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

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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

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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

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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

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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