Analysis – By Dr Wadan Narsey
Two recent media releases indicate that the Fiji National Provident Fund board and management (at the instigation of the military regime) are digging the hole deeper for FNPF, with no accountability to the owners of FNPF and media censorship blocking all public discussion.
The first is the bad restructuring of the $303 million loan by FNPF to Natadola Bay Resort Limited (NBRL); and the second is the massively risky $200 million loan to help Air Pacific buy 3 Airbuses in 2013, completely contradicting the most recent advice by recent consultants (Promontory) on sound investment policy for FNPF.
Why interest free indefinite loan to NRBL?
The 2011 FNPF Report states that the $303 million loan to NBRL is being restructured so that while $100 million will draw an interest of 8 percent a year, the remaining $203 million will become an indefinite loan – and interest free.
FNPF will effectively give a $16 million subsidy annually to NBRL – some 40 percent of the total value of all the pensions currently being paid annually.
First, any decent accountant or economist would advise that all transactions between a parent company and a subsidiary should be done at “arms length” with subsidiaries being charged the same interest rate that other borrowers are being charged.
To convert $203 million into an interest free loan will artificially increase the apparent profitability of the subsidiary (NBRL), while reducing the apparent performance of the rest of FNPF.
Second, by not charging interest on the large loan, NBRL is being given no incentive to repay the loan as soon as possible- especially when it is “indefinite”.
Third, if in future, this military regime’s forced takeover of private assets at Natadola and vested in NBRL by military decree is legally and successfully challenged, then the assets of NBRL will become logical targets for litigants.
The books for NBRL should therefore show its true worth- not artificially inflated through interest rate subsidies given by FNPF, which may then be claimed in future by legitimate litigants.
Which financial institution in the world, gives an interest-free indefinite loan like this? Who dreamt up this scheme? Who in FNPF management agreed to go along with this? Why would the unelected, illegal FNPF board members agree to this subterfuge to show the NBRL in a better light. Is it to allow more “write-backs” on asset value of this bad investment?
Pie-in-the-sky loan to Air Pacific
Another far more dismaying media announcement has been the $200 million loan by FNPF to Air Pacific.
If the current management at Air Pacific know what they are doing this loan may turn out OK for FNPF.
But for FNPF owners who are already facing a massive cut to their pensions, there are many dismaying aspects to this incredibly risky loan.
First, the FNPF management and board have no capability to assess whether this proposed investment of more than a billion dollars by Air Pacific will be a sound investment, in an incredibly complex and competitive aviation market, in which Air Pacific is just a minor player, already floundering.
If Air Pacific’s future is so good, why has Qantas been wanting to sell its more than 40percent shares in Air Pacific?
Chief executive David Pflieger is surely talking with tongue in cheek when he says he had to work hard to convince FNPF of the soundness of the loan.
He is surely talking with tongue in cheek that he had to give a premium interest to FNPF in order to secure the loan. Really?
Why then were the Fiji commercial banks, which are also flush with money, not convinced by the premium interest?
Because, like any sensible business-person, they know that the presumably higher interest rate paid for a few years, is not good enough if the borrower goes bust and a large part of the principal is not repaid.
Second, no commercial banks have as yet agreed to lend the money and the FNPF loan is instead being used as a “deposit” or “collateral” in order to facilitate loans from European credit agencies. This is terrible business practice for FNPF.
It should be the other way round: If they were to give a loan at all, FNPF should wait until the private commercial lending agencies, who are financially far more astute in lending to airlines than FNPF management and board, have put in their $800 million, on which FNPF could then piggy-back with $200 million.
For FNPF to fork out the initial $200 millions as deposit or collateral would suggest that the European credit companies were not prepared to trust Air Pacific’s own financial projections on the viability of their billion dollar purchase.
Would the European credit companies trust FNPF’s judgment of the viability of the proposed Air Pacific purchase, enough to give a billion dollar loan? Of course not.
So why may European credit companies be more inclined to give the $800 million loan if FNPF throws in $200 million which is only 20 percent of the total purchase price of the three planes? There are at least three reasons:
First, in the global aircraft manufacturing market, the biggest rivalry is between Airbus (backed solidly by Europe), and Boeing (backed solidly by United States). Of course, European credit companies (with prodding from their governments) will try to facilitate any loan to purchase the three Airbuses.
Second, they would know that once FNPF is hooked into the loan, our “cash cow” (which annually receives 16 percent share of the total wages and salary bill of the country), can be called on for more funds to be thrown down the well should Air Pacific not be able to repay the loan.
Third, they also may have an understanding that the illegal military regime will pledge Fiji taxpayers’ money to underwrite Air Pacific’s borrowings.
Why else would the illegal Attorney-General (Aiyaz Sayed-Khaiyum) be making statements on Air Pacific’s behalf?
Notice that no statements are being made by the chairman of the Air Pacific board (Nalin Patel) who is smart enough to stay out of sight while Khaiyum prances around in the limelight. Or is it that Nalin may have been backing Boeing?
