---

ADB Water Loan Legislation

PALIKIR, Pohnpei (FSM Information Service): July 25, 1997 - President Jacob Nena, on July 17, 1997, requested the Acting Attorney General to draft a proposed legislation for submission to Congress to amend the tripartite financing agreement for the Asian Development Bank water loan that was earlier approved by the Congress in late 1996. The tripartite financing agreement is the agreement which sets out the arrangements for the National Government to lend the proceeds of the ADB loan to the States.

The amendments are meant to address certain concerns which the State Governments raised earlier (on the) financing agreement. These concerns relate to the terms under which the maturity of the loan can be accelerated, the grace period of the loan and the collateral to be put up by the State Governments.

The draft legislation should include provisions for the extension of the grace period from five to ten years, as requested by the National Government and approved by ADB.

Accelerated maturity of the loan is an incident where the ADB demands the FSM to repay the total amount of the loan or a portion thereof before the agreed 40-year term. If, however, one State is defaulted and the Bank is truly unhappy about it to the point of calling that portion to that State be repaid, the particular State or States must repay their portions themselves.

If the loan maturity is accelerated by ADB as a result of defaults by one or more States, such defaulting state or states whose negligible action caused such premature loan repayment, must repay their demanded portion from their own funding sources.

For the other states, however, whose repayment record are still on track as scheduled, the National Government will take the responsibility of repaying the acceleration maturity balance to the bank. But such States or States will continue to repay the loan or loans according to the original terms of 40 years to the National Government instead of the Bank.

The draft legislation should also clarify that the States are not being asked to tie up their Compact receipts and tax revenues as loan security.

The loan totaling $10.6 million is apportioned among the four FSM States: $2.2 million for Pohnpei; $3.4 or Chuuk; $2.2 for Kosrae; and $2.8 for Yap. The figures are based on the needs in each state and the scope of work in each state.

In Pohnpei, the project anticipates serving an additional 3,00 people; six or seven thousand in Chuuk in addition to the 9,000 being served. In the States of Kosrae, the loan will be used for the construction of three water treatment plants to improve water supply quality as most if not all homes have already been connected to the water system.

The State of Yap needs additional water wells as present water supply sources are inadequate and they run out during dry seasons.