The Fiji Water saga

Author: Matthew Dornan, ANU

Fiji Water announced on Wednesday that it will maintain its water manufacturing operation in Fiji, just one day after stating it would leave the country over an ‘untenable’ tax increase on exports of water.

This is one chapter in an extraordinary story concerning the boutique water manufacturer; a story that has led to the resignation of Fiji’s Minister for Defence, National Security and Immigration, Epeli Ganilau, and to the deportation of Fiji Water’s Director of External Affairs on ‘security and national interest’ grounds.

The recent conflict between Fiji Water and the military-led government is the result of an increase in the tax on mineral water exports, which saw the rate paid go from 0.33 to 15 Fijian cents per litre of water for any company exporting over 3.5 million litres annually. The California-based Fiji Water is the only company that exports this amount of water.

The response of Fiji Water to the recent tax increase was to play hardball. On Tuesday its CEO, John Cochran, announced the closure of the manufacturing plant in Fiji, claiming that ‘The country is increasingly unstable, and is becoming a very risky place in which to invest.’ A ten minute meeting was also held with the 400 workers at its Fijian manufacturing plant to inform them of the decision. At the end of the meeting, employees were given two weeks pay and told to exit the premises, leaving behind all company property and clothing. In an additional blow to the communities surrounding the plant, several humanitarian projects the company was implementing in the area were put on hold, including the renovation of the nearby Drauniivi Primary School.

Had the closure of Fiji Water’s operations in Fiji been permanent, it would have had a major impact on Fiji’s economy. Exports of water are Fiji’s fourth biggest earner of foreign currency, after tourism, sugar and remittances. The company has previously claimed that its exports comprised 20 percent of Fiji’s total exports, and that it contributed about 3 per cent of Fiji’s Gross National Product. The Fiji Government is mindful of this. In 2008, a similar increase in the tax paid by Fiji Water (this time, to 20 Fijian cents per litre) was reversed following threats by the company that it would leave the country.

At the same time, it was clear that the government did not consider what it received from the company as fair. Conflict between Fiji Water and the government is longstanding. In early 2008, the Fiji Islands Revenue and Customs Authority (FIRCA) blocked exports of Fiji Water for two weeks on the grounds that it was avoiding tax payments using transfer pricing. Exports were only resumed as an interim measure following legal action by Fiji Water. The case proceeded to the High Court, but a judgment was never handed down. The presiding judge, along with the whole Fijian judiciary, was dismissed following the High Court ruling that the interim military government was illegal. As a result, exports continued as normal.

This time, the government has not backed down. In response to the closure by Fiji Water, the government announced that it would tender for another company to take over the artesian springs currently used by Fiji Water. Fiji’s military leader, Commodore Frank Bainimarama, also criticised the company. There were reports that military personnel were also guarding the facilities on Tuesday, although it is unclear whether these were Fiji Government troops or members of the Homelink security service employed by Fiji Water itself. The hardline strategy seems to have worked. After a meeting with Bainimarama, Fiji Water announced it would not be closing its production facilities after all. It also agreed to pay the new tax of 15 Fijian cents per litre, with no apparent moves by the government to placate its concerns.

The hardline attitude of the Fijian government in part reflects the personality and nature of Fiji’s current military rulers. But it is also the result of the perceived use by Fiji Water of unfair accounting practices to avoid paying tax (whether such practices are illegal is another matter). To give an illustration, the Fijian subsidiary of Fiji Water sells a 12 litre carton of water for $4 US dollars to its parent company based in the United States, which then sells the water to distributors for $13 US dollars. The carton retails in the United States for anywhere from $20-$28 US dollars. This arrangement ensures that the Fijian subsidiary generates low profits and largely avoids Fiji’s 28 percent corporate tax rate. Both the parent company and its subsidiary are registered in tax havens.

What is the significance of the dispute between Fiji water and the Fijian government?

In some ways, the actions of Fiji Water can be viewed through the prism of a power struggle between a large multinational company and a small third world nation. Though such a struggle is by no means atypical, the recent overhaul of the (now renamed) Mining ‘Super Profits’ Tax in Australia reminds us that large companies also wield significant power in larger, developed countries. The strongarm tactics employed by Fiji Water were successful in 2008, but not this time.

But the conflict between Fiji Water and the government also has strong political overtones. The military regime one week prior to these events expelled Fiji Water executive David Roth for being a threat to national security. Pro-democracy websites claim this followed a meeting he had with two senior military officials, Roko Ului and former Land Force Commander Pita Driti, both of whom were sent ‘on leave’ by Bainimarama (rumours suggest they represented a threat to the military regime). The Minister for Defence, National Security and Immigration and Acting Prime Minister at the time, Epeli Ganilau, was asked to sign the deportation papers for David Roth (a friend of Ganilau’s). Ganilau refused, tendering his resignation instead. Prior to this, another Fiji Water executive and friend of David Roth had also been expelled, reportedly after referring to Bainimarama as a ‘dickhead’.

The extent to which political motives are behind the conflict between Fiji Water and the Fiji Government is unclear. What is clear is that there remains bad blood between Fiji Water and the military government. In the meantime, Fiji Water has been investing in alternatives. It has taken over the facilities of a New Zealand mineral water company near Christchurch, and could potentially use these if supplies of water from Fiji are blocked in the future. It appears as though a truce has been negotiated for now, but whether Fiji Water remains in Fiji in the long run is another matter.

Matthew Dornan is a PhD Candidate at the Australian National University.