Islands Business - Interview: BACK FROM THE BRINK OF COLLAPSE

Nauru's Foreign Affairs and Trade minister speaks to Islands Business

Dionisia Tabureguci
A history soaked in a colourful array of events has made Nauru a curious object to behold. Barely spread out over a few kilometres across Oceania's liquid continent and home to some 10,000 inhabitants, Nauru is the world's smallest island republic and was once one of the world's richest countries by per capita basis, wealth it earned on the back of its phosphate mining industry.

Faced with the grim reality of diminishing yield from this industry and political instability over the last 20 years, this phosphate powerhouse of the Pacific has had to look for ways to gently phase out its dimming glory without going bankrupt.

David Adeang... Nauru now under stable management.

Its well-documented history-many pages in many past issues of this publication were dedicated to the recording of these events-showed a gradual downturn in its state of affairs when the Nauru Phosphate Royalties Trust (NPRT) began to buckle under the weight of mismanagement, business deals that went bad and a host of uninformed investment decisions.

Set up in 1968 to invest royalties received from the country's phosphate exports, NPRT was the main source of revenue for the island nation until its near-demise came to a head at the turn of the century.

Like many countries in the Pacific, Nauru entered the 21st century on a shaky political foothold, one characterised by a constantly changing leadership that would have led the country further astray had it not been for the political will of opposing parties to unite and push forward politically with an agenda of much-needed structural reforms.

The adjustment that followed resulted in the now stable national management under President Ludwig Scotty. While Nauru's structural reforms have begun to take shape, the country is still dependent on assistance from donor countries-notably Australia, Taiwan and Japan-to help it foot its bill.

Last month, representatives of the government of Japan formalised a non-project grant aid of US$846,968 with Nauru and the documents were signed in Suva, Fiji, by Japan's ambassador to Nauru, Masashi Namekawa and Nauru's Minister of Foreign Affairs and Trade, David Adeang.

Adeang spoke to ISLANDS BUSINESS about this development and on Nauru's reform.

How important is this aid to Nauru?

"As you know, our government was installed at the end of 2004. We found the country in such a state that its very viability was in question. We were convinced though that longer-term viability could be found through the right measure of reform programmes (note: Nauru's reform plan is detailed in its National Sustainable Development Strategy, a copy of which may be obtained from the Pacific Islands Forum Secretariat). Although a painful and bitter pill to swallow, a strategic reform programme is the only medicine to be found to solve the country's problems. A key part of the initial reform programme is the restoration of reliable utilities services, essentially ensuring the provision of power and water. The Japanese grant aid we signed this morning (in Suva, Fiji on Friday December 5, 2006) gives the Nauru people support in the provision of fuel which is an essential ingredient of power and water generation. This fuel funding will help provide us with fuel and will last one or two months, depending on how well we conserve it. Given the state of our finances and the cost of fuel nowadays, this assistance is especially valuable as we work to restructure our utilities services."

What has been the reform progress in the utilities?

"As far as essential services are concerned, we wanted to restore the reliable provisions of power and water. The state of services in Nauru when we were appointed to Government was such that fuel was always in short supply-whether it was diesel or petrol. Blackouts were routine and we would sometimes go for days without power on the island. We would have no idea when it would be switched on again. Or when power was on, we had no idea when it would be switched off. Nowadays, things have improved to a level where we have a regular power shedding schedule in place and power comes on for six hours and then goes off for another six hours. Access to these guaranteed blocks of power is equal across the island with only the hospitals receiving preferential treatment. This reform initiative has had a significant and positive impact on the lives of Nauruans. people can now plan their washing and cooking around this six-hour schedule. The challenge now for us is to be able to provide power that is affordable to the consumer. Previously the provision of power had been subsidised and it is likely it will need to continue to be subsidised for residential consumers, but we would like to reduce the cost of this subsidy by building in more efficiency. We are also exploring the use of renewable energy and we are in talks with the European Union who is funding a project. But this project is still in its early days as we implement our national utilities reform strategy. As far as water is concerned, we also want to improve the provision of water in Nauru. You know this is not a country that has great water resources like Fiji. We used to import our water from places like Australia but are now dependent on two reverse-osmosis units and rainwater collection from roofs. The reverse-osmosis units are reliant on diesel to run and rainwater collection is subject to volatile weather patterns-neither of these leave much room for error. We also have a desalination plant that is being repaired at this time and will be used to provide water in Nauru. It is quite efficient-being supplied by the waste-heat from our generators, rather than needing a separate power supply."

How do you manage and how much of your export earnings go towards buying fuel?

"A lot depends on the generosity of our donors. Japan is one donor that is providing us with fuel and it directly assists in paying for fuel. We also have Australia, which helps by providing aid funds to support our reform efforts. And, of course, we have Taiwan, which also helps us through aid funds. But to effectively manage the cost of fuel for us, we really should be reducing our reliance on it and doing that is basically an effort that is long-term rather than short-term. For now, I would say that about 50 percent of the country's earnings in a fiscal year goes towards the payment of fuel."

