Solomon Islands is pushing ahead with a contentious plan to borrow almost $100 million from China to build 161 mobile phone towers across the country with telco giant Huawei, despite an internal report warning the project may not stack up financially.
- The deal could pose substantial financial risks for Solomon Islands, a telecommunications expert says
- KPMG warns the proposal by Solomon Islands “significantly overstates the financial return potential”
- To be rolled out over the next three years, the project is due to see about half the towers built before the 2023 Pacific Games in Honiara
The Permanent Secretary of the Ministry of Finance and Treasury McKinnie Dentana told reporters in Honiara on Wednesday that the towers would expand and improve mobile coverage across the country.
He also confirmed it would be funded by a concessional loan from China, the first time the government of Solomon Islands has borrowed from one of Beijing’s main overseas lending institutions.
“The project will be fully funded with a concessional loan facility under the EXIM Bank of China of approximately CNY448.9 million ($96 million) at a rate of 1 per cent interest rate for a period of 20 years,” he said.
Mr Denata said the government would roll out the project over the next three years, and wanted to complete almost half of the towers ahead of the Pacific Games, which will be held in Honiara in November next year.
“This will help people in rural areas to enjoy the Games, even if they don’t come to Honiara,” he said.
He also claimed external advisers had told the government they would be able to repay the loan with revenue generated from the towers.
“The independent review of the project shows the project would generate sufficient revenue for the government to fully repay both the principal loan amount and the interest cost within the loan period,” he said.
However, the ABC has obtained a copy of what appears to be the same independent report, which was conducted by consulting giant KPMG.
Revenue potential ‘significantly’ overstated
The report analyses 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 far more complex picture than the one presented publicly by the government of Solomon Islands.
KPMG warns in its report that the proposal put forward by Solomon Islands “significantly overstates the financial return potential” of the project and warns it will require financial subsidies.
The report estimates the project will generate a financial loss of almost $US100 million ($144 million), and that around $US156 million will be required over 20 years to bridge that shortfall.
KPMG finds the risks surrounding the project are “manageable”, but also warns the planned three-year rollout is “overly ambitious” and “does not appear realistic”.
And while KPMG estimates the project could generate “indirect” economic benefits “in the range” of the $US100 million needed to offset the direct anticipated financial losses, the report also stresses it’s “challenging to reliably quantify indirect economic benefits” from the towers.
“It is less certain that they can be achieved as they rely on other social and economic initiatives,” the report said.
‘Enormous amount of money being borrowed’
Telecommunications expert Amanda Watson — from the Australian National University’s department of Pacific affairs — said the deal could pose substantial financial risks for Solomon Islands.
“It’s hard to imagine that you’ll generate a huge amount of indirect economic benefits in these areas of Solomon Islands which don’t currently have coverage,” she told the ABC.
“If I was a decision-maker in 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 Solomon Islands who don’t have any mobile coverage, it wasn’t clear that the project stacked up financially.
“While the Chinese loan is being offered at a concessional rate, it still has to be paid back, and it’s an enormous amount of money being borrowed. I have some concerns about their ability to do that,” she said.
Some opposition MPs and civil society groups in Solomon Islands have also raised concerns about the deal, saying the bidding process has been mired in secrecy, and questioning whether there’s a real need to build quite 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 Solomon Islands government”, a spokesperson for the Department of Foreign Affairs and Trade (DFAT) said.
“Australia supports infrastructure investment that is transparent and open, meets genuine needs, delivers long-term benefits and avoids unsustainable debt burdens,” the spokesperson said.
Australia is separately constructing six telecommunications towers across three separate provinces in the country at the request of the Solomon Islands government.