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C O N F I D E N T I A L SECTION 01 OF 03 SUVA 000135 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL: 04/07/2018 
TAGS: PREL PGOV PHUM NR
SUBJECT: NAURU GOVERNANCE PROBLEMS RECUR 
 
REF: A. SUVA 424 
     ¶B. SUVA 538 
     ¶C. SUVA 408 
 
Classified By: Amb. Dinger.  Sec. 1.4 (B,D). 
 
Summary 
------- 
¶1. (C) Tiny Nauru has slid into another period of political 
instability.  The landslide re-election of the reformist 
Scott government in August 2007 brought a sense of hope (Ref 
A); but leadership battles since have pushed Nauru back into 
seesaw political squabbles that we had hoped were history. 
Parliament is currently gridlocked nine-to-nine, reflecting 
the settling of old and new scores among Scotty Government 
ministers who are now rivals since a new Marcus Stephen 
Government came to power last December.  A demonstration in 
February ostensibly over the Stephen Government's failure to 
respond adequately to citizen complaints of industrial 
pollution from resumed phosphate milling and the torching of 
Nauru's police HQ the same day accent the unstable political 
environment.  The infighting has effectively stalled 
governance, blocking action on crucial economic concerns and 
prospects.  End summary. 
 
Political upheaval returns to Nauru 
----------------------------------- 
¶2. (C) When Ludwig Scotty and a group of reformist colleagues 
won Nauru's 2004 election, toppling the government of 
then-President Rene Harris, the new government set out to 
correct a history of poor governance and corruption.  The 
Scotty team's record was impressive enough that they won 
re-election by a landslide in August 2007 (Ref A).  Later in 
the year, though, the Scotty coalition split asunder (Ref B), 
with Ministers Keke, Pitcher, and others accusing Foreign 
Minister Adeang of corrupt practices related to a group of 
Chinese-Thai businessmen involved in Nauru's Bangkok 
consulate.  Keke, now Foreign Minister, says Adeang had also 
inappropriately approved government payments to some 
constituents and operated a slush fund of unknown origin 
during his August 2007 campaign for re-election.  Adeang 
denied the allegations, and Scotty backed him.  In December, 
the Keke/Pitcher group managed to win a parliamentary vote of 
no confidence and installed Marcus Stephen as President, with 
Keke as Foreign Minister and Pitcher as Commerce and Energy 
Minister. 
 
¶3. (C) In March, the Stephen Government lost its thin 
parliamentary majority, and Adeang maneuvered to become 
Speaker of Parliament.  In the face of a seemingly 
intractable 9-9 split, Adeang called a session of Parliament 
over the Easter weekend, while Keke and Pitcher were in 
Australia and allegedly without a quorum, and pushed through 
legislation forbidding any MP from holding dual citizenship. 
Thereafter, he attempted to bar Keke and Pitcher, both dual 
Nauruan/Australians, from Parliament.  President Stephen, 
head of the Police, refused to enforce the ploy.  Both sides 
called on Nauru's Chief Justice, an Aussie judge who resides 
in Kiribati, to resolve the constitutional conundrum.  Keke 
reportedly told the media this week that the CJ has ruled in 
the Stephen Government's favor. 
 
Neighborhood Protest; Burning of Police HQ 
------------------------------------------ 
¶4. (C) As the political muddle was developing, on February 7 
a crowd of some 30 angry residents of Aiwo, adjacent to 
Nauru's phosphate processing plant, cut the lock on the Nauru 
power plant's fence, occupied the site, and demanded a 
shutdown of electricity for phosphate mining purposes.  The 
protesters were complaining about phosphate dust. 
Accusations and counter accusations about unpaid rents on the 
power-plant land and unpaid electrical bills also were in 
play.  Eventually police convinced protesters to leave the 
plant.  Later in the day, someone set fire to the national 
police headquarters, a few miles away.  Only favorable winds 
and a concrete wall spared the entire government complex and 
parliament from going up in flames.  Authorities are 
convinced that the arson was related to the power plant 
protest and that both activities were almost certainly 
instigated by former President Harris. 
 
Harris and the PRC? 
------------------- 
¶5. (C) Harris remains an "independent" MP from Aiwo district. 
 
SUVA 00000135  002 OF 003 
 
 
 In Nauru, population 10,000, all politics is incredibly 
local, and many in Aiwo are related to Harris.  Foreign 
Minister Keke claims that Adeang has been negotiating with 
Harris to bring down the current government, promising Harris 
the presidency.  Keke suggests Harris, as President, could 
open the door to re-establishing relations with China, which 
Harris accomplished previously, before Scotty re-instated 
Nauru's longer-standing bond with Taiwan. 
 
Pollution a Pretense? 
--------------------- 
¶6. (C) Keke dismisses the idea that phosphate dust triggered 
the February protest at the power plant or the fire at police 
HQ.  While the dust is a real problem, clogging rooftop water 
catchment systems and gradually polluting groundwater with 
cadmium, the air pollution reportedly is much diminished from 
during the plant's heyday.  Keke also doubts the protest was 
keyed by the fact that Harris and other Aiwo protesters are 
traditional owners of the power plant's land and believe they 
retain access rights.  To Keke the real trigger was that a 
hotel owned by the Harris family owed a $500,000 electricity 
bill, other Aiwa residents also had big bills, and the 
utility had cut off power. 
 
