonstration in
February ostensibly over the Stephen Government's failure to
respond adequately to citizen complaints of industrial
pollution from resumed phosphate milling and the torching of
Nauru's police HQ the same day accent the unstable political
environment. The infighting has effectively stalled
governance, blocking action on crucial economic concerns and
prospects. End summary.

Political upheaval returns to Nauru
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2. (C) When Ludwig Scotty and a group of reformist colleagues
won Nauru's 2004 election, toppling the government of
then-President Rene Harris, the new government set out to
correct a history of poor governance and corruption. The
Scotty team's record was impressive enough that they won
re-election by a landslide in August 2007 (Ref A). Later in
the year, though, the Scotty coalition split asunder (Ref B),
with Ministers Keke, Pitcher, and others accusing Foreign
Minister Adeang of corrupt practices related to a group of
Chinese-Thai businessmen involved in Nauru's Bangkok
consulate. Keke, now Foreign Minister, says Adeang had also
inappropriately approved government payments to some
constituents and operated a slush fund of unknown origin
during his August 2007 campaign for re-election. Adeang
denied the allegations, and Scotty backed him. In December,
the Keke/Pitcher group managed to win a parliamentary vote of
no confidence and installed Marcus Stephen as President, with
Keke as Foreign Minister and Pitcher as Commerce and Energy
Minister.


3. (C) In March, the Stephen Government lost its thin
parliamentary majority, and Adeang maneuvered to become
Speaker of Parliament. In the face of a seemingly
intractable 9-9 split, Adeang called a session of Parliament
over the Easter weekend, while Keke and Pitcher were in
Australia and allegedly without a quorum, and pushed through
legislation forbidding any MP from holding dual citizenship.
Thereafter, he attempted to bar Keke and Pitcher, both dual
Nauruan/Australians, from Parliament. President Stephen,
head of the Police, refused to enforce the ploy. Both sides
called on Nauru's Chief Justice, an Aussie judge who resides
in Kiribati, to resolve the constitutional conundrum. Keke
reportedly told the media this week that the CJ has ruled in
the Stephen Government's favor.

Neighborhood Protest; Burning of Police HQ
--------------

4. (C) As the political muddle was developing, on February 7
a crowd of some 30 angry residents of Aiwo, adjacent to
Nauru's phosphate processing plant, cut the lock on the Nauru
power plant's fence, occupied the site, and demanded a
shutdown of electricity for phosphate mining purposes. The
protesters were complaining about phosphate dust.
Accusations and counter accusations about unpaid rents on the
power-plant land and unpaid electrical bills also were in
play. Eventually police convinced protesters to leave the
plant. Later in the day, someone set fire to the national
police headquarters, a few miles away. Only favorable winds
and a concrete wall spared the entire government complex and
parliament from going up in flames. Authorities are
convinced that the arson was related to the power plant
protest and that both activities were almost certainly
instigated by former President Harris.

Harris and the PRC?
--------------

5. (C) Harris remains an "independent" MP from Aiwo district.

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In Nauru, population 10,000, all politics is incredibly
local, and many in Aiwo are related to Harris. Foreign
Minister Keke claims that Adeang has been negotiating with
Harris to bring down the current government, promising Harris
the presidency. Keke suggests Harris, as President, could
open the door to re-establishing relations with China, which
Harris accomplished previously, before Scotty re-instated
Nauru's longer-standing bond with Taiwan.

Pollution a Pretense?
--------------

6. (C) Keke dismisses the idea that phosphate dust triggered
the February protest at the power plant or the fire at police
HQ. While the dust is a real problem, clogging rooftop water
catchment systems and gradually polluting groundwater with
cadmium, the air pollution reportedly is much diminished from
during the plant's heyday. Keke also doubts the protest was
keyed by the fact that Harris and other Aiwo protesters are
traditional owners of the power plant's land and believe they
retain access rights. To Keke the real trigger was that a
hotel owned by the Harris family owed a $500,000 electricity
bill, other Aiwa residents also had big bills, and the
utility had cut off power.

Squabbling Leaves a Budgetary Vacuum
--------------

7. (C) Meanwhile, important legislation before Parliament is
stymied. The Stephen Government tabled a budget, but has not
been able to muster a majority to pass appropriation bills.
Australia's Consul General on Nauru says millions of dollars
in aid cannot be released without the requisite bills passing
parliament. According to Foreign Secretary Maiava, if no
appropriation bills are passed by the end of the fiscal year
on June 30, new elections are inevitable.

