“There are genuine concerns about a lack of transparency in the disclosures pertaining to the financials of the Fund’s associated companies and its subsidiaries”: Mahendra Chaudhry
A full page ad by FNPF (FT 1 July 2020) proudly announcing a 5% interest
payout to members, hides the fact that interest paid this year is substantially lower than the 6.75% paid last year.
The lower rate may be the result of a number of poorly performing investments made by its Board in recent years.
In its 2019 Annual Report (p115) the FNPF Board admits that: “A number of its associates have been fully or substantially written down as they are making losses and have negative net asset positions”.
There are genuine concerns about a lack of transparency in the disclosures pertaining to the financials of the Fund’s associated companies and its subsidiaries.
The Fund is a Superannuation Trust specifically established by statute to provide for the retirement/ pension benefits of its members (workers). Its administration, therefore, requires a high degree of accountability and transparency and a governance structure that protects it against abuse and manipulation.
This in turn requires a comprehensive disclosure format, detailing income, expenditure and investment activity for each related entity. The Fund has invested in a number of ventures which are, in their own right, distinct entities with their own Boards, administrative structures and protocols.
However, the financials of the associated companies and subsidiaries are lumped together under the consolidated column. It is thus not possible to obtain information on the performance of the individual entities. This is unacceptable from the transparency viewpoint, more so, when their trading accounts are not published.
Investment in Hotels and Resorts
Take for instance, the Fund’s investment in hotels and resorts. It has invested over $800 million in hotels and resorts with further commitments of around $150m. Are these hotels running at a profit or is the Fund losing money on them? -The Intercontinental or Momi Bay, for instance. Are they meeting their loan repayment obligations on time?
Are the initial moratoriums granted on the payment of interest and principal on loans made to them, being reviewed to restore equity lost to the members of the Fund? For example the loan of $202.80m to the Natadola Bay Resort Limited which does not have a repayment schedule, and for which security payments remain unexecuted.
These, and many other similar questions arise from the format in which the accounts are currently presented where large amounts are lumped together without being allocated to the respective entities.
Let me refer to a few specific expenditure items taken from p107 of the Report:
- Electricity $13.4m
- Hotel operating expenses $84.2m
- Marketing and Promotion $28.91m
- Personnel Expenses $101.71m
- Other Staff Benefits $18.20m
- Repairs and Maintenance$19.42m
- Other Operating and General Expenses $134.42m
FNPF’s revenue from investment in hotels and commercial properties will remain depressed for some time. As will its income from the employer/employee contributions which has been dealt a double blow from massive job losses and the slashing of the rate from a combined 18% to 10%.
It is evident that all hotel properties will have to be substantially written down as a result of the collapse of Fiji’s tourism industry in the wake of COVID-19. This cautions us against putting too many eggs in just one basket.
The actual extent of impairment losses on its hotel and commercial properties will be known only with the publication of its accounts for the financial year ended 30 June 2020. It is likely to be quite enormous.
There is little doubt that the Fund has invested disproportionately in the tourism sector since 2009. Its most recent acquisitions in 2019 of two over-priced properties on Denarau and one in Suva for a consideration of around $400 million will be a heavy burden on the Fund for quite some time until the tourism industry reverts to its former growth trajectory. This could take a while.
The absence of genuine workers representatives (FTUC) from the FNPF Board is a matter of concern as it is evident that politically motivated investment decisions from a wholly government-nominated board may not be in the best interest of the Fund.
Political control of the Fund must be strongly opposed. For instance, the Board’s decision to approve $45.5m for the acquisition of FSC properties. It is not FNPF’s role to bail out failed government entities while reducing its own members to impoverishment.
Drastic cuts to pension rates imposed unilaterally in 2012 have resulted in serious hardship to existing pensioners and will, no doubt, adversely affect existing members of the Fund when they retire.
This anomaly must be corrected as, both the decision to unilaterally slash the pension rate and the shifting of the burden of providing relief and rehabilitation in natural disasters and other calamities to its victims, cannot be justified.
The premature withdrawal of moneys from members’ accounts to mitigate losses suffered in natural disasters, and now COVID 19, have substantially reduced their balances.
This will mean reduced pensions, well below the poverty line for the lower paid workers who constitute around 65% of our workforce.
In 2018, FNPF CEO, Jaoji Koroi revealed that some 70% of the Fund’s members had savings below $10,000. Just under half of these (44%) had less than $5000 in their accounts. Only 4% had savings over $50,000.
With the recent payouts for COVID-19 relief, FNPF said some 8000 members had virtually wiped out their funds, having less than $35 in their accounts. By late May FNPF had paid out $49m to 77,507 members. Another 10,000 applications were still to be processed.
These are areas of profound concern because they show a general impoverishment of society.
The Fund seems to have moved away from its primary role of enhancing retirement and other social benefits of its members. This lapse must be put right.
Trade unions, as representatives of workers, have a duty and responsibility to take a much stronger and aggressive stance against moves to turn the FNPF into a cash cow for the government.