The Solomon Islands government has secured a $66 million A $96 million loan from China to build 161 mobile communication towers, which will be built and supplied by Chinese telco giant Huawei.
It is the first loan from Beijing since it switched its diplomatic allegiance from Taiwan to China in 2019 and is a significant bilateral development between the two countries, which signed a secretive and controversial security deal earlier this year.
The Solomon Islands government celebrated the move by Huawei as a historic financial partnership between the two countries that would work closely to ensure the successful implementation of the project. The loan will come from the Exim Bank of China, which has offered a 1% interest rate.
The use of Huawei in building and supplying towers will alarm some in Australia, which has banned Huawei from government contracts to build infrastructure in Australia, citing security concerns.
There are security concerns about Huawei's links to the ruling Chinese Communist government, which has made it a global pariah. In the year 2019 the US imposed a ban on sharing technology with Huawei. In 2020, the British government issued an order that telecoms providers would have to stop installing Huawei equipment in the country's 5 G network.
In 2018, before Solomon Islands switched diplomatic alliance from Taiwan to China, Solomon Islands awarded a contract to Huawei to build an underwater telecommunications cable network. The Solomons government accepted the Solomons government by offering to jointly fund the construction of the cable.
The Solomon Islands government plans to install 48% of the infrastructure by November 2023, when it is scheduled to host the Pacific Games, a flagship policy for the government led by Prime Minister Manasseh Sogavare.
McKinnie Dentana, permanent secretary of the ministry of finance, said this will help people in rural areas enjoy the Games even if they don't come to Honiara.
The prime minister said that the country did not have the capacity to hold both the Pacific Games and the national elections in the same year because of Sogavare's decision to delay national elections, scheduled for mid- 2023.
Solomon Islands has less than 30% of the internet penetration and the government has announced its intention to increase this number dramatically, so that public service institutions, schools and clinics around the country can access internet.
Solomon Telekom Company Limited is owned by a majority of the existing mobile towers in the country. STCL 97.32% is owned by the National Provident Fund.
The government has said that the 161 Huawei towers will be owned by another company on behalf of the government and that they are in discussions with STCL, which will be a key operating partner in this undertaking.
The government hopes to repay the loan within 11 years, despite the concessional loan repayment being for 20 years.
The independent review of the Solomon Islands National Broadband Infrastructure Project showed that the project would generate enough revenues to pay for the government to fully repay the principal loan amount and interest costs within the loan period.
The debt stock of the government was 15% of GDP as of December 2021. After the Tina Hydro Project kicks in, the debt to GDP of the government will reach 30%. This will increase the debt to GDP percentage with the inclusion of the concessional loan from the Exim Bank of China. The recommended debt level for Solomon Islands is 35% of GDP.
A 2019 report by the Central Bank of Solomon Islands warned that the country won't be able to absorb any borrowing from China once it decides to switch.