How did the FNPF do it?

Between 2011 and 2012 the value of assets held by the FNPF increased from $3.8 billion to $3.9 billion. That’s an increase of 2.6%.

Somehow the FNPF managed to give a dividend of 5.5%. How can this be possible? How can an increase of funds of only 2.6% allow the Fund to award a 5.5% increase in the value of the funds held by the contributors?

To do this the Fund has to reduce something on the other side of the balance sheet, namely the obligation to pay out funds to people who are going to retire and take a pension.

Yes, this dividend, which is really fairly modest, has been paid for by pensioners who have had to suffer their pensions being cut below the levels promised to them.

Our FNPF and the new Airbus A330s

Fiji Today Blog’s story about borrowing for the new Air Pacific A330s raises the issue of how much has been taken from the FNPF and how exposed are we.

One thing is for certain – the FNPF doesn’t have a billion dollars to lend. They pick up about $300 million in new contributions. They earn about $250 million in income on investments. From this they have to make pay-outs and pay pensions. They’re not sitting on a billion dollars to lend to Air Pacific.

FNPF has for a long time lent money to the government to the point where Government securities represent over half of the assets of FNPF. There’s nothing new about borrowing by Government.

The problem is we don’t have any detail on what these Government securities are. They could be rolled over as accumulated interest owed by the state to FNPF. No-one knows anymore what the true state is of the finances of the FNPF, the Government or any of its subsidiaries, including Air Pacific.

It seems likely that Air Pacific has borrowed a couple of hundred million as a deposit that will allow the planes to provide the balance of the security. If they run into financial difficulties, they’ll have to pay the banks before they pay FNPF. In this case FNPF will show the accumulated interest and payment due but not collected as ‘earnings’. The house will grow bigger, but it will be all made of straw. It won’t fall over tomorrow but it is still a house of straw waiting for the first big wind.

“Rehabilitation” of loans by FNPF to Natadola Bay Resort

The Fiji Times has reported the “rehabilitation” of the loans by the FNPF to Natadola Bay Resort Limited. The report is based on the FNPF 2011 Annual report, which has not yet appeared on the FNPF website. It may be that this doesn’t make sense because the censors cut parts of the report. If anyone understands the background to this, your comments would be welcomed.

“THE Natadola Bay Resort Limited will pay $100million of its $302.8m loan over $26.5 years but the remaining balance of $202.8m has an indefinite loan term and is interest free.

The Fiji National Provident Fund, which owns the property revealed this in its 2011 annual report. Along with some of the fund’s other investment projects, the NBRL debt was rehabilitated following a write down of $301m on the property in 2009. The hotel, which was constructed at a cost of $385m was valued at $84m resulting in the write down.

The fund this year wrote back $29m on the property after a revaluation of the property.

The fund’s hope in recovering its funds in the project lies in the second stage of the resort development, which is the sale of the residential lots.

The NBRL debt was restructured into three loans, according to the report.

Loan 1, worth $60 million would be paid over 26 years at an interest rate of 8 per cent.

In the first 12 months, the hotel would only pay interest and from August 1, 2012, it would then start paying the principal plus interest.

Loan 2, worth $40m would be paid over 26.5 years with an interest rate of 8 per cent.

The hotel would pay interest only for the first 18 months and start paying the interest plus the principal from February 1, 2013.

Loan 3, worth $202,830,111 is interest free and has an “indefinite” loan term.

“All surpluses from the Natadola Residential Development shall be applied against the outstanding balance,” the report said.

“All cash surpluses that are not required by NBRL for expenses other than the normal course of the business shall be applied to the outstanding balance.”

The fund however has the right to commence charging interest and capitalising against the balance outstanding at any time in the future.

The fund’s financial year starts on July 1 and ends on June 30.”

FNPF: uncertainty continues

The FNPF is reporting that it recorded a 16 per cent increase in the net operating surplus for 2011, but the Annual Report for year is not on the FNPF website. What we’ve been told is very selective.