It is not reassuring to FNPF members to hear the voluminous spin that is coming out of the leading players in this deal.
The chief excecutive of Air Pacific declares that this purchase would be a “milestone” for the Fiji public (let us not think about “millstone”). He also declares that the Airbus would be especially “designed” to showcase Fiji. Oh, really?
I hope he is only talking about the colours on the inside and outside the planes, and a few fittings. The only possible real Fijian influence on the structural design of the Airbus, would be to convert the Airbus into a sluggish takia sailing against the wind or a water-logged bilibili, which would well reflect the current state of Air Pacific’s finances.
The Airbus vice-president is reported to be advising us: the Airbus is the “best plane” for Fijian passengers to fly in. What else could this glorified saleswoman say, just having sold three incredibly expensive planes to a financially troubled airline whose management has absolutely no accountability to its real owners?
We simple indigenous natives can forget all the other comfortable planes that we have been flying in for decades.
Khaiyum proudly declares that FNPF is putting a $200 million downpayment on a very risky billion dollar purchase by an airline that has gone into a loss-making situation is just like Singapore’s pension fund which invested in Singapore infrastructure, proving that “Fijians can think outside the box”. Yeah! Just before the Fijians fall into that coffin box.
Aiyaz-Khaiyum’s astonishing slick vacuous spin goes on day after day, on subject after subject, while he and Bainimarama play Russian roulette with FNPF and Fiji people’s lives.
FNPF not learning from mistakes
Despite all the spin coming from Aisake Taito and his management colleagues, they are not learning from their past mistakes. They are not thinking about what FNPF can do if the borrowers are not able to repay the loans.
Fiji’s commercial banks, will quite sensibly not lend a penny to the loss-making Fiji Sugar Corporation Limited, or to the loss-making Air Pacific, for a very good reason: should these shaky borrowers fail to repay the loans, the lender would be stuck with collateral which they cannot re-convert back into cash.
Nor would the banks want to take over these enterprises and run them back into profitability, as that is not their business, even if they had the skills.
FNPF has already made huge mistakes with loans to FSC, which it cannot conceivably take over even if the loans are never repaid.
It has also made huge mistakes at the Natadola project which was taken over after the 2006 coup, and large amounts of good money was thrown after bad money by regime/FNPF appointees such as Felix Anthony and Daniel Urai (now suddenly heroes for the democracy movement).
FNPF board and management now plan to repeat their mistakes with a huge loan to Air Pacific.
If Air Pacific fails to become as profitable as they need to be to repay the billion dollar loan they envisage, FNPF will be in no position to take over the Airline business.
You can also be sure that the European credit companies will ensure first rights over the collateral should Air Pacific go bust.
Pflieger and his mates will walk away from the mess having made their money, just as many other military regime appointees have done from a whole range of public enterprises in Fiji, since this unaccountable Bainimarama Regime seized power.
Nobody will be held accountable.
Continuing FNPF board and management unaccountability
FNPF recently paid huge consultancy fees to Promontory to advise on how to run the FNPF. Promontory said what I have been saying for a long time: FNPF investments and loans must be managed solely in the interests of the contributors and pensioners of FNPF.
FNPF is not there to try and solve the development problems of Fiji (as Khaiyum thinks) nor to be a cash cow for the government of the day (military regime currently).
FNPF has no business going into risky investments like loans to financially troubled enterprises like FSC or Air Pacific, especially when the collateral will not cover the loan if there is default.
The fact that the FNPF board and management continue to make these risky loans clearly proves that all their rhetoric about FNPF reform etc is just hot air, spin, lies.
The FNPF management continue, on a daily basis, to make outrageous policy statements which only the chairman of the FNPF board should make (even if he is illegally appointed).
The “employees” of the FNPF, have become the bosses, defiantly telling the owners how they, the employees, are going to restructure the fund, allegedly in the owners’ interests, regardless of what the owners say or think.
The FNPF board and management completely thumb their nose at the Fiji judiciary which is supposed to be hearing the Burness case in February 2012, by making statements that are surely sub judice.
And why is the judiciary hearing to be in February 2012? Of course, that will give another four months to Khaiyum and the FNPF board to get their FNPF military decree signed by the illegal President, thereby preventing the judiciary from hearing the case.
Will any of these FNPF board members’ personal assets be at risk if FNPF makes losses on the Air Pacific loan? Of course not.
No FNPF board member or military regime member has taken personal responsibility for the mess at Natadola.
They will also walk away from the current mess, just as Bainimarama, his military council, and Khaiyum, who are really behind all these FNPF board and management decisions, will walk away from the mess they are creating in Fiji.
As always, the FNPF contributors and pensioners, and taxpayers, will be left to pick up the pieces. Whatever is left.
Dr Wadan Narsey is a Fiji economist, academic, former parliamentarian and media commentator. He is a regular columnist on Pacific Scoop and Pacific Media Centre Online.