Chinese Government provides $24.45 million grant [Tranche 1] — via ETCA — for a satellite orbital position (Linked to Project ID#63158)

Friendly Islands Satellite Communications Limited (Tongasat) — a privately owned company — was appointed the exclusive agent of the Kingdom of Tonga (KOT) to enter into contracts with third parties for the launching or operating of satellites in orbital positions registered with the International Telecommunications Union (ITU). Tongasat and the KOT share in the revenue generated by the use of the KOT’s orbital positions. It was reported that, in 2006, Tongasat was in talks with the Chinese Government, with the goal of forming a joint venture to place a satellite in the 130 degrees east position. However, later that year it was discovered that China Electronic Systems Engineering Company (CESEC) had placed a satellite in that position without first coming to an agreement with Tongasat. After negotiations involving representatives of Tongasat, the Government of Tonga, the Chinese Government, and CESEC, the Chinese Government agreed to pay USD$49.9 million to Tonga as grant assistance. This sum was to be paid in two tranches of $25.45 million. Project ID#63157 captures Tranche 1 and Project ID#63158 captures Tranche 2. On July 14, 2008, two agreements were signed in Beijing. The first was entitled ‘Summary Record of the Satellite Network Coordination between [CESEC] and [Tongasat]’ (the Summary Record) and it concerned the coordination of satellite networks at 130° East and other orbital positions. The Summary Record made no mention of any financial arrangements between CESEC and Tongasat or between the Chinese Government and the Government of Tonga. The second agreement was between the Chinese Government and the Government of Tonga and its was entitled ‘Agreement on Economic and Technical Cooperation between the Government of the Kingdom of Tonga and the Government of the People’s Republic of China’ (the first tranche agreement). It was signed at a different location and after the Summary Record. Tonga’s Minister of Finance signed it on behalf of his government. The first tranche payment of $24.45 million was to be allocated in the following manner: 50% was to be used to clear the outstanding debts of Tongasat — specifically, $1.3 million plus interest to the Tonga Trust Fund and $7.46 million to the Government of Tonga (the amount of revenue share owed by Tongasat up to, and including, June 30, 2008). Tongasat received the remaining 50% and in addition, from the Government of Tonga’s share, satisfaction of Tongasat’s existing indebtedness amounting to $8,760,667. The Chinese Government disbursed the first tranche payment of $24.45 million on September 4, 2008. The first tranche agreement also specified that to further develop friendly relations and economic and technical cooperation the PRC would provide the KOT with $25,450,000 in grant assistance to support the economic and social development of the Kingdom of Tonga." On April 30, 2009, the Government of Tonga terminated its Agency Agreement with Tongasat, preferring to transition to an open licensing and bidding scheme, rather than revenue sharing with a single private company. On April 19, 2011, an ‘Agreement on Economic and Technical Co-operation between the Government of the Kingdom of Tonga and the Government of the People’s Republic of China’ was signed in Tonga. Under the terms of the agreement, the Chinese Government agreed to provide the Government of Tonga with grant assistance of $25.45 million (the second tranche agreement). The grant was provided ‘In accordance with the needs of the Government of the Kingdom of Tonga’. The second tranche payment was received by Tonga on June 9, 2011 and it was deposited into a Government of Tonga United States Dollar Special Account at the National Reserve Bank. In accordance with a directive from the Tongan Minister of Finance on May 9, 2011, of the $25,450,000 grant proceeds, $6,789,001.83 was deposited into the Government of Tonga’s operating account in satisfaction of Tongasat’s taxation liabilities. The balance of $18,660,998.17 was paid to Tongasat. However, this disbursement scheme was later challenged in court. It was revealed that providing 93% of the grant funds to Tongasat was done on advisement of Princess Pilolevu, and was not in line with the Government of Tonga and Tongasat's agreement to share all revenue generated by the company 50/50. Tonga’s Leader of the Democratic Party Akilisi Pohiva and the Public Service Association Incorporation sued Princess Pilolevu, Prime Minister Lord Tu’ivakano and Justice Minister Hon Clive Edwards, in both public and private law, for allegedly committing larceny. The plaintiff claimed that the trio has been involved in an alleged illegal transference of $25.45 million of public funding to the Tongasat company on the May 20, 2011. The Supreme Court of Tonga ruled that there was no agreement that stated that the grant payments must go to Tongasat, and that the money was earmarked for public use. As a result, it found that the plaintiffs were entitled declaratory relief under public law, but entitled to no restitution under private law. It is unclear how much, if any, restitution was paid by Tongasat.

Additional details

1. Tongasat is a private company headed by Princess Pilolevu, and since its inception in the early 1990s it has acquired the exclusive right to acquire orbital slots in space for Tonga, and market them for the Tongan Government. Princess Pilolevu is a royal princess of the Kingdom of Tonga and a member of the House of Tupou. 2.The Tonga Trust Fund was established under the Tonga Trust Fund Act of 1988 as a repository for revenue from the sale of special person passports to provide funds for national emergencies and occasional projects. As stipulated under the Act, the fund is governed by three trustees: the Prime Minister (Chairman), the Minister of Finance, and the Minister of Justice who is also the Attorney General. The trustees make decisions on the investment and management of the fund with approval from a Privy Council that is chaired by the King. The fund was initially invested in term-deposits with the Bank of America in 1988. It remained there unmanaged for 6 years earning less than 3% interest per annum. By 1991, deposits had reached US$30 million. In 1994, an employee of the bank, a Mr. Bogdonoff, approached the Tongan government and recommended a more active investment strategy. With agreement from the government, Bogdonoff began managing fund resources investing in equity and bond holdings and earning the fund a healthy $11 million from 1994 to 1999. In 1999, Bogdonoff resigned from the Bank of America and proposed (competing with two other firms) to be Tonga’s investment advisor. Bogdonoff was chosen based on his track record and lower proposed management fees. Soon thereafter, Bogdonoff warned the trustees of a forthcoming downturn in the capital markets and recommended a set of alternative investments. The most prominent of these was a $20 million investment in life settlements (purchases of life insurance policies held by persons with limited life expectancies). While exact details on the amounts and placements of these investments are not clear, essentially within 2 years losses on these alternative investments (due to bankruptcies, erroneous valuations, and other mishaps) collectively drained the fund of approximately $26 million. In early 2001, the Tongan public began vocalizing its concern over the status of the fund’s resources. Audit reports on the fund, which had been provided through 1999, had not been available in 2000 and 2001, causing widespread concern and suspicion among the public and some members of parliament who were also concerned over the status of a $6.9 million “loan” that the Tongan government had drawn from the trust fund in 1998. In 2002, after a series of government sackings and widespread public outcry and debate over the trust fund scandal, the Tongan government announced that it had initiated a lawsuit against three individuals and six companies seeking to recover $26 million.

Number of official sources

4

Number of total sources

8