PETER FORAU

Honiara

I have been drawn to the public discourse on the Mamara Estate Development out of shame and my desire to diffuse some of squally allegations that have been made against the project where some have even dared to allege, it is a fraud.  

I guess this is freedom of speech so I have no authority to attempt to shut anyone off. 

All I can say is, it’s quite dangerous to be making spurious allegations without evidence.  

Anyway, that said, may I also say that it’s important to share information on the funding for a major project to avoid speculation which often times can lead to fake news and dangerous inferences.  

Before going on, I’m beholden to the public to declare that I’m not an agent for the Government, neither a representative of the investors (Metroplis,) who recently have claimed monies from the state for the assembly of 30 kit homes at the Mamara development site west of Honiara (not myself seen the development so far, so using information shared in the media).

I’m publishing this article for purposes of sharing information on the funding of the housing component to ally speculation that is now surrounding funding for the project.

For public information, I was the consultant that did the financing model for the housing development component of the investment.    

This assignment was sanctioned by the Cabinet to assess the financial implications of the housing project so Cabinet can be assured that whatever funding arrangement is used will not incur excessive financial outlay to the Government. 

A terms of reference was developed and based on it, I conducted the study using information sourced through the interim secretariat based at the MCILI. 

I was told the information was originally provided by the MPS and the ML&HS.   

May I also say that currently the SIG is spending millions (over $100 million ) on renting private houses to accommodate public servants as part of the terms and conditions for working in the Public service.

In fact the Government spends around just over $150 million (2019 figure) in rentals to accommodate just 3,600 public servants. 

This represents just about 20 percent of public servants as there are around 17,000 public servants.  

If the Government accommodates all public servants through its rental scheme, the figure will consume the entire Government budget.  So it’s important to keep that scenario in perspective.

The Mamara housing development is intended to allow public servants to own homes therefore assist Government to gradually reduce its rental bill over the long term. 

And that is the fundamental rationale of the housing component of the project.   

Ok that is fine, no one will dispute that but I think many people are speculating in the media because the information has not been shared about how ownership of the houses will be funded.  

I’m sure the Government, when everything has been finalized, will eventually come out to publicly explain what is happening.

Ahead of that occurring, perhaps I can foreshadow, that the funding model that I had proposed is sound and practical.

In the model I had offered a number of options including pooling of the Government’s rental scheme, Public-Private partnership (PPP) and vendor finance.  

All of these options will not require Government to allocate extra funds in the budget to assist public servants pay for ownership of the houses. 

How is this possible, one may ask?  Well, as I said before right now Government allocates just over $150 million in its rental scheme to accommodate public servants (some of them) in private homes. 

So when there is no allocation in the budget, it means that there is no need to because the funding will come from the rental scheme budget which is already budgeted for under the budget of the Ministry of Lands and Housing services.

So that is where the money will come from. As it’s been legally appropriated there should not be any issues on that front.  

However, I understand there is a question on whether it’s legal for the Government to reallocate a budget intended for something else.

I’m no authority on this so I’ll leave to the right authorities to explain this.  

On the PPP option, again there is no need for a budget allocation by the Government as the investor is supposed to provide the funding under contract and the mechanism for this arrangement I have already covered in an earlier article I had written on PPP that was published in the Island Sun newspaper previously.

On the vendor finance option, this is a normal mortgage arrangement that uses funds, sourced not from the banks, but from the investor, which public servants who are allocated homes for ownership at Mamara can service using the rental scheme entitlement which, I understand will be paid directly to the eligible public servants under a new housing policy that Government should have formulated last year- not sure though if this is already in place.

However, the important thing to consider is that there is no additional budgetary allocation by Government to implement this or the other two options.

This option was proposed basically because it is common knowledge that most public servants, with the salaries they are being paid, will not be able to qualify for commercial bank mortgages.

I say this with utmost respect for public officers.   

And now, to the proverbial letter by the investor, to claim monies from the Government, which the media had highlighted in the public domain. 

My I venture to say that there is really nothing sinister about the letter of request by the investor to the Government requesting a payment of $22 million. 

If they had completed 20 or 30 houses then they should be paid.

The money should come from pooling of the rental entitlements of the 30 public servants that are supposed to be selected to move into the 30 completed homes.

There is supposed to be a process for this which my terms of reference did not cover, but anyway, it was supposed to be established.

May I also say that I had cautioned Government to sign an agreement with the investor to ensure the respective obligations between the parties were addressed in a legal document.

This is to avoid unnecessary demands by the investor and to protect the rights of the Government over the assets of the development.

Finally, my I say I was not required to look at the background of the investor nor the design of the homes.  

I was just required to do the financing model which I had done.  

As to whether there is money in the budget to pay for the homes, yes there is money under the budget for the rental scheme which Parliament as required by law has duly appropriated. 

The rental scheme was supposed to be reviewed last year but as PS of Commerce has confirmed this is being reviewed as we speak. 

As to the allegations that those behind the project are fraudsters, I reserve any comments on this as I don’t have any evidence to share an opinion.

However, I would say that the project is an investment, and if 30 houses have been assembled and are completed ready for occupation, then it’s a normal business requirement that whoever had ordered for the properties to be built, has to pay. 

It’s really no rocket scientist matter. 

Taking all this into account, the claim for the $22 million would seem to be in order because by simple deduction, the average price for a house would be around $600ks – $700ks and not the ridiculous figure quoted by some as $4 million per house. 

I would be surprised if the project is a fraud because there is a Council and Secretariat leading the development. 

These institutional bodies are headed by eminent Government ministers and senior officials. 

I’m sure they would have required the due diligence checks to be completed before getting the Government involved.

And as an economist, I believe the project can be transformational in providing jobs, generating income, generating multiple linked business activities, and improving the standard of living of our hardworking public officers. 

I think the onset of negativities have been provoked by lack of complete and accurate information sharing. 

Also lack of quality control seems to be depriving proper checks on whether the designs of the houses are suitable for our context. 

These are issues that can be corrected by inviting the right experts to be part of the Council so that, going forward the project is properly guided and governed. 

In conclusion may I urge the investor, to ensure it plays by the rule of law as a lot of energy and time have been invested in getting the project off the ground. 

You will get your money back if you follow the law. 

Maybe reconsider the design of the houses to suit the local tropical climate. 

I suggest have your options open so that if the Government reneges there is a huge private market in which you can sell your properties in provided you have the right designs. 

I still believe the Mamara project will succeed if it is properly guided and governed!