Chinese investment key to hot Yap electoral contest

October 30, 2018

Colonia, Yap—Guam is not the only place facing elections on Nov. 6. The little island state of Yap is also in the throes of gubernatorial and senatorial races. Two teams are vying for the governorship and lieutenant governorship while 18 candidates have tossed their nunus into the ring for the ten chairs around the legislature table. The 10 incumbents are running for senator along with eight new hopefuls for the four-year term.

 

The incumbent governor, Tony Ganngiyan, has added a new running mate this time, the current director of the Office of Civic and Youth Affairs, Francis Itimai. It was expected that Ganngiyan would run unopposed, but former Speaker of the House Henry S. Falan and his running mate, Jesse John Salalu, stepped in at the last minute.

 

The contest is considered by many to be a significant one since state revenue from the Compact for Free Association that is designated for education, health, infrastructure and other programs will be reduced when COFA funding reverts from grants to income from a trust fund in 2023.

 

At the core of the race are the candidates’ opposing views about foreign investment that has torn apart the island since the Chinese development company, ETG, and then-Governor Sebastian Anefal signed a Cooperative Investment Agreement with the State in 2011 “to develop the State of Yap into a world renowned tourism destination, to realize the commercial interest of ETG, to further the economy of the State of Yap, and to increase local employment as well as the welfare of the local community in the State of Yap in general.”

 

ETG began signing landowners to 99-year land leases since property cannot be owned by foreigners. Some landowners signed the leases thinking they would receive a lump sum of upwards of $250,000, only to find out later that it would be paid over the 99-year period. Monthly payments amounted to around $150. And, according to the law, land leases could be automatically renewed by the lessee for another 99 years. Several generations of families would not be allowed access to the land that had been occupied by their ancestors for a thousand years or more.

 

Despite repeated visits over the years by ETG executives who routinely flew in on a private jet to have dinner with the Yap leaders, that project has not yet come to fruition. But in 2017, a new bill was adopted into law that replaced the existing 99-year land lease act.

 

The new law limits land leases “between a landowner and a Yap State Foreign Investment Permit holder” to 50 years. All land leases in effect at the time were made null and void if they failed to comply with the new act “after six months elapse from the effective date of this act.”

 

The traditional leaders who serve on the Council of Pilung disapproved of the new bill, but the Yap State Legislature insisted that the Council did not disapprove it in the proper manner as set forth in the Yap State Constitution. The legislature took it to court and the Yap State Court ruled in favor of the legislature.

 

The bill was passed. This ruling was unfortunate for the Council and the Ganngiyan Administration, noted Yow Mulalap, an attorney well versed in Yap State Law, because the litigation took a while and the time for the administration to veto the bill ran out. The bill thus became Yap State law without the governor’s signature.

 

But there is a new player in town. Earlier this year, a delegation from China Merchants, the massive holding company of the People’s Republic of China, began visiting the island accompanied by a Dutch consultant and translator who has lived in China for many years and speaks fluent Mandarin.

 

Word leaked out in mid-October that the Department of Resource & Development had been negotiating with them to lease a parcel of government-owned land in the center of Colonia for the purpose of building a 50 to 100 room hotel. The corner property at Colonia’s main intersection has an old, abandoned building on it that has been considered for eventual development for several years. But the apparent secrecy of the project by the administration has created ire among many citizens both here and abroad.

 

Then, another negotiation by R&D was revealed, creating a firestorm of comments on the Facebook page, Yap’s Development. On Oct. 22, a Memorandum of Understanding for “Land Use and Development Rights” was posted. Dated Aug. 10, 2018, it sets forth “a vision of enhancing the well being and living standards of the people of the Municipality of Ma’ap, and to create an economic engine for the State of Yap as a whole...”

 

It goes on to state that “the parties of this MOU hereby come together in unity and trust for the purpose of advancing this very noble objective.” It was “entered into by and between Unique Eminent Limited, a duly registered corporation, represented by Mr. He Qinwen , sole shareholder and managing director,” and “MA’AP Economic Development Association , a Yap-registered non-profit organization, represented by the four members of the board.”

 

MEDA states that it “acts as the official conduit and point of contact as well as facilitator between the subject investor, land owners and the people and traditional leadership of Ma’ap.” An online search can find nothing about the company or the sole shareholder, but the address of Unique Eminent Ltd reveals another company by the name of RHT Corporate Advisory. It is believed that both are affiliated with China Merchants.

 

But perhaps more importantly, in Yap, a foreign investor must have a local partner. It is not legal for a registered corporation to have a “sole shareholder.” No local partner is identified in the MOU. Even more importantly, few land owners were aware of the agreement until it was handed to them in October.