Transportation to and from Nauru also became an issue when things got financially rough. What has been the progress of reform in the transportation sector?

"We do have basic shipping services that provide us with links to Australia and a ship comes in every six weeks. We have also purchased a new aircraft with the support of the Taiwanese government. Right now, it is servicing Brisbane, Honiara, Nauru, Taiwan and Majuro. We hope to resume services to Fiji as soon as our two governments have signed an Air Services Agreement (ASA). But unfortunately, the uncertainty of the situation here (military takeover in Fiji on the day of this interview) has delayed the signing. But as soon as we have an ASA signed with Fiji, we are connecting Majuro and Nadi directly. Shipping, I believe, is next on the agenda of the transport ministry, now that it has pretty much corrected the air services issue. Of course, there is still a lot of work to be done to move the airline business forward and to ensure continued business. But the transport minister has indicated he wants to reform shipping services next and to get it underway before the election this year."

You earlier spoke of Nauru's structural adjustment also extending to the Nauru Phosphate Royalties Trust Fund. What is going to happen there?

"There is an assessment of the fund currently underway and the finding will be released in the next few weeks. We are talking about, I think, a minimum of A$60 million - and these are landowners' funds, not the government's. Our government intends to work with the landowners to preserve these funds in trust funds that are better managed than previously. In this way, it ensures future generations of Nauruans a stream of income and hopefully creates a system where a public trust fund with the support of our donors would, together, provide a stream of income for governments into the future. Of course, we have to pay attention to the fact that the history of Trust Funds has been less than desirable and not managed according to international standards. We don't want to repeat those mistakes. We would like to establish a new trust fund with a much more stronger governance arrangement and we are also looking at enshrining those protections in the Constitution of Nauru. That would be a difficult hurdle because you will need to get two thirds majority in parliament, as well as two thirds majority of the people in order to enshrine anything in the Constitution. But we are going through a Constitutional review at this time and the government is hopeful that the people will agree with it and that it is in the best interest of the country as well as present and future generation Nauruans. Reform in this area is an important part of our rebuilding effort because the income stream from the trust fund is a major component of the economy. For a place as small as Nauru-we have around 10,000 Nauruans-to have an income stream from a fund which today has A$60 million provides good support, I believe, for a population of that size. Of course, it used to be larger but it takes time for something like A$60 million to grow back into something big and it needs to be given the time it needs to grow. But we need to provide absolutely foolproof governance arrangements and these are arrangements that we are developing at this time. We are hoping to have them legislated, if not in the next few weeks, then hopefully sometime this year."

Apart from revenue from fishing licenses, Nauru is also keeping a close watch on the progress of labour mobility talks. But will phosphate continue to be the pillar of Nauru's economy?

"Yes. Labour mobility is something we will continue to be interested in but phosphate will continue to be the mainstay of Nauru's economy. Phosphate was 99.99 percent of the economy in its hey-days. Nowadays, it is still a substantial part of the economy although now, due to our slow return back to normalcy, external aid is playing an important part in our economy as we restructure and rebuild. We are rebuilding schools, including health services, restoring transportation-these are all being provided for by the international community. Without this assistance, I don't think we would have the basic building blocks needed to grow the economy. And this is where I think the phosphate industry comes in. We were encouraged by the Australian company Incitec Pivot, who saw us as a government they could do business with. They were able to invest up to A$6 million in the phosphate industry to enable it to operate again. This is going very well, although we had some short-term difficulties. There was an act of sabotage on equipment by people who we believe to be in political opposition to us. That set us back by about a month. But these are short-term difficulties. The longer-term prospects for the phosphate industry are very good because we have established with the help of AusAID, that secondary mining is both technically and economically viable. This revelation has built in another 20 to 30 years into our phosphate mining industry and we consider this 20 to 30 years to the life of the mine as our second chance, so we have to ensure we manage these resources 10 times better than we did the first time."

So has Nauru learnt from the lessons of the past?

"Yes. I think so. When we campaigned on this platform of good governance, anti-corruption, transparency and accountability, prudent management of resources, we had a landslide victory in the last election. People wanted to give this a chance. For the first time, we had a President who was elected unopposed and this was after two decades of instability where the president and government were being changed every one or two months. We now have a government that is quick to implement reforms and is doing well. It is all subject to our people's continued ability to stomach the substantial pain that comes with implementing these reforms. We've restructured so many state-owned-enterprises and retrained so may people, and that I think gives an impression of how much reliance people put on these reforms and their ability to deliver a future for the current and future generations. It's not that easy and it is still not going to be easy for the next five years but something is happening. I think without the reforms, we're basically going back to the old days and retracing our history and repeating the mistakes of our past. There are still a lot of painful decisions to be made in the immediate and medium term and I think our government stands ready to continue the reform agenda. We are working closely within our community to make sure people are on side and that they feel they own this reform agenda."