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The YTK Proposal and the Future of Fishing in Pohnpei

Background

Some months ago YTK Corporation offered a unsolicited proposal to Pohnpei State to invest a total of $460 million for a three-phase development project located on Dekehtik Island. The first phase of the project, scheduled to begin next year, is aimed at the renovation and expansion of the dock and establishing fisheries facilities nearby. The second phase would lengthen the airport runway and build a new terminal, while the third phase would create a marine industrial park. Plans for the last two phases of the proposal are very general at this time, but the concepts for the first phase have been worked out in some detail and nearly all discussion focused on this initial phase.

According to the proposal, YTK would renovate the existing pier and add 200 meters of new dock, bringing the total length of the pier to about 1,400 meters. They would also build an ice plant, a cold storage area, a seaman center and restaurant, an electric power plant, and office buildings-the total area of which would come to 18,000 square meters. YTK would not only build up these facilities, which are envisioned as the heart of the fishing industry on the island, but it would also manage them for a period of at least 25 years. This period could be extended another 25 years or even longer if such were required for the company to recoup its original investment. The corporation's investment for this first phase of the total project is projected at $87 million, including the $4 million needed to finance the loan.

In the proposal submitted by YTK, this corporation would be allowed to manage the commercial fishing facilities on the island, thus excluding any competition, so that it can make a return on its original investment. After a period long enough to allow it to make a reasonable profit, its control of the facilities would presumably be loosened. Local fishing enterprises would be encouraged to sell usable catch to YTK if they did not want to simply put the fish out on the local market. Meanwhile, YTK would also run the other fisheries facilities, employing an estimated 75 local people and perhaps 500 more during the first two years of construction. The main economic benefit to the state would come in the form of the 3% tax on gross receipts; YTK estimates that over 25 years the project would bring in some $97 million.

Who is YTK? The main figures and major shareholders in this company are Tom Kamiyama and his wife Yoshie-hence the acronym YTK-who hold 90% ownership of the corporation. The other 10% is held by Tomotsu Kamisedo, the owner of a shrimp culture business and director of the Japan Central Fishery Market Association. In the later role, Kamisedo apparently enjoys considerable influence over other Japanese fishing companies. The financing of this project is being underwritten by Mitsubishi Corporation and Binan Development Co.

Why the Rush?

With the step down in Compact funding this past October, the nation finds itself in a critical financial situation. Recently the state government had to announce a 20% cut in government salaries, otherwise the entire government operation would be forced to shut down by the start of the 4th quarter of this fiscal year. With post-Compact funding uncertain at best, Pohnpei State is obliged to start looking for large industry to boost the economy and supply the revenue base needed to support the government. One of YTK's anticipated benefits would be to generate an average of $3 million annually in gross profit taxes. In the words of one participant, "We can't wait to build an industrial complex of this magnitude ourselves. We have to get this done soon by an outside company."

Other participants acknowledged the economic crisis, but wondered whether the government wasn't rushing headlong into a project before doing a check on the principal parties in YTK Corporation and working out a clear cost-benefit analysis of the terms of the proposal.

The government admittedly has little background information on the individuals who put together this proposal. These individuals have no experience in a project of this magnitude, it seems, but the state seems to feel that the financial backing of huge companies like Mitsubishi suggests that the officers of YTK are credible in the eyes of Japanese investors. One participant argued that Pohnpei should determine just who is putting up the money for the project, since no one seems entirely certain just how much money is coming from what sources, and undertake an independent appraisal of the loan. The state could do this by working through different channels: asking the US Attorney General on Guam to run a check, doing a similar check through the US Embassy in Japan, and requesting the US Embassy on Pohnpei to do the same with Mitsubishi.

Evidently, YTK is pushing hard for a quick commitment from Pohnpei for the project. Pressured by the corporation for an early response, the governor agreed to an early ground-breaking ceremony for the project. A letter of agreement and a memorandum of understanding were signed by the governor and YTK in late November 1996, and the ground breaking ceremony was held about a week later. Many participants wondered whether the ceremony and the signed papers constituted an irrevocable agreement to proceed with the project. As one person put it, "Is the deal done? What kind of a relationship are we talking about now: going steady or a formal marriage?" The administration clearly takes the view that the relationship is an engagement rather than a final marriage. Their position is that the ground breaking ceremony can mean anything one wants it to mean, although it is undeniably a step forward toward formalizing the agreement between the state and the corporation. The state attorney general offered the opinion that nothing in the memorandum or letter of agreement is absolutely binding on the state. The engagement can be broken if need be, they administration holds. No contract has been signed that would commit Pohnpei to accept the project.

