Public in dark over interest rates on ADB loan for harbour project

At the ground breaking ceremony at Avatiu harbour on Thursday where stones were laid by Uritaua and invited guests, there was a comment made about the ADB’s loan interest rates.
In his speech which followed, ADB Team Leader, Mr Yingming Yang referred to the loan of US$20 million for the harbour project being “on lent” to the Ports Authority.
Following the ceremony, the Times learnt from a comment by one member of the ADB team that the loan to government was at less than 1 percent interest. It was 0.680 percent.
The Times learnt the previous government had on lent to Ports Authority and that the interest rate is around 5.5 percent. Of interest is that while it puts the interest rate nearer to market rates, the increase is higher than the rate of inflation which is around 2 percent. It brings into question whether the practice of “on lending to State Owned Enterprises, is inflationary. The on lending rate set by government has not to this writer’s knowledge been made public although the on lending has been made public.
Back in July 2010, when the Demo government was in power, the Ports Authority CEO advised that;
“Of the US$15.5m loan money, he said there will be a first loan of US$6.8m from the ADB. This is in the nature of a soft loan fixed in US currency. The interest rate will be fixed at 1.5 per cent and structured over 32 years with a grace period of 8 years. The balance or second loan said Tou, will be a commercial loan at commercial rates known as a OCR loan-Other Currency Resources. It will be structured over 25 years with a grace period of 5 years. This loan may be in another currency other than US dollars. It provides the flexibility of utilizing a better exchange rate when converted to NZ dollars. The total amount being loaned is US$15.5 million. Our government will contribute an additional $2.5 million.”
In August 2010, there was a report as follows:
“Tou provided the following details regarding the structure of the loan. Of the US$15.5m loan money, Tou said there will be a first loan of US$6.8m from the Asia Development Fund. This is in the nature of a soft loan fixed in US currency and structured over 32 years with a grace period of 8 years. The interest rate will be fixed at 1 per cent for the period of the grace period and thereafter will be fixed at 1.5 per cent. The balance or second loan said Tou will be a commercial loan at commercial rates known as a OCR loan-Other Currency Resources. It will be linked to the London Inter-bank Offered Rate (LIBOR) and structured over 25 years at 3 per cent with a grace period of 5 years. As the LIBOR rate fluctuates, Tou said we have the flexibility to change the loan to another currency.”
In the CIP government’s Half Yearly Economic Report issued at the end of December 2010, it was stated;
“It is also noted that in 2010-11 $26.8million was appropriated to be on lent to the Cook Islands Ports Authority (SOE) for the Avatiu Port Development Project. Given exchange rate movements and possibly higher project tender costs, a top up in the amount borrowed may be necessary. Government is currently looking into this issue and if required may require an Appropriation Amendment. At this time revisions of costs are not included in this report.”
When the Appropriation Amendment (Supplementary Budget) came out in April 2011, the top up amount referred to, understood to be about $6 million, was not referred to in the Minister’s Speech or in Schedule 10 notes on the ADB loan.
It raises the question whether the amounts on lent to SOEs and the interest rates should be mentioned somewhere in Budget documents for the public’s information.

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