VZCZCXRO7789
RR RUEHGH RUEHKN RUEHMJ
DE RUEHKN #0109/01 2090539
ZNY CCCCC ZZH
R 280539Z JUL 09
FM AMEMBASSY KOLONIA
TO RUEHC/SECSTATE WASHDC 2341
INFO RHHMUNA/HQ USPACOM HONOLULU HI
RHMFISS/COMNAVMARIANAS GU
RUEHSV/AMEMBASSY SUVA 0059
RUEHBJ/AMEMBASSY BEIJING 0090
RUEHGH/AMCONSUL SHANGHAI 0003
RUEHMJ/AMEMBASSY MAJURO 0451
RUEHKN/AMEMBASSY KOLONIA 2709

C O N F I D E N T I A L SECTION 01 OF 03 KOLONIA 000109 
 
SIPDIS 
 
DEPT FOR OES 
EAP/ANP 
SUVA FOR JOE MURPHY 
 
E.O. 12958: DECL:  7/28/2019 
TAGS: EFIS ECON PGOV PREL PINR FM
SUBJECT: CHINESE COMPANY LUEN THAI REPORTEDLY SEEKS TO OPERATE ALL 
PORT AND FISH PROCESSING FACILITIES IN MICRONESIA 
 
REF: 07/10/09 E-MAIL FROM NEVILLE (HUGHES) TO DOUGLASS 
 
CLASSIFIED BY: William Douglass, Deputy Chief of Mission, 
AmEmbassy - Kolona, State. 
REASON: 1.4 (b) 
¶1.  (C) The largest fishing operation in the Federated States of 
Micronesia (FSM), Luen Thai, has reportedly submitted a proposal 
to FSM President Mori permitting the company to operate all port 
and fish processing facilities within the FSM.  FSM National 
Government and State agencies responsible for handling and 
monitoring investments and the fishing industry are unaware of 
Luen Thai's proposal.  If accurate, Luen Thai, which has stated 
other possible investors in the FSM are unable to match its fish 
processing efficiencies, may be able to dominate FSM's tuna 
industry.  END SUMMARY. 
 
 
 
 Proposal on President's Desk 
 
------------------------------------- 
 
 
 
¶2.  (C) Oceania, an American company seeking to invest in the 
FSM, including its tuna industry, expressed concern to the 
Ambassador that Luen Thai submitted a proposal to FSM President 
Emmanuel "Manny" Mori that would give it control over all port 
and fish processing facilities in the FSM.  On July 16, Kembo 
Mida, Oceania's attorney in the FSM and member of a well 
connected political family, told Econ/ConOff that Mori has a 
"substantive" proposal on his desk from Luen Thai.  Mida 
explained that the proposal likely came directly from the Luen 
Thai's senior most levels and that the local managers are not 
involved in the negotiations. 
 
 
 
¶3.  (C) Mida plans to request a copy of the proposal soon.  If 
Luen Thai is planning to expand or change its current fishing 
related operations, there are open bidding requirements that the 
FSM is not following.  Mida stated that the FSM Attorney General 
does not appear to be aware of the proposal, but if Mida makes 
the request to see the document the AG will have to establish 
whether or not a proposal was submitted and if so, make a formal 
determination on whether or not the state must publicly release 
it or if it is rightfully confidential.  Just because Luen Thai 
wants the discussions to remain confidential does not mean that 
FSM law permits the desired confidentiality. 
 
 
 
¶4.  (C) During a July 21 meeting, Chinese First Secretary for 
Business Bai Xai confirmed to Econ/ConOff that Luen Thai is 
reviewing possible expansion of its investments in FSM and was 
working with a mainland Chinese export/import company to secure 
a concessionary loan for the FSM.  Bai stated the export company 
may be "China National Mechanica," but that he was unsure of the 
name.  Bai then added that his office only becomes involved when 
the FSM National Government makes the formal request for a 
concessionary loan, so until that time he is unsure about the 
status of Luen Thai's investment proposal. 
 
 
 
¶5.  (C) Bai added that during earlier discussions, Luen Thai 
confirmed that it was looking to expand its operations to all 
four states within the FSM. He is aware of this because Luen 
Thai initially came to him looking for support for a 
concessionary loan to the FSM.  Bai explained that since Luen 
Thai is not a wholly Chinese company they could not support the 
type of loan it was seeking.  (The company is based in Hong Kong 
but also has at least one prominent American investor.)  At that 
point, Luen Thai contacted the export/import company for 
coordination.  Bai believes the Chinese company conducted a 
survey of unused port facilities in each of the states and has 
developed a plan to repair, upgrade, or replace the current 
facilities if the FSM National Government pays for the work. 
Bai believes that Luen Thai wants the FSM National Government to 
request a concessionary loan and then pay the Chinese firm to 
complete all required construction.  Once construction is 
complete, Luen Thai would lease all of the sites from the FSM. 
 
 
 
¶6.  (C) Bai concluded that if Luen Thai is moving ahead as 
expected, the FSM Congress will review a bill on the proposed 
 
KOLONIA 00000109  002 OF 003 
 
 
loan during its September session. 
 