 

Yow stated, “The MOU says that the exclusivity arrangement is subject to the ‘approval and consent of the people and traditional leadership of Ma’ap.’ This is an important caveat, and I encourage the people of Ma’ap to make their views heard about the exclusivity arrangement.

 

However, the fact that this caveat is in the MOU underscores that there were likely little to no consultations with the broader community of the people of Ma’ap before the MOU was signed.”

 

The landowners are now being pressed to lease their land for a “series of investment plans and supporting facilities in Ma’ap” that “are to be designed which support the development of a world-class tourist resort that is diverse, has local characteristics and includes a wide variety of services and facilities. These include but are not limited to hotels, leisure centers, entertainment, a golf course, a yacht club, an agricultural industry, residences and commercial complexes.”

 

The MOU states the term of the lease will be 70 years with the option to renew for another 70 years. This is a clear violation of the new land lease law. “Any such land lease agreement that does not adhere to this law is considered null and void,” Yow noted. “Is the fact that the paragraph says ‘land use term’ rather than ‘land lease term’ (or something similar that includes the words ‘land lease’) meant to sidestep that law?” He continued, “I think this is a weak legal maneuver that can be struck down fairly easily in a court of law, for a number of reasons.”

 

 

A handwritten, informally signed piece of paper was also given to the landowners that lists Ma’ap community benefits. Among the nineteen items are: priority employment of Ma’ap residents with salaries two to three times prevailing rates, food and beverage discounts for Ma’ap residents, new house or cash equivalent for residents’ relocation, good used car, furniture, selected appliances and cash.

 

“It should be noted,” Yow said, “that although the MOU promises a range of benefits to the people of Ma'ap, those benefits will accrue (if at all) at some undefined point in the future. Strikingly, however, there is nothing in the MOU that says that landowners in Ma'ap shall be paid rent for the use of their land in connection with the proposed development in Ma'ap. Does this mean that the landowners will never be paid any rent for their land? Cars (especially used cars), modern appliances, community centers, and other benefits promised by the MOU might break down and become unusable over time (especially after 70 years) but rent for land will (ideally will) remain constant.”

 

A firestorm of anger and dissension erupted on Facebook from citizens who live on the island and abroad. Not only was the MOU entered into without prior knowledge of the landowners, they said but members of the MEDA group have no right to represent them.

 

Many are questioning why the administration and some members of the legislature believe that Yap will be any different than the other countries that have handed their keys to the Chinese and are now regretting that decision. One comment on Facebook states, “have you not heard about ‘Belt & Road’ project. If not, take a look at Sri Lanka, Djibouti, Montenegro, Maldives, Tonga and Apia Samoa.”

 

Foreign investment has also been the subject of a debate in the legislature that has added more fuel to the fire since late August. Governor Ganngiyan and James Lukan, Director of R&D who is the Yap State government representative for the MOU and a signatory as witness, presented a revised Foreign Investment Act for consideration by the legislature on Aug. 29 in a public hearing.

 

Lukan had contracted the law firm of Ramp & Mida in Pohnpei to review the existing FIP and provide recommendations for its revision. Prior to the public hearing, it was learned that the FSM national government planned to enact a centralized policy that would supersede the individual states’ acts. Some thought the Chinese developers who were proposing development deals with President Peter Christian that included a casino in Pohnpei, were behind the proposal.

 

If they only had to deal with one central policy rather than four separate policies, they could more easily erect casinos, resorts, businesses, and other enterprises in the four states.

 

The Yap State Administration was not in favor of being tied to a central investment policy. But the new proposed act set forth two primary changes that were red flags to some members of the legislature who privately questioned the influence of the new group from China Merchants that had been visiting Yap to explore various development options. Among those options, it was rumored, was taking over the port, marine resources and commercial enterprises.

 

The Ma’ap MOU and the proposed hotel in Colonia were only the beginning, they speculated. The first red flag was the inclusion of gambling on the “Amber List” category of Economic Sectors (the other two Sectors are deemed “Green” and “Red”.) Amber also includes commercial fishing and “such other economic factors as the Board may designate.”

 

But gambling is illegal in Yap. Why was it inserted into the proposed FIP? Some believe it was to pave the way for a change in the State Code that would then allow casinos and other gambling facilities to be built.

 

The other concern was the proposal that the FIP board be dissolved and sole power given to the director of R&D to approve Foreign Investment applications. An “advisory panel to the director” consisting of five members, including the director, would be appointed by the governor instead. Lukan’s argument was that it was difficult to get the four-member board together.

 

Three members made up a quorum to hold meetings, but four members were required to approve applications and there was a time limit on approvals. Sen. Nicholas Figir responded several times during the hearing that giving power to one individual “really scares me.”

