The Solomon Islands are moving forward with a controversial plan to borrow nearly $100 million from China to build 161 cell phone towers across the country with telco giant Huawei, despite an internal report warning that the project may not boom financially.
Most important points:
- The deal could pose significant financial risks to the Solomon Islands, says a telecommunications expert
- KPMG warns that Solomon Islands proposal “significantly overestimates financial return potential”
- The project will roll out over the next three years and is expected to see about half of the towers built before the 2023 Pacific Games in Honiara
The Permanent Secretary of the Treasury and Treasury Department, McKinnie Dentana, told reporters in Honiara on Wednesday that the towers would expand and improve cellular coverage across the country.
He also confirmed it would be financed by a cheap loan from China, the first time the government of the Solomon Islands has borrowed from one of Beijing’s major foreign credit institutions.
“The project will be fully funded with a concessional loan facility under EXIM Bank of China of approximately CNY448.9 million ($96 million) at 1 percent interest for a period of 20 years,” he said.
Denata said the government would roll out the project over the next three years, aiming to complete nearly half of the towers for the Pacific Games, to be held in Honiara next November.
“This will help people in rural areas to enjoy the Games even if they don’t come to Honiara,” he said.
He also claimed that outside advisers had told the government they would be able to repay the loan with revenue from the towers.
“The independent assessment of the project shows that the project would generate enough revenue for the government to fully repay both the principal and interest costs within the loan period,” he said.
However, the ABC has been given a copy of what appears to be the same independent report, which was conducted by the consulting giant KPMG.
Income potential ‘significantly’ overestimated
The report analyzes an earlier and slightly more ambitious proposal to build 200 mobile towers, rather than the 161 the government is pushing ahead with.
However, the findings paint a much more complex picture than the one publicly presented by the government of the Solomon Islands.
KPMG warns in its report that the Solomon Islands proposal “significantly overestimates the financial return potential” of the project and warns that it will require financial grants.
The report estimates that the project will generate a financial loss of nearly $100 million ($144 million), and that approximately $156 million will be needed over 20 years to bridge that shortfall.
KPMG considers the risks surrounding the project “manageable”, but also warns that the planned rollout in three years is “too ambitious” and “doesn’t seem realistic”.
And while KPMG estimates the project could generate “indirect” economic benefits “in the range” of the $100 million needed to offset direct projected financial losses, the report also highlights that it is “challenging to generate indirect economic benefits.” reliably quantify” the towers.
“It is less certain that they can be achieved because they depend on other social and economic initiatives,” the report said.
‘Loaned a lot of money’
Telecommunications expert Amanda Watson – of the Australian National University’s Pacific Affairs Department – said the deal could pose significant financial risks to the Solomon Islands.
“It’s hard to imagine that you will generate a huge amount of indirect economic benefits in these areas of the Solomon Islands that currently have no coverage,” she told ABC.
“If I were a decision maker in the Solomon Islands, I wouldn’t want to bank on indirect benefits if I could avoid it.”
dr. Watson said that while the towers would help people in remote areas of the Solomon Islands who lack cellular coverage, it was not clear that the project was financially on track.
“Although the Chinese loan is offered at a favorable interest rate, it still has to be repaid, and it is a huge amount that is being borrowed. I am concerned about their ability to do that,” she said.
Some opposition MPs and civil society groups in the Solomon Islands have also expressed concern about the deal. They say the bidding process was done in secret and wonder if it is really necessary to build so many new towers across the country.
The Australian government said it was “aware” of the deal, but stressed that development decisions were “a matter for the government of the Solomon Islands”, a spokesman for the Department of Foreign Affairs and Trade (DFAT) said.
“Australia supports investments in infrastructure that are transparent and open, meet real needs, deliver long-term benefits and avoid unsustainable debt,” the spokesperson said.
At the request of the government of the Solomon Islands, Australia is separately constructing six telecommunications towers in three separate provinces in the country.
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