No-bid contract for cable added to Pacific aid bill

Much of $67 million to tie into Tyco fiber optic net would be U.S. tax dollars

November 06, 2003|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

A $67.4 million, no-bid contract for Tyco International Ltd., which will be heavily financed with U.S. tax dollars, has been quietly slipped in as a side agreement to a pending bill that provides about $3.5 billion in aid to two Pacific island countries.

Tyco would provide fiber optic cable connections to the Federated States of Micronesia and the Republic of the Marshall Islands, where a major U.S. military installation on the Kwajalein Atoll would be linked.

The firm has come under scrutiny recently for reincorporating in Bermuda, thus avoiding millions in U.S. tax obligations.

Two former Tyco executives are on trial in New York on charges that they bilked the international conglomerate of $600 million.

The side agreement was added to the pending Senate version of a bill that amends and extends the Compact of Free Association, an international treaty that governs relations with the two former U.S. trust territories. They gained independence in 1986.

Senate aides said the language was added at the last minute at the request of officials from the State Department's Office of Compact Negotiations. It was not included in the version of the compact bill passed recently by the House.

A State Department spokeswoman, speaking on background, said that the addition to the compact was not aimed at any one specific project, but was meant to clarify which government agency would be responsible for coordinating telecommunication initiatives under the compact.

She said the original compact did not make that clear.

Other government officials, however, say that the language is specifically targeted to accommodate the fiber optic cable project with Tyco.

The Senate is expected to take up the compact legislation next week.

Tyco officials did not respond to several requests for comment.

Under the Senate amendment, the U.S. Army would be authorized to set up new telecommunications initiatives in the islands, which would be linked to a planned Tyco cable running from Guam to Australia.

Under the plan, a little more than $21 million of the total cost would be picked up by the U.S. military; the balance would be split between Micronesia and the Marshall Islands.

The two island nations plan to finance their end of the deal with loans from a U.S. Department of Agriculture rural utility program.

The United States also has been helping to pay a consultant hired by the two island governments to work on preparing the proposal.

Legislation to authorize an $18 million loan application is under consideration by the Micronesian Congress.

William Jahn, who has represented Micronesia in the negotiations over the new fiber optic cable network, said that while formal bids were not solicited, the decision to grant the contract to Tyco came after talks with several prospective firms.

"They [Micronesia] talked with several companies and Tyco expressed the most interest," he said.

Jahn said that it was after the island governments had begun the discussions that the U.S. military became interested. Officials realized the cable would give them more security and more capacity than the existing satellite systems, Jahn said, calling the deal "a win-win for everybody."

Matthew Link, who has been serving as a consultant to the FSM Telecommunications Corp., the government-owned utility, said that while capital costs for the fiber optic cable are higher, its operating costs would be substantially lower than the existing satellite system. He said annual operating costs for the cable are estimated at $196,000, compared with $350,000 for the satellite system.

"It's a lot cheaper and you get a ton more bandwidth," said Link, and the cable would have much broader uses than the existing satellite system.

Link acknowledged that a portion of his consulting fees for the project are being picked up under a grant from the U.S. Department of the Interior. "Some of my time has been funded by the grant," he said.

The proposed project is but the first phase of a plan to provide underwater optical cables throughout Micronesia. Subsequent phases are projected to double the cost.

Tyco has announced plans to sell its Tyco Global Network, the world's largest undersea fiber optic telecommunications network, as part of a restructuring plan, but those involved in the Micronesian proposal say they have received assurances that the cable deal will not be affected by any sale.

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