October 17, 2007                                        News You Can Trust!!                                      Volume 7

Hon. Privy Councillors, 

Re: Tongasat and Government Orbital Slots

With the help of Dr. Matt Nilson, Tongasat was set up and established in 1988 for the specific function of marketing the orbital slots filed for by Tonga with ITU and sharing the net income with Government on a 50/50 basis. The original shareholders of Tongasat were HRH Princess Pilolevu 40 %, Matt Nelson 20%, Fletcher 20 % and Kelepi Tupou 20%. Today the shareholding is 80% Princess Pilolevu and 20% Matt Nelson. The authority for the exclusive agency to market the slots was granted by Privy Council and conveyed by the Prime Minister.

A formal written agreement was made between Tongasat and Government in 1994 setting out the relationship of principal and agent. This agreement was modified in 1995 and 1996 primarily dealing with the financial sharing between the parties which now stand at the following percent of gross revenue of Tongasat.

               Up to $6 million   -   30%

               $6m.to $10m.        -  50%

               $10m.to $15m.      -  55%

               $over b$15m.        -  605%

Dispute between Matt. Nilson and the Board of Tongasat revealed certain financial dealings by Nilson resulting in his dismissal from the post of Managing Director. A bankrupt licence of the Tongan orbital slots (Rimsat) resulted in legal proceedings in the United States including Nilson suing Princess Pilolevu and Tongasat. The bankruptcy and securities proceedings have just ended favourbly to Tongasat. The Nilson claim was settled with an agreement to make payments to Nilson by Tongasat as follows-

7.5% of Tongasat gross revenue for five years fron January 1996

4% of Tongasat gross revenue for a futher 5 years

$2,550,000 in the following manner- %500,000 by December 1996

$23,050,000 by 4 equal intalments of $12,500 payable 30 June, 1996,1997,1998, but in any event no later than 1 January 20000. Interest of 10% accrue on all outstanding amount.

Government became concerned about the Nilson settlement As it would affect the financial viability of Tongasat and its ability to perform the agency duties to Government and pay its proper dues to Government. The United States lawyers represaenting Tongasat advised against the financial settlement as in their view the best that Nilson would get from his law suit would be about $200,000.00. This advice was not accepted by Tongasat and the agreement went ahead.

To protect its interests in view of the tenuous position of Tongasat Government instructed the Hon. Minister for Foreign Affairs and the Attoney General & Minister of Justice to met with CHAIRPERSON OF Tongasat and her officers. The meeting was held in San Fransisco in March, 1996 and the attached Bout de Papier which was given to the Government and expressing the right of Government to seeking other alternatives for the protection of its national interest.

Among the matters of concern to Government was the protection of its filings of all orbital slots but especially 170.75 E which was due to expire on 17 June 1997 after a filing period of 9 years. This is the slot which covers the whole of the Pacific and also Asia and the West Coast of America. The band affected here is C-band which the most valuable and commonly used band the satellite industry.

As it turned out Tongasat was not able to place a satellite on 170.75 E to protect the Tongan filing and only after a request from Government did it make a report dated 30 June 1977 confirming its failure and the loss of C-band filing on 170.75 E and offering “lame” excuses for its failure. These excuses and the importance of what was lost are exposed in the letter dated 9 September 1977 from Wilbur Pritchard to the Crown Prince.

At the same time Government was not paid anything from Tongasat nor supplied with an audited account in 1997.

In early July Government directed the Hon. Minister for Foreign Affairs and the Attorney General and Minister of Justice to renegotiate a new agreement with Tongasat because of their breaches of contract and the dangers that may face our other orbital slots through failures similar to 170.75E. Tongasat requested that the meeting be held late November after the ITU meeting in Geneva and this was done.

The meeting was again held in San Fransisco to accommodate the overseas movements of the Hon. Minister of Foreign Affairs. The meeting confirmed the breaches of contract by Tongasat and revealed that Tongasat owed Government $2,400,000 and that it was financially insolvent in that it owed about U$5.5million as opposed to an income of $3.8million. It also revealed high expenses and payments made while insolvent to its own officers and offices in Hong Kong and Tonga and advancing and lending money to companies in which they have interests at the expense of paying their creditors including Government. It also revealed that only $30,000.00 has been paid in the Nilson settlement and that Nilson settlement and that Nilson is getting $10,000 pea month as instalments for the settlement. The 10% interest on all outstanding amounts still accrue.

It is our strong view that Government should get priority in payment as the principal and owner of the asset through which Tongasat get its monetary stream.

Apart from the breaches of contract after numerous warnings, Tongasat with its management has shown the following inaptitude which will be addressed at the Privy Council meeting.

-         Financial Mismanagement

-         Agency Mismanagement

-         Delays and Misrepresentations

-         Conflicts of Interest and self Dealing

-         Other Miscellaneous Matters

The orbital slots filed for Tonga are worth millions of dollars. There were originally 7 filings but recently increased with two more. Government must ensure the protection of these filings in the national interest. Tongasat performance so far leaves much to be desired. The letter from the Honourable Minister of Foreign Affairs on behalf of Government terminating the agency would allow Government to seek other alternatives to those proposed by Tongasat. There are many offers out there for the use of our slots but Tongasat only picks those it chooses to reveal to Government. It would be preferable now if Government was to have full knowledge of what are offered including those from Tongasat before making a decision. Tongasat has for sometime been negotiating with the Chinese and Russians for Global Panasia deal and although no final agreement has been given to Government, these deals should also be looked at and analysed for the full knowledge and benefit of Government to ensure that it is getting its fair share from its assets worth millions of dollars.

In this respect it would be prudent for government to obtain the services of a smaller committee of experts who have knowledge and contacts in the satellite industry to conduct a Due Diligence check on behalf of Government. Such work and a report back to Government can be made within 30 days bearing in mind that time is of the essence. Such work can also be carried out however if the exclusive agency is terminated in order to allow free dialogue with the various parties. Once the Due Diligence Committee’s work is completed and reported back to Government then Government can make a conscious decision on which way to go regarding the slots for the best interest of the country. The Hon. Minister of Foreign Affairs and I have 3 people in mind to form the Due Diligence Committee who are appropriately qualified and have the necessary contacts  to perform this function in 30 days.

I accordingly recommend Hon. Privy Councillors to approve the following-

1.  That the Exclusive Agency granted to Tongasat be terminated

2.  That until an agreement is negotiated the relationship between Government and Tongasat is on a Non Exclusive Agency basis.

3. That a Due Diligence Committee be formed comprising of 3 members to evaluate all proposals to protect the Tongan orbital slots and recommend any restructuring of the Government Tongasat relationship. The report be made to Privy Council in 30 days from Government.

4.  That the Tongasat Officers and consultants are given full cooperation to the Due Diligence Committee.

5.  That Tongasat immediately issue instructions to its bank to remit to Government 30% of current slot revenues as part payment for moneys due to Government and thereafter 30 % of all orbital slot revenues shall be remitted directly to Government on account of moneys due to Government.

6.  That the letter to Tongasat from the Hon. Minister for Foreign Affairs dated 17 December 1997 and approved by Cabinet be confirmed. 

 David Tupou

Attorney General and Minister of Justice

ADM.1/11/2/98

January 1998