State-linked corporation asked the Japanese ambassador to tell Solomon Islands PM that foreign aid to hospital in his home town would be suspended

This article is more than 5 years old

This article is more than 5 years old

A mining giant financed by the Japanese government threatened to have foreign aid withdrawn from the Solomon Islands in a campaign to win rights to a lucrative nickel deposit.

Sumitomo’s attempts to manipulate Solomon Islands officials included asking the present Japanese ambassador to threaten the prime minister with funding cuts to a hospital in his home town.

Revelations from the longest-running trial in Solomon Islands history give a rare insight into the tactics a powerful transnational corporation can use to put pressure on a developing country.

Plans to mine the nickel deposit – according to some estimates one of the largest in the world - on Santa Isabel island have been two decades in the making.

They were interrupted by civil war and then a legal battle which a Solomon Islands high court judge said had left the local people that stood to benefit from the project “no doubt thoroughly confused”.

The judge gave a damning assessment of Sumitomo’s bid to gain developer rights to the deposit, saying its top executive in the Solomon Islands lied in dealings with officials and landholders.

The spectre of diplomatic pressure wielded by state-backed enterprises looms particularly large for nations such as the Solomon Islands, which rely heavily on aid from foreign governments.

Japan is one of the largest donors to the Solomon Islands, where foreign aid averages about 44% of national income, according to the World Bank.

Sumitomo subsidiary SMM Solomon Ltd (SMMS), a joint venture with the Japanese government, won a government tender to prospect for the nickel in 2010 but lost the crucial backing of landholders.

The landholders, who wanted a share of profits and have legal veto power over mining projects, instead cut a deal involving a 20% stake in a venture with the Brisbane-based mining minnow Axiom.

In a bid to be recognised as the rightful developer, Sumitomo then sued the Solomon Islands government and Axiom.

Justice John Brown in the Solomon Islands dismissed the legal action in September as an abuse of process, finding that the company had been devious and needed to “reconsider its relationship with the government of Solomon Islands and its people”.

Brown found SMMS cultivated sources inside the Solomon Islands government to obtain confidential information and used spurious accusations of corruption to threaten ministers and bureaucrats.

The company also used an offer of an overseas trip to try to coerce the mining minister into signing an agreement, the judge found.

Brown also found SMMS’s case that the landholders who spurned them had stolen the land from its rightful owners was “contrived”.

Court documents show the managing director of SMMS, Yoritoshi Ochi, took instructions from a superior in Tokyo on how to put diplomatic pressure on the Solomon Islands government.

Ochi was told in September 2010 to ask the ambassador to tell the then prime minister Danny Philip that Japan would temporarily suspend its aid, including to a hospital in Philip’s home town of Gizo.

Ochi replied by email that he had told the ambassador the company had “cornered” the mining minister but needed “diplomatic pressure on the prime minister” to seal a deal.

“Deputy ambassador Iwanade said that it would be best to play the ODA [overseas development aid] card, but instructions from the ministry had not gone that far,” he wrote.

“The ambassador [Hiroharu Hashi] only said ‘yeah true’, and did not clearly state that the ODA card would be played.”

Ochi’s Tokyo based-boss replied: “I get the sense that [the PM] may not be aware the nickel project is in fact a national project of Japan.”

“I wish ambassador Hashi would approach [the PM] with the spirit to go as far as temporarily suspending assistance to [the Solomon Islands]. As this affects the national interests of Solomon, this shouldn’t constitute interference in domestic affairs.”

Ochi eventually told a meeting of the Solomon Islands mining officials in March 2013 that Japan had cut foreign aid, sending ripples of concern through the board.

Brown found no wrongdoing by Japanese officials who lobbied the Solomon Islands government on Sumitomo’s behalf, seemingly without adopting the threats the company had asked for.

However he found the Japanese government’s involvement in SMMS, via a 20% stake held by a state energy company, was relevant to any diplomatic pressure applied.

“Where [lobbying] has taken place I am sure the Japanese consular representatives have acted in full knowledge and awareness of the commercial nature of SMMS business and the sovereign powers of the Solomon Islands government,” Brown said.

“There is no doubt those representatives will continue to honourably represent their country’s interest in the Solomon Islands although it should be pointed out that the Japanese government has an indirect interest in SMMS.

“It consequently behoves the company to reconsider its relationship with the government of the Solomon Islands and its people for by my findings it is apparent the company has acted with obliquity.”

SMMS has lodged an appeal to Brown’s findings, which is due to be heard in February.

Axiom in the meantime is exploring the deposit, which the chief executive, Ryan Mount, said would become a pillar of the Solomon Islands’ economy once developed.