 
 
Limits on Possible Fishing Related Investments 
 
--------------------------------------------- -------------- 
 
 
 
¶7.  (C) When asked about possible expansion of port facilities, 
particularly transshipment plans within the FSM, National 
Oceanic Resource Management Authority (NORMA) Director Bernard 
Thoulag stated that he was not aware of any new plans.  He added 
that because NORMA licenses the fleet and performs port side 
inspections of any fish destined for transshipment, he would 
know early in the process for any new investment.  He 
acknowledged that Luen Thai is the only company currently 
operating and that Oceania and a company from Shanghai (nfi) 
were interested in tuna production.  He then stressed that there 
is no room for expansion for transshipment plants.  NORMA 
already licenses near the maximum number of ships within FSM's 
EEZ (long liner and purse seiner) and the current facility can 
handle everything coming in.  The one area he thinks there is 
still room for expansion is a cannery operation. Thoulag 
contends that there is room for market expansion within the FSM 
on low grade tuna that is not immediately frozen and shipped 
out. 
 
 
 
¶8.  (C) FSM/FFA Advisor James Movick stressed to Pol/EconOff on 
July 16 that the FSM is looking for "serious" investors that 
could act quickly on proposed investments.  (Note:  Movick used 
the adjective "serious" to show his disregard for Oceania.  End 
Note.)  He then added that Luen Thai has an advantage over other 
investors because they are already on the ground.  Movick spent 
some time praising Luen Thai's integrated system from catch to 
sale. He explained that this made Luen Thai the dominant 
investor in the FSM fishing industry and it was not the FSM's 
fault that others could not compete.  (Comment:  It remains 
unclear if Movick knows of Luen Thai's proposal to Mori.  It is 
clear, however, that despite repeatedly stressing FSM's open 
door policy to all investors and particular support of American 
investors, he is dismissive of Oceania and others in favor of 
Luen Thai.  End Comment.) 
 
 
 
Competitors 
 
---------------- 
 
 
 
¶9.  (SBU) While discussing investment opportunities for Oceania, 
Mida expressed concern that the American company was being 
caught in the middle of an internal political squabble between 
Pohnpei state, the FSM National Government, and others.  He 
stated that after bidding was closed, the Pohnpei Port Authority 
(PPA) informed Oceania that Luen Thai had bid on the lease of 
Pohnpei's only tuna transshipment building.  If true, Oceania 
never had the opportunity to bid and thus will have no 
opportunity to operate in the docks beyond renting some freezer 
units.  This would also contradict the agreement Oceania had 
with Pohnpei State Governor Ehsa. 
 
 
 
¶10. (C) In a meeting with Chargi d'Affaires, Governor Ehsa 
stated he was not aware of any new agreements or concessions 
negotiated with Luen Thai.  He did know that the company sought 
additional financial backing from the Chinese Export/Import 
Bank, but Luen Thai has been pursuing those loans for a quite 
some time now.  If Oceania is aware of additional agreements the 
governor wanted to hear about them from the company.  Chargi 
contacted Kembo Mida after the meeting to pass on the governor's 
request. 
 
 
 
¶11.  (C) Pohnpei's Foreign Investment Board (FIB) Executive 
Director Quirino Loyola stated on July 17 that Luen Thai's 
 
KOLONIA 00000109  003 OF 003 
 
 
current contract is explicitly with Pohnpei State and that their 
permit to operate in Pohnpei has an automatic termination date. 
The contract also limits Luen Thai's scope of operation to the 
current transshipment facility and directly related activities 
at Pohnpei's Port.  Loyola added that if Luen Thai is looking to 
expand its fishing fleet it is up to the national government, 
but any changes or expansion to its current investment in 
Pohnpei would have to go through the FIB.  As of July 23, there 
was no such proposal.  PPA Acting General Manager Ron Reyes told 
Econ/Conoff on July 23 that the only relationship the port 
authorities have with Luen Thai is lease payments for the 
transshipment facility.  If there is any expansion or change, 
neither the State nor National Government has notified PPA. 
Reyes added, however, that in the past Luen Thai arranged for 
contracts and the State only informed the PPA after it made a 
final decision on port operations, rather than through 
consultations. 
 
 
 
¶11. (C) Japanese Ambassador Sato confirmed to Charge d'Affaires 
on July 23 that Japan had some concerns about the current 
fisheries investment structure in the FSM.  Sato complained that 
Japanese assistance intended for the FSM seems to be helping 
Chinese and Taiwanese based companies that are operating in 
Pohnpei.  At least one Japanese company is reviewing the 
possibility of opening a joint venture with the FSM National 
Fisheries Cooperation, but the overall climate is not 
encouraging.  Currently, Chinese companies send tuna caught in 
FSM waters to Japan from the FSM, it is not ideal situation for 
Japanese companies.  Sato repeated earlier comments that the FSM 
and Japan are looking to the Japanese funded airport runway 
extension in order to transship tuna directly to Japan.  (Note: 
Although expressing some concern about the limited investment 
opportunities for interested Japanese companies vice others 
already in the region, Sato never mentioned Luen Thai by name. 
End Note.) 
 
 
 
Comment 
 
------------ 
 
 
 
¶10.  (C) Although Post has no confirmation from anyone that has 
read Luen Thai's proposal urging the FSM to take a concessionary 
loan from China, all indications are that such a proposal is 
with the President.  If Luen Thai is able to obtain an agreement 
even close to the speculative proposal, it will have near 
control of tuna related operations within the FSM.  As a 
company, Luen Thai appears to be an aggressive investor and 
negotiator.  The possibility for a monopolistic industry is 
neither beneficial to the FSM nor to other hopeful investors 
such as Oceania.  Post anticipates additional movement on Luen 
Thai's possible proposal as early as September.  End Comment. 
DOUGLASSWD