Canberra Prepares to Help Again
--------------

8. (C) Aside from the budget, Nauru faces other crucial
challenges and opportunities on its economic front. The Rudd
Government's winding up of Australia's controversial offshore
refugee processing center on Nauru in February left in doubt
Australian budgetary support for Nauru's otherwise bankrupt
national treasury. According to Keke, revenues derived from
hosting the center have accounted for 20 percent of Nauru's
28.5 million Australian dollar (USD 26 million) GDP. In late
February, Keke met with his new Australian counterpart,
Stephen Smith, to discuss a new MOU and ongoing support.
Keke pleaded for Australia to help build sustainable
industries, such as fish canning or ship maintenance, to
support Nauru's long-term economic well being Smith
reportedly said the Rudd government is committed to helping
Nauru weather the current fiscal storm. (Comment: Finding
"sustainable industries" for Nauru will be a challenge. Fish
canning and ship maintenance do not strike us as likely
prospects.)

Phosphates Second Coming: A Last Chance?
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9. (U) Actually, phosphates, which brought boom and then bust
in the past, may still be Nauru's saving grace, despite the
dust problem. Per Ref C, a layer of phosphate has been
discovered beneath the current mining operation and is
believed sufficient to sustain another thirty years of
mining. Nauru exported 335,000 tons of phosphate in 2007.
Production costs remain high, but increasing efficiencies and
a worldwide phosphate shortage could eventually shift the
industry's fortunes into the black. Vinci Clodumar, CEO of
the Nauru Rehabilitation Corporation (NRC),which is
responsible for the mining of phosphate, told PolOff that the
NRC has recently invested some A$6-7 million in new equipment
to mine the so-called secondary phosphate.


10. (C) Lacking non-phosphate natural resources other than
marine fisheries, which net the country some USD 5-8 million
annually, the Stephen Government is painfully aware, as was
the Scotty Government, that Nauru cannot afford to bungle any
second phosphate boom. However, it is difficult to balance
immediate demands from land owners, who claim to be owed
millions in royalties and rent, with the need to bank much of
any new phosphate revenues for the future day when no more
layers of phosphate exist. In July 2007, just prior to the
August elections, the Scotty Government approved the first
royalty payments to landholders since 2001. A second tranche
was paid by the Stephen Government in February this year, but

SUVA 00000135 003 OF 003


the current payments are minuscule compared to those last
made in 2001, and landowners were not placated. Keke,
Pitcher and others in the current government assured us that
Nauru will not repeat the mistakes of old. Last year, Adeang
assured us the same. This time around, all, except perhaps
former President Harris, have said transparency and fiscal
sobriety must be the mantra.

A Whiff of the Bad Old Days: Our Airline Eyes OzJet
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11. (C) A worrisome indicator that the invocations of fiscal
responsibility should be taken with a grain of salt is that
government-owned and Taiwan-financed Our Airline (formerly
Air Nauru) is reportedly negotiating the possible takeover of
a small, Australia-based regional carrier OzJet. Press
reports say OzJet had its eye on Our Airline, but the tables
have turned. Our Airline covets OzJet's service to Norfolk
Island, which was a cash cow for Air Nauru before it lost the
route following Ex-Im Bank's seizure of Air Nauru's sole
aircraft in 2005. According to an Embassy contact, the
proposed OzJet deal was a main reason for the trip by
Ministers Keke and Pitcher to Australia over the Easter
weekend. One of Nauru's past problems was leaping after
"opportunities" that turned out to be very un-economic.

Comment
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12. (C) One might have thought Nauru would have learned from
past governance failures; but the past four months of
parliamentary stalemate and highly charged accusations are
very disconcerting and do not bode well. The cooperative
atmosphere between the United States and Nauru, under both
the Scotty and Stephen governments, in the United Nations and
in regional bodies could be put at risk. The China-Taiwan
competition, never far beneath the surface in Nauru could
threaten good governance yet again. Nauru is very small, but
bad governance there can disrupt regional cooperation. That
is a reason why the Pacific Islands Forum took on a special
assistance mission there, even before the latest political
mess. It is in the USG interest to keep urging Nauru leaders
to forsake personal and short-term agendas in favor of
stable, far-sighted governance.
DINGER