Someone asked whether it was true that the administration had promised to provide all the necessary permits that YTK would need before the contract could be signed. In other words, was the state circumventing the normal process used to safeguard the island against harmful aspects of development projects? A spokesman for the administration replied that the boards granting these permits are autonomous under law and that the state promised to facilitate, not grant the necessary permits.

Pohnpei is not the first object of YTK's affections, it would seem. The corporation approached Guam (and perhaps Saipan) earlier, although the government does not appear to know the real reason that the deal did not go through. Spokespersons for the administration can only say that the reasons, whatever they are, do not reflect badly on YTK or discredit that corporation in any way. "There is nothing to worry about," is the government response. Many of those speaking at the discussion called on the state to investigate just why YTK was spurned by the others it courted. Could it be, some wondered, that the others knew something that Pohnpei doesn't yet know?

If the underlying plan is a sound one, one participant said, then it should be floated by other potential investors to see who offers the best terms for the state. Pohnpei should learn from its past unhappy experiences, another person suggested. "We're in danger of making the same mistakes as have been made before-with PFC and Ting Hong, for instance-by jumping into the arms of the of the first company that comes along."

The Impact on Fishing

The YTK proposal, which is aimed at capturing a good share of the sashimi tuna market in Japan, states that the corporation intends to bring in 600 long liners to do the fishing. What impact would that be expected to have on the fishing industry in Pohnpei? In view of the fact that no more than 400 long liners have ever been operating in the entire FSM at any one time, would fishing on this scale lead to a rapid depletion of our tuna resources? It appears that this question can not be answered at present.

The Micronesian Maritime Authority (MMA), which is responsible for licensing fishing vessels operating in FSM waters, has not set any quota on long liners at present. If the 600 vessels to be employed by YTK were among those registered under the Japanese government, the present limits of fishing vessels of all types could be safeguarded. If not, the number of ships working the FSM waters would probably increase significantly. Would the increase be too high to maintain acceptable conservation standards?

If 600 long liners are to be based on Pohnpei and fish in other FSM waters, as would almost certainly be the case, how would representatives of the other states on the board of the Micronesian Maritime Authority (MMA) in FSM react? Would they approve the licensing of this many ships based and serviced in a single state, when Pohnpei would reap all the financial benefits of this venture? One informed person felt that the ships would not all be based on Pohnpei, since it is to the advantage of any corporation to base the long liners as close to their fishing grounds as possible. Hence, the wealth would be distributed to the other states to some extent. On the other hand, the ships would also have to be close enough to the processing facilities and auction site (Pohnpei) to unload there.

If MMA, under the influence of the other states, balked at granting licenses for this many ships, YTK could not expect to recover its investment in the projected period of time. In that case, its monopoly of the commercial fishing industry in Pohnpei would be extended beyond the 25-year period set out in the preliminary agreement. It could conceivably retain its control for 50 or 75 years in that case. Would this be acceptable to Pohnpei and its people?

Some wondered whether the government would be getting a fair price for the catch under this agreement. At present FSM licensing fees are set so that the FSM government gets about 5% of the market value of the catch, a level that is roughly the same as the world standard. This is noteworthy because FSM's share of the catch depends on the proper licensing of all the vessels that YTK will employ in its fishing operation. The 3% gross profit tax represents an additional government revenue that the project in Pohnpei can be expected to provide. Government profits could be significant, provided the state and national governments maintain strict controls over the industry.

The fate of the local fishing industry is another key issue. One participant with years of experience in the field predicted that YTK would "drive EDA out of business in six months." Yet, others siding with the proposal confidently said that "for the local fishing industry it would be business as usual." YTK promises that it will buy tuna and other species from local fishermen, but the proposal seems to insist that there be no competition from other commercial fishermen. We have no clear definition of the relationship between local fishing ventures and YTK's operation.