 

On Sept. 19, the Kaselehlie Press reported that, on Sept. 6, “the Pohnpei State Legislature overrode Gov. Marcelo Peterson’s veto of a bill on Foreign Investment regulations.”

 

The Pohnpei legislature had jumped the fence ahead of the Yap State Department of R&D. Both legislatures were trying to influence the Congress of FSM in their attempt to enact a centralized investment act. Pohnpei’s new law, it was reported, dismantled “the Discretionary Review Panel. Instead, the new law places all decision-making power that the Legislature has not already declared as unallowable into the hands of one person, the registrar of corporations.”

 

Lukan and Ganngiyan were attempting to do the same thing. After a lengthy discussion during the public hearing, the proposed FIP was sent to the Resources Education and Development Committee.

 

Although the Committee threw out the addition of gambling, the three RED committee members supported dissolving the FIP board, replacing it with an advisory board and giving the director of R&D sole power to approve foreign investment permits.

 

On Oct. 26, the legislature met to hear the committee’s recommendations and vote on whether to adopt the new FIP. After much discussion, a vote was taken and adoption of the proposed FIP was denied. To pass from the Legislature, the bill needs seven “yes” votes. An abstention goes with the majority.

 

There was one absentee and one abstention during the vote that closed with four votes “yes” and four votes “no.” The administration has not responded to the exposé of the Ma’ap MOU. Ganngiyan and Itimai, like all the candidates, recorded an official statement for the local radio station and posted in written form on Facebook. Lukan, who has expressed his intention privately that he plans to run for governor in 2022, also recorded a half hour statement that is running on radio about what the government plans to do in the next four years.

 

Falan, the opposition candidate running for governor, posted a statement about the MOU noting “with dismay” that “as a citizen of Yap from Maap municipality who was instrumental in the development of certain infrastructure facilities in Maap, I am among those who were unaware of this scheme until it was revealed this week.”

 

He continued, “If we are elected, I and my running mate, Jesse John Salalu, pledge to all Yap citizens to open the doors and windows of Yap State Government and let in the fresh air of transparency and honesty in all matters.” Privately he added drily, “A lot can happen between the election on Nov. 6 and the swearing in in early January.”

 

UPDATE: A “Land Use Agreement” is being given to Ma’ap landowners this week. The line under the title reads: “To All Whom These Presents May Come, Greetings.”

 

Some might well wonder what they mean by “presents.”

 

The deal may be more of a lump of coal in their Christmas stockings than a gift. The company offering the agreement is listed as Dragon Thrive Limited, not Unique Eminent Limited which was on the MOU.

 

There is no address for Dragon Thrive and no name is given for an owner or shareholder. It is, however, stated in the document to be “registered as an [sic] approved entity in Colonia, Yap.”

 

Among the list of 12 terms is “compensation and benefits to the Owner as agreed upon on a separate document.” That document was not provided with the agreement.

 

One landowner said that it would probably be presented at the signing and not in advance. The term of the agreement has been reduced to the legally-allowable 50 years from the 70 years that was in the MOU. No mention is made of an extension at the end of the first 50 years. Commencement of the agreement is stated as this Thursday, Nov. 1, 2018.

 

The representative of the development company has said that they intend to begin construction in November or December. However, without signed agreements from the landowners, it is unknown how they intend to begin the project. Another term in the agreement states, “The user can assign or transfer this agreement to a third party by notifying the owners in writing.”

 

Which means the owner has no say in the matter if their land is turned over to another entity by Dragon Thrive Limited for any purpose whatsoever. And it could happen at any time from the day the agreement is signed forward. Perhaps they’re hoping the landowners have never heard of ‘bait and switch” tactics. The agreement also declares, “Upon the death of one or any of the Owners, the terms of this Land Use Rights Agreement cannot be altered, amended or terminated by the heirs of the Owner.”

 

Land in Yap is handed down from generation to generation. Do the current living heirs know about this agreement? Other than a “good used car,” appliances, furniture and other items that will be given to the landowners according to the handwritten paper handed out with the MOU, there is no long term payout for the heirs after those items are long gone.

 

During a presentation this past weekend that was given by the Dutch representative of the Chinese developer and attended by ten residents of Ma’ap, it was reported that a verbal statement was made saying that for small parcels of land, the owner will receive a one-time payment of $5,000; for a medium-size parcel, $10,000; and for a large parcel, $15,000.

 

There is no long-term land rental set forth in the agreement or the MOU. Those verbally stated amounts are evidently the total cash compensation for landowners for the next 50 years while the resort rakes in that much in one day or less. One landowner suggested privately that the landowners should receive a portion of earnings from the business that will be erected on their land. But there might be a problem getting the Chinese developer to open their books for an accounting.

 

 

 

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