Taiwan Seeks to Pioneer ODA Financing Model with Haitian Power Grid Contract

Taiwan Seeks to Pioneer ODA Financing Model with Haitian Power Grid Contract
Photo Credit: Reuters / TPG
What you need to know

Taiwan is shifting its diplomatic strategy to promote the economic development and welfare of its allies.

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Haiti, one of Taiwan's 18 formal allies, seeks to benefit from a recent switch in Taiwanese investment strategy that will see Taiwan promote public and private sector cooperative investments in allied nations. The most important element of this proposed cooperation includes the provision of a power grid and distribution system to electrify the whole of Haiti, starting with its capital city, Port-au-Prince.

In the past, Taiwan encouraged private enterprises to invest in allied states, but its new strategy encourages public involvement in agriculture, infrastructure, and animal husbandry investments. Haiti hopes to see an immediate payoff as, at present, less than one-third of the country has access to electricity.

Liberty Times reported that Haitian President Jovenel Moïse paid a visit to Taiwan at the end of May to start bilateral negotiations with Taiwan’s president, Tsai Ing-wen (蔡英文), and to sign a joint communiqué agreeing to strengthen cooperation between the two countries. The two heads of state also reached a consensus to set up a high-level task force to jointly draft, within the following 60 days, the terms of the cooperative efforts needed to develop and improve Haiti’s economy and infrastructure, as well as potential channels for attracting more investment from Taiwanese companies.

If negotiations continue without a hitch, then the agreement and contracts will be signed by the end of the year, marking the very first time Taiwan will cooperate with an ally under the Official Development Assistance (ODA) model. According to the Organisation for Economic Co-operation and Development, ODA constitutes "flows of official financing administered with the promotion of the economic development and welfare of developing countries … and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount)."

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Photo Credit: Taiwan Presidential Palace
Haitian President Jovenel Moïse, left, and Taiwan President Tsai Ing-wen meet in Taipei in May 2018.

President Moïse took office in Haiti last year touting his "Change Caravan" initiative, which prioritizes private investment, agricultural modernization, and infrastructure development, with the improvement of Haiti's power supply a primary goal. When President Moïse visited Taiwan, he made sure to visit the state generator, Taiwan Power Co. (Taipower), and reviewed information related to the energy capacity of Taipower’s power generation units. He also expressed concern that powering the whole of Haiti would require the construction of 800 megawatts (MW) of power generation capacity.

In response, President Tsai said that Haiti's pressing need for an electricity distribution network would be the primary focus of cooperation between the two allies. The Ministry of Foreign Affairs followed up by saying that over the past two months, experts have been dispatched to analyze the situation, while Haiti has submitted an assessment for the project.

A senior government source told Taiwan’s Central News Agency that consultations over the details of the ODA program under which the Tsai government will assist Haiti, are in the final stages.

Expectations are that the deal with be signed before the end of the year, ahead of the project being completed in the following two years or so.

According to the source, Taiwan and Haiti will work to implement an electricity distribution network project in the Haitian capital Port-au-Prince. The project will also help Haiti build new or upgraded substations, power transmission lines, and transmission towers, while helping to train local personnel responsible for maintaining the grid.

Improving Haiti's energy supply network was one of the key promises of Haitian President Moïse's administration, and one he hopes to fulfill during his tenure, which cannot run beyond an initial five-year term, according to the Haitian constitution.

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Photo Credit: Reuters / TPG
People watch an international friendly soccer match between Argentina and Haiti in a park of Port-au-Prince, Haiti, May 29, 2018.
Assessing the ODA

The characteristics of ODA mean contracts do not solely comprise an exchange of money, as there are more, often intangible, influences that will gradually permeate the developing country throughout the period of aid.

An Executive Yuan press release pointed out that we should not think of ODA as diplomatic aid, but instead as an agent that helps Taiwan’s commercial banks finance foreign governments, who guarantee to contract Taiwan’s industrial sector.

This mechanism allows Taiwan to play a critical role in both international and regional development, and through the joint efforts of the government and private sectors ensures Taiwan’s expanded participation in overseas engineering and construction projects. In addition to enhancing overall relations with countries that are either close friends or diplomatic allies, this will also drive the development of Taiwan's engineering industry on the world stage.

