Vila Times

Vanuatu government’s contract for Santo wharf ‘heavily weighted’ in China’s favor: experts

Vanuatu government’s contract for Santo wharf ‘heavily weighted’ in China’s favor: experts
Vanuatu government’s contract for Santo wharf ‘heavily weighted’ in China’s favor: experts
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Vanuatu’s leaders for the first time shared the contract Vanuatu signed with China for the Santo wharf, and arguing they are perfectly capable of paying back the loans and making decisions on their own about when to work with China.

Earlier this year Australian officials said the wharf could lead to China’s seizing strategic property and becoming a more direct military threat, within striking distance of Australia’s east coast, Ben Bohane reports for NYTimes.

“The loan was considered economically viable for such infrastructure as the main gateway for international trade between the northern part of the country and the rest of the world,” said Foreign Minister Ralph Regenvanu of Vanuatu.

His decision to share the contract was just the latest example of how Vanuatu is trying to alleviate the concerns of Australia, New Zealand and the United States about whether China sees the archipelago as a vulnerable mark, and a potential military outpost.

The wharf was built by the Shanghai Construction Group Co. Ltd. and opened last August. In recent weeks it has become a source of concern in Australia, where defense officials worry that Vanuatu and China have discussed a possible Chinese military base, which could make the wharf available for military and commercial use.

Australian officials and experts have also questioned the terms of the financing deal, suggesting that in the case of default, China could seize the wharf directly through a “debt equity swap” like what was used to take over Sri Lanka’s main port when that nation fell behind on Chinese loans.

But Mr. Regenvanu, sharing a copy of the contract signed in 2014, confirmed it did not include a debt equity swap clause. He said Vanuatu sees the wharf as valuable and necessary for hosting the fast-growing cruise ship and agricultural exports industries.

In the wake of Australian news reports about a potential Chinese military facility, Prime Minister Charlot Salwai of Vanuatu personally assured Prime Minister Malcolm Turnbull of Australia that Vanuatu was not in discussions with China about a base.

Vanuatu, Mr. Regenvanu said, prefers neutrality. The country is a longtime member of the Nonaligned Movement — a group of countries not formally aligned with any superpower — and he cited that membership as a reason Vanuatu would never allow a Chinese military installation.

Direct weekly flights from Beijing and Shanghai are expected to start at the end of the year.

Despite the government of Vanuatu’s assurances, experts said the terms in the contract between Vanuatu and China’s EXIM Bank, with Shanghai Construction Group Co. Ltd. as supplier or builder, are heavily weighted in China’s favor in the event of a default.

The terms are more restrictive than the loan provided by Japan for a similar wharf. Japan’s loan provides a 10-year grace period, a loan with interest of .55 percent and a repayment schedule of 40 years.