What's Really Going On Here?

Why do the Japanese want this project so badly? one of the participants mused. As recently as 1990, Japan was unwilling to send its boats into the area and even withdrew some of the vessels that had been fishing in FSM waters. Clearly they are interested in capturing a share of the fresh tuna market that has become so lucrative in Japan. To do this, they will have to replace the Chinese, who once dominated the market. This has been difficult to do, if only because Japanese fishing vessels are costly to operate and are subject to restrictions which the Chinese are not obliged to observe. Do Japanese fishing concerns hope to establish a base of their own on Pohnpei which can develop into a control center for Japanese fresh tuna marketing, thus undercutting Guam and the Chinese industry that operates from that island? Perhaps the Japanese envision a bigger project that moves tourists into Pohnpei and opens it up as an alternative destination to Guam and Saipan. If so, they might be positioned to control an air transportation system that begins with fish and later expands to flying tourists in and out of FSM.

Perhaps the administration of the state shares much of this vision. Having an industrial fishing complex operating out of Pohnpei will not only generate tax revenue that can relieve the present financial strain, but it can lead to better things to come. Not only will it mean port and airfield expansion, but it can be viewed as a pathway to the post-Compact future. The money may come from fish for a time, but eventually it will come from a rapidly developing tourist industry once Pohnpei is established as a regional center and entrepot.

The administration seems to think that the YTK proposal is too golden an opportunity to be squandered by bickering over details. If it does not act now, it may never have such an opportunity again. Others worry that the investors may be planning to make their fortunes at the expense of the state. They are troubled by the clause in the preliminary agreement that allows YTK to operate fisheries, port facilities and airport for what seems to be a vague time period-until the corporation recoups its investments. Who is in a position to check their books to verify what they claim to be their net profits or losses? YTK not only manages these facilities, but it seemingly dictates the length of time it will continue to maintain control over them.

The discussion ended, fittingly enough, with two impassioned pleas. One to recognize the perilous fiscal position of the state and to support a good-faith attempt to develop the industry that Pohnpei has always needed if it hopes to move beyond reliance on US aid. The other to examine the project much more carefully than has been done and to plug the loopholes that might squander the few resources Pohnpei has.

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Comments (24)

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Sarlote(posted on February 02)

I fear to bud in a male round-table discussion, but since we're equally affected by this male-chauvinism in the decision making I might as well break or bend some rules here. Regardless whether the Compact funding ascend or descend, FSM would've been in better position had its leaders negotiated that whatever is not spent, should be kept at the FSM, but not lapsed and returned as "UNEXPENDED" back to US treasury. Same should also apply to all funds (popularly called Sectors) under the Compact II. Put congressional appropriation under closer "public scrutiny" and change the revenue sharing formula back to a 20/80 FSM-State. The FSM Government needs to negotiate harder with DOI to comply with the provisions of Compact II and avail those inflation adjustments figures, as well as catching up on the Trust Fund obligations. China and Japan already considering or perhaps already donated into the Trust Fund. Finally, FSM should make use of the Capacity Building Sector funds to train and upgrade its manpowers in education and health, but not to offset government operating costs. Finally, in light of everything else, I think Lepwei may have the best possible option now that Guam is expecting military expansion. I'd like to say that we opt to become a DOD golf course and trust me, FSM wouldnt even create a dent in the DOD budget. Lets fry our sovereignty in the name of survival, but not laying off people.

rh1259(posted on February 02)

self-reliance doesn't mean only to be independently sustainable... rather the strength to choose the right course....

Rotuma(posted on February 02)

enough to be what we are .......I meant

Rotuma(posted on February 02)

I would say foreign investment........we are so lucky to have capital funds w/o any resources...our main resources would be the compact of free association with the U.S.A.So my point being would be the fact that we have so far never had proven the fact of self reliance among ourselves...........................................unless we are smart and proud enough to be micronesians enough to choose the right individuals to take over the torch and move forward till we get there enogh to be a nation. concerned Kosraean

...PLUS (21) MORE COMMENTS...

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