Government of the Federated States of Micronesia

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.