The scandalous road to power

By Ian Williams

(United Nations correspondent) THE Republic of Palau is a federation of 16 states spread across 200 islands. When not busy with internal constitutional wrangles it has also been engaged in a David and Goliath battle with the United States, using referenda instead of slingshots.

The US has made it clear that future aid for the impoverished archipelago de pends on the 14,000 Palauans accepting the proposed Compact of Free Associ ation.

On numerous occasions, most re cently February 6 last year, Palauans failed to provide a sufficient majority to do so. In December last year, the UN Security Council’s lifting of the Trusteeship on Federated States of Micronesia, Marianas and Marshalls left Palau as the last surviving UN trusteeship. Palau’s 1978 Constitution (adopted by a 92 per cent vote) forbids the “use, testing storage or disposal of harmful substances such as nuclear, chemical, gas or biological weapons.” A 75 per cent majority in a plebiscite is needed to amend that rule.

However, the fledgling republic is

totally dependent on the US for money.

In 1980, Washington offered a Compact which would underwrite Palau’s expen ditures, if it accepted nuclear weapons, and if the Palau government undertook to make available whatever land the US needed within 60 days of being asked.

Introducing nuclear weapons into Palau was, the US told the UN in 1983, “necessary if the United States is to meet its responsibilities for the defence of Palau.”

There are other pressures. The prom ise of great expectations after the Compact brought in a flood of carpet baggers. A British company, IPSECO International Power Systems, owned by one Gordon Mochrie, persuaded the Palauan government that they needed a power station, and that finance would be available for a 16 Megawatt power station costing USS2S million on the

strength of the forthcoming Compact

funds. More to the point, the project was sold on the basis that it would be self financing.

Liberal payments to those Palauan leaders who knew better soon dispersed merely factual objections that’ the project would never pay for itself; that is exceeded all possible power needs of

the republic, and was beyond the means of Palau to pay. To smooth things over, Mochrie flew Palau’s Compact nego tiator Lazarus Salii to Washington where a US official agreed to send the British government a note verbale , indicating that when the Compact took effect, Palau would have over US$2B million to meet the IPSECO tab.

Within two weeks of another failed referendum in 1983, Palau’s first presi dent, Haruo I Remeliik, signed the contract to borrow U 5532.5 million for the power station. The loan was guaran teed by a consortium of British banks, Morgan Guaranty Trust, Morgan Grenfell, the Bank of Tokyo, The Bank of Scotland and Orion Royal Bank Ltd.

US$5 million went to IPSECO for its good offices in arranging the finance. At least U 55450,000 of the money was immediately recycled in sweeteners to Palauan collaborators including Salii, who got at least US$2OO,OOO.

Remeliik was shot dead in 1985 by parties unknown he had apparently decided against another referendum after two defeats. Salii was elected in his place, and tried four more times, equally unsuccessfully, to get 75 per cent in referenda to amend the constitution.

Salii continued the spending spree.

Contracts were let for roads, airports, even a plan for a new capital. For

example, in 1986, he tried to have Palau, with an annual income of US$3l million, float a bond issue of $398 million with underwriters, who would have gained five per cent commission.

Instead they were arrested. The Palauan Senate read about the bond issue in the press. The same year, IPSECO went bankrupt.

In 1988, as the corruption charges surfaced, Salii allegedly committed suicide. The Palauans, with no Compact income and a totally uneconomic power station defaulted on the loan. In 1988 the consortium won its first US court action against the Palau Government for US$45 million. IPSECO’s Gordon Mochire seems to have weathered the bankruptcy of his business rather well, and was last heard of living comfortably in the Home Counties not far from London, Palau’s future is still unresolved.

Palauans, said one UN official who has dealt with them, seem to delight in litigation. The opposition to the Com pact is fuelled by a complex of motives ranging from genuine anti-nuclear sen timent, land claims, dissatisfaction with its financial terms and local power struggles. If the banks were successful in their claim, it would encumber an independent Palau with crippling debts, which the republic’s stunted economy is in no position to pay. □