CHINESE COMPANY LUEN THAI REPORTEDLY SEEKS TO OPERATE ALL

C O N F I D E N T I A L SECTION 01 OF 03 KOLONIA 000109 SIPDIS DEPT FOR OES EAP/ANP SUVA FOR JOE MURPHY E.O. 12958: DECL: 7/28/2019 TAGS: EFIS ECON PGOV PREL PINR FM SUBJECT: CHINESE COMPANY LUEN THAI REPORTEDLY SEEKS TO OPERATE ALL PORT AND FISH PROCESSING FACILITIES IN MICRONESIA REF: 07/10/09 E-MAIL FROM NEVILLE (HUGHES) TO DOUGLASS CLASSIFIED BY: William Douglass, Deputy Chief of Mission, AmEmbassy - Kolona, State. REASON: 1.4 (b) ¶1. (C) The largest fishing operation in the Federated States of Micronesia (FSM),Luen Thai, has reportedly submitted a proposal to FSM President Mori permitting the company to operate all port and fish processing facilities within the FSM. FSM National Government and State agencies responsible for handling and monitoring investments and the fishing industry are unaware of Luen Thai's proposal. If accurate, Luen Thai, which has stated other possible investors in the FSM are unable to match its fish processing efficiencies, may be able to dominate FSM's tuna industry. END SUMMARY. Proposal on President's Desk -------------- ¶2. (C) Oceania, an American company seeking to invest in the FSM, including its tuna industry, expressed concern to the Ambassador that Luen Thai submitted a proposal to FSM President Emmanuel "Manny" Mori that would give it control over all port and fish processing facilities in the FSM. On July 16, Kembo Mida, Oceania's attorney in the FSM and member of a well connected political family, told Econ/ConOff that Mori has a "substantive" proposal on his desk from Luen Thai. Mida explained that the proposal likely came directly from the Luen Thai's senior most levels and that the local managers are not involved in the negotiations. ¶3. (C) Mida plans to request a copy of the proposal soon. If Luen Thai is planning to expand or change its current fishing related operations, there are open bidding requirements that the FSM is not following. Mida stated that the FSM Attorney General does not appear to be aware of the proposal, but if Mida makes the request to see the document the AG will have to establish whether or not a proposal was submitted and if so, make a formal determination on whether or not the state must publicly release it or if it is rightfully confidential. Just because Luen Thai wants the discussions to remain confidential does not mean that FSM law permits the desired confidentiality. ¶4. (C) During a July 21 meeting, Chinese First Secretary for Business Bai Xai confirmed to Econ/ConOff that Luen Thai is reviewing possible expansion of its investments in FSM and was working with a mainland Chinese export/import company to secure a concessionary loan for the FSM. Bai stated the export company may be "China National Mechanica," but that he was unsure of the name. Bai then added that his office only becomes involved when the FSM National Government makes the formal request for a concessionary loan, so until that time he is unsure about the status of Luen Thai's investment proposal. ¶5. (C) Bai added that during earlier discussions, Luen Thai confirmed that it was looking to expand its operations to all four states within the FSM. He is aware of this because Luen Thai initially came to him looking for support for a concessionary loan to the FSM. Bai explained that since Luen Thai is not a wholly Chinese company they could not support the type of loan it was seeking. (The company is based in Hong Kong but also has at least one prominent American investor.) At that point, Luen Thai contacted the export/import company for coordination. Bai believes the Chinese company conducted a survey of unused port facilities in each of the states and has developed a plan to repair, upgrade, or replace the current facilities if the FSM National Government pays for the work. Bai believes that Luen Thai wants the FSM National Government to request a concessionary loan and then pay the Chinese firm to complete all required construction. Once construction is complete, Luen Thai would lease all of the sites from the FSM. ¶6. (C) Bai concluded that if Luen Thai is moving ahead as expected, the FSM Congress will review a bill on the proposed KOLONIA 00000109 002 OF 003 loan during its September session. Limits on Possible Fishing Related Investments -------------- -------------- ¶7. (C) When asked about possible expansion of port facilities, particularly transshipment plans within the FSM, National Oceanic Resource Management Authority (NORMA) Director Bernard Thoulag stated that he was not aware of any new plans. He added that because NORMA licenses the fleet and performs port side inspections of any fish destined for transshipment, he would know early in the process for any new investment. He acknowledged that Luen Thai is the only company currently operating and that Oceania and a company from Shanghai (nfi) were interested in tuna production. He then stressed that there is no room for expansion for transshipment plants. NORMA already licenses near the maximum number of ships within FSM's EEZ (long liner and purse seiner) and the current facility can handle