Squabbling Leaves a Budgetary Vacuum 
------------------------------------ 
¶7. (C)  Meanwhile, important legislation before Parliament is 
stymied.  The Stephen Government tabled a budget, but has not 
been able to muster a majority to pass appropriation bills. 
Australia's Consul General on Nauru says millions of dollars 
in aid cannot be released without the requisite bills passing 
parliament.  According to Foreign Secretary Maiava, if no 
appropriation bills are passed by the end of the fiscal year 
on June 30, new elections are inevitable. 
 
Canberra Prepares to Help Again 
-------------------------------- 
¶8. (C) Aside from the budget, Nauru faces other crucial 
challenges and opportunities on its economic front.  The Rudd 
Government's winding up of Australia's controversial offshore 
refugee processing center on Nauru in February left in doubt 
Australian budgetary support for Nauru's otherwise bankrupt 
national treasury.  According to Keke, revenues derived from 
hosting the center have accounted for 20 percent of Nauru's 
28.5 million Australian dollar (USD 26 million) GDP.  In late 
February, Keke met with his new Australian counterpart, 
Stephen Smith, to discuss a new MOU and ongoing support. 
Keke pleaded for Australia to help build sustainable 
industries, such as fish canning or ship maintenance, to 
support Nauru's long-term economic well being  Smith 
reportedly said the Rudd government is committed to helping 
Nauru weather the current fiscal storm.  (Comment: Finding 
"sustainable industries" for Nauru will be a challenge.  Fish 
canning and ship maintenance do not strike us as likely 
prospects.) 
 
Phosphates Second Coming: A Last Chance? 
---------------------------------------- 
¶9. (U) Actually, phosphates, which brought boom and then bust 
in the past, may still be Nauru's saving grace, despite the 
dust problem.  Per Ref C, a layer of phosphate has been 
discovered beneath the current mining operation and is 
believed sufficient to sustain another thirty years of 
mining.  Nauru exported 335,000 tons of phosphate in 2007. 
Production costs remain high, but increasing efficiencies and 
a worldwide phosphate shortage could eventually shift the 
industry's fortunes into the black.  Vinci Clodumar, CEO of 
the Nauru Rehabilitation Corporation (NRC), which is 
responsible for the mining of phosphate, told PolOff that the 
NRC has recently invested some A$6-7 million in new equipment 
to mine the so-called secondary phosphate. 
 
¶10. (C) Lacking non-phosphate natural resources other than 
marine fisheries, which net the country some USD 5-8 million 
annually, the Stephen Government is painfully aware, as was 
the Scotty Government, that Nauru cannot afford to bungle any 
second phosphate boom.  However, it is difficult to balance 
immediate demands from land owners, who claim to be owed 
millions in royalties and rent, with the need to bank much of 
any new phosphate revenues for the future day when no more 
layers of phosphate exist.  In July 2007, just prior to the 
August elections, the Scotty Government approved the first 
royalty payments to landholders since 2001.  A second tranche 
was paid by the Stephen Government in February this year, but 
 
SUVA 00000135  003 OF 003 
 
 
the current payments are minuscule compared to those last 
made in 2001, and landowners were not placated.  Keke, 
Pitcher and others in the current government assured us that 
Nauru will not repeat the mistakes of old.  Last year, Adeang 
assured us the same.  This time around, all, except perhaps 
former President Harris, have said transparency and fiscal 
sobriety must be the mantra. 
 
A Whiff of the Bad Old Days: Our Airline Eyes OzJet 
--------------------------------------------- ------ 
¶11. (C) A worrisome indicator that the invocations of fiscal 
responsibility should be taken with a grain of salt is that 
government-owned and Taiwan-financed Our Airline (formerly 
Air Nauru) is reportedly negotiating the possible takeover of 
a small, Australia-based regional carrier OzJet.  Press 
reports say OzJet had its eye on Our Airline, but the tables 
have turned.  Our Airline covets OzJet's service to Norfolk 
Island, which was a cash cow for Air Nauru before it lost the 
route following Ex-Im Bank's seizure of Air Nauru's sole 
aircraft in 2005.  According to an Embassy contact, the 
proposed OzJet deal was a main reason for the trip by 
Ministers Keke and Pitcher to Australia over the Easter 
weekend.  One of Nauru's past problems was leaping after 
"opportunities" that turned out to be very un-economic. 
 
Comment 
-------- 
¶12. (C) One might have thought Nauru would have learned from 
past governance failures; but the past four months of 
parliamentary stalemate and highly charged accusations are 
very disconcerting and do not bode well.  The cooperative 
atmosphere between the United States and Nauru, under both 
the Scotty and Stephen governments, in the United Nations and 
in regional bodies could be put at risk.  The China-Taiwan 
competition, never far beneath the surface in Nauru could 
threaten good governance yet again.  Nauru is very small, but 
bad governance there can disrupt regional cooperation.  That 
is a reason why the Pacific Islands Forum took on a special 
assistance mission there, even before the latest political 
mess.  It is in the USG interest to keep urging Nauru leaders 
to forsake personal and short-term agendas in favor of 
stable, far-sighted governance. 
DINGER