The report in the Fiji Times today is totally confusing but the bottom line seems to be that the FNPF investment has no hope of making money without sale of residential lots and that’s not likely to happen so long as we have a Government which has no respect for the rule of law.

FNPF CEO, Aisake Taito, has said that the FNPF now has $110 million invested off-shore. Give the destruction of our economy, this is a good move, but what it means is that the FNPF is admitting that returns in on any investment in Fiji are likely to be very low for some time.

With overseas share markets down, now is a good time to buy and we need to remember that another devaluation is on the cards. When this happens any overseas investments will keep their value.

And devaluation is a certainty – the only question is when. Our exports are not picking up. Sugar is still way down and could even get worse. We hear a lot about a mining boom, but it’s hard to know what the real truth is or when any income might start to flow.

What do latest FNPF announcements mean?

The Government’s backing away from the proposal to force everyone to take pensions (after pensions have been reduced) should come as no surprise.

A lot of Fijians have long had plans to take their lump sum and retire to the village.

Suddenly changing the system so that people could no longer get lump sums would have made a lot of Fijians very angry. On the other hand, the announcement of the cut in pensions made a lot of Indians (and ‘Others’ like Mr Burness) very unhappy.

But the truth is that Bainimarama listens when his troops complain. When anyone else complains, he says he has to make tough decisions in the national interest.

Now what we are going to find out is what happens when everybody starts asking for their lump sum. A lot of people don’t have faith that their money is safe in the FNPF, so they may all ask for a lump sum.

That will be the day when Bainimarama has to make some really tough decisions.

More good work from Professor Narsey

We are grateful to Jone S K for drawing myfnpf’s attention to another excellent article by Professor Wadan Narsey.

In it he analyses the significance of the Burness/Shameem case against the FNPF.

This is the link.

Governments have a debt to FNPF contributors

Professor Wadan Narsey has provided a useful article which has been posted on blogsite Coup Four and a Half. He says that past Governments have all borrowed heavily from the FNPF and received funds at cheaper rates than they’d have to pay banks.

If the Government paid a fully commercial rate of interest the FNPF would not have to restrict pensions so severely. What we need most of all is an FNPF Board that people can have confidence in and that requires an elected government that is accountable to the people.

The pension cuts are to pay for cheap loans to government.

Click on the link below to read Prof Narsey’s paper. It’s nonpolitical and all FNPF contributors should read it carefully.

The source of much of the FNPF problem

In 2008, the FNPF under the management installed by the Interim Government credited 6.5 % to the accounts of contributors. They wanted to match the earnings that had been achieved under the previous government. They should never have done this. The Board of the FNPF should have known the earnings were false. They were continuing to pour their funds into property developments which had been hit badly by the coup. When they slashed the value of the investments they had sunk in Natadola, they should have taken the interest credited back. But they feared this would look very bad, and so it does. Now they’re being forced to cut pensions.

Why Can’t We See the Mercer Report?

A pensioner and the managing director of the Credit Corporation company, Ross Mc Donald, has written to the FNPF board asking why the Mercer Actuarial Report has not been released for scrutiny and comment. This is the report that the FNPF has cited in announcing their intention to cut pensions.

According to McDonald, “it appears Mercers have used Australian life expectancy tables rather than those for Fiji, thus giving longer life expectancy to Fiji pensioners and members when in fact it is less, thus increasing the liability for pensions”.

With all the health spending cuts since 2006 life expectancy has gone backwards in Fiji, so why can’t we see what assumptions the Mercer Report used?

At last the Ernst and Young Report

Thanks to the Blogsite Coup Four and a Half we are now able to read at least parts of the Ernst and Young Report on the Fiji National
Provident Fund.

We reproduce it here for all to read and digest.

FNPF Penina Tappoo

It’s not easy to read. The subject matter is complex and the problems started under the previous Board, but the report has been suppressed for some reason.

Coup Four and a Half have blamed Aiyaz Sayed-Khaiyum, claiming he had dealings with Tappoos, the FNPF’s partner in the Tappoo City project.

We invite everybody to read and comment. Let’s hope some experts like Dr Wadan Narsey can help us understand it better.