everything coming in. The one area he thinks there is still room for expansion is a cannery operation. Thoulag contends that there is room for market expansion within the FSM on low grade tuna that is not immediately frozen and shipped out. ¶8. (C) FSM/FFA Advisor James Movick stressed to Pol/EconOff on July 16 that the FSM is looking for "serious" investors that could act quickly on proposed investments. (Note: Movick used the adjective "serious" to show his disregard for Oceania. End Note.) He then added that Luen Thai has an advantage over other investors because they are already on the ground. Movick spent some time praising Luen Thai's integrated system from catch to sale. He explained that this made Luen Thai the dominant investor in the FSM fishing industry and it was not the FSM's fault that others could not compete. (Comment: It remains unclear if Movick knows of Luen Thai's proposal to Mori. It is clear, however, that despite repeatedly stressing FSM's open door policy to all investors and particular support of American investors, he is dismissive of Oceania and others in favor of Luen Thai. End Comment.) Competitors -------------- ¶9. (SBU) While discussing investment opportunities for Oceania, Mida expressed concern that the American company was being caught in the middle of an internal political squabble between Pohnpei state, the FSM National Government, and others. He stated that after bidding was closed, the Pohnpei Port Authority (PPA) informed Oceania that Luen Thai had bid on the lease of Pohnpei's only tuna transshipment building. If true, Oceania never had the opportunity to bid and thus will have no opportunity to operate in the docks beyond renting some freezer units. This would also contradict the agreement Oceania had with Pohnpei State Governor Ehsa. ¶10. (C) In a meeting with Chargi d'Affaires, Governor Ehsa stated he was not aware of any new agreements or concessions negotiated with Luen Thai. He did know that the company sought additional financial backing from the Chinese Export/Import Bank, but Luen Thai has been pursuing those loans for a quite some time now. If Oceania is aware of additional agreements the governor wanted to hear about them from the company. Chargi contacted Kembo Mida after the meeting to pass on the governor's request. ¶11. (C) Pohnpei's Foreign Investment Board (FIB) Executive Director Quirino Loyola stated on July 17 that Luen Thai's KOLONIA 00000109 003 OF 003 current contract is explicitly with Pohnpei State and that their permit to operate in Pohnpei has an automatic termination date. The contract also limits Luen Thai's scope of operation to the current transshipment facility and directly related activities at Pohnpei's Port. Loyola added that if Luen Thai is looking to expand its fishing fleet it is up to the national government, but any changes or expansion to its current investment in Pohnpei would have to go through the FIB. As of July 23, there was no such proposal. PPA Acting General Manager Ron Reyes told Econ/Conoff on July 23 that the only relationship the port authorities have with Luen Thai is lease payments for the transshipment facility. If there is any expansion or change, neither the State nor National Government has notified PPA. Reyes added, however, that in the past Luen Thai arranged for contracts and the State only informed the PPA after it made a final decision on port operations, rather than through consultations. ¶11. (C) Japanese Ambassador Sato confirmed to Charge d'Affaires on July 23 that Japan had some concerns about the current fisheries investment structure in the FSM. Sato complained that Japanese assistance intended for the FSM seems to be helping Chinese and Taiwanese based companies that are operating in Pohnpei. At least one Japanese company is reviewing the possibility of opening a joint venture with the FSM National Fisheries Cooperation, but the overall climate is not encouraging. Currently, Chinese companies send tuna caught in FSM waters to Japan from the FSM, it is not ideal situation for Japanese companies. Sato repeated earlier comments that the FSM and Japan are looking to the Japanese funded airport runway extension in order to transship tuna directly to Japan. (Note: Although expressing some concern about the limited investment opportunities for interested Japanese companies vice others already in the region, Sato never mentioned Luen Thai by name. End Note.) Comment -------------- ¶10. (C) Although Post has no confirmation from anyone that has read Luen Thai's proposal urging the FSM to take a concessionary loan from China, all indications are that such a proposal is with the President. If Luen Thai is able to obtain an agreement even close to the speculative proposal, it will have near control of tuna related operations within the FSM. As a company, Luen Thai appears to be an aggressive investor and negotiator. The possibility for a monopolistic industry is neither beneficial to the FSM nor to other hopeful investors such as Oceania. Post anticipates additional movement on Luen Thai's possible proposal as early as September. End Comment. DOUGLASSWD