The government has taken note of the way both Japan and South Korea offer foreign aid and has opted to leverage Taiwan’s advanced private sector capabilities to effectively secure overseas public projects and business opportunities. The Executive Yuan has already ratified the "ODA program for the procurement of overseas public industrial implementation projects plan," and will establish a US$3.5 billion (NT$107.8 billion) fund with investments in overseas public projects and business opportunities as its goal.

Storm Media reported that the ODA model operates by allowing a borrowing country to take out loans with preferential interest rates from Taiwan banks, before contracting Taiwanese companies to undertake the majority of the public industrial work. The lending bank then pays the Taiwanese contractor according to the progress of the project and the borrowing country’s government repays the bank according to the contract. Taiwan’s government shares the risk and prepares a budget subsidy to cover the difference between the partner country’s bank's loan interest rate and the full cost of the loan.

Apple Daily reported that because this particular partnership between Taiwan and Haiti will run on the ODA program, Taiwanese banks will offer commercial loans while Taiwanese companies will conduct the contracted work. If the contract gets signed, Haiti will become Taiwan’s first diplomatic ally to benefit from the bilateral cooperation ODA program, which will also help drive local employment opportunities in Haiti. In addition, due to the fact that it is a loan, if any problems arise in the future, Taiwan can start legal proceedings and file a lawsuit against the partnering country’s government.

Tsai to visit Paraguay as Taiwan consolidates all diplomatic ties

The CNA report also mentioned that President Tsai will make her fifth international trip on Aug. 12, to participate in Paraguay President-elect Mario Abdo Benitez's inauguration ceremony on Aug. 15. During her visit to Paraguay, Tsai will also attend the unveiling ceremony of the planned site for the new Taiwan-Paraguay University of Industrial Technology.

A Taiwan government source said that the cooperative Taiwan-Paraguay university will help cultivate the talent pool in Paraguay, but that Taiwan also hopes to help improve the education standards within Paraguay and further advance the development of local precision engineering industries. In addition, the source said that when Paraguay’s Minister of Public Health and Welfare, Julio Mazzoleni, visited Taiwan at the end of July, he also expressed hope over Taiwan’s assistance in expanding Paraguay’s telemedicine program on a national scale.

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Photo Credit: Reuters / TPG
Paraguay and Taiwanese flags fly above an honor guard in Taipei, Taiwan, July 12, 2017.

When asked about the topic of China wanting to establish a chamber of commerce in Paraguay, the government source said that it was something that has been talked about for a long time in Paraguay, and that the Paraguayan parliament occasionally discusses the issue. The only thing Taiwan can do, the source said, is to continue letting its friends know that Taiwan can provide their people with a substantial amount of help through long running projects such as building civilian housing in Paraguay to improve the quality of living for the local people. Over the years, Taiwan has continued laying down these foundations in Paraguay, and these projects really seem to resonate with the local people.

The Dominican Republics’s diplomatic turnaround was related to China’s commitment to investing in large-scale construction projects such as thermal power plants.

In May, Taiwan's diplomatic relations with the Dominican Republic and Burkina Faso were severed, causing its diplomatic ties with its 18 remaining allies to come under scrutiny.

The government source said that the Dominican Republics’s diplomatic turnaround was related to China’s commitment to investing in large-scale construction projects such as thermal power plants. Taiwan hopes its remaining diplomatic friends understand that there are many examples of China’s failure to fulfill its commitments after such agreements.

For instance, after Beijing established diplomatic relations with Costa Rica, they were not able to realize projects like the refineries and highways that they originally promised. He also said that Taiwan’s government has repeatedly indicated to allied nations that Taiwan is a reliable partner because "Taiwan does not deal in empty promises or coercion."

The government will "do everything in its power" to consolidate the friendships with each of its diplomatic allies, the source said.

The government currently runs very successful "citizens’ welfare" cooperative projects in allied nations, he said. In the future, they hope to also increase investments in those countries.

The source also said that China probably has a strategy regarding Haiti, but that diplomatic relations between Taiwan and Haiti will be "OK" and bilateral cooperation will continue in the hope that the contract for the implementation of the power grid will be signed as soon as possible.

The source also said the successful completion of the project would increase local employment opportunities and, once complete, would serve as an example to our allies that "we really mean what we say and live up to our promises."

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This article originally appeared on the Chinese-language Taiwan edition of The News Lens. The original can be found here.

Translator: Zeke Li

Editor: David Green (@DavidPeterGreen)