Following our meeting with the Honourable Prime Minister Batholomew Ulufa'alu, and with the cooperation of Mr Basiara, Principal Marine Surveyor, Isabel Development Company and the Office of the European Union, a listing of actual costings was developed for submission to the National Government

　

The preparation of these figures were made bearing in mind the following factors:

　

　

As highlighted earlier in this report the successful establishment of a shipping company in our local conditions is highly dependant on the injection of capital from sources such as the National Government. Avaiki Shipping Company Limited was recently established and is without any capital to purchase a ship or establish a successful operations base. As discussed following and also in Attachment three, we are also embarking on a service route which has been proven to be uncommercial and any capital injection must take into account the loss making nature in providing a necessary service to the people of Rennell/Bellona.

　

The costings follow generally accepted accounting principles which allow for initial expenditures to be capitalised as setup or formation costs. It also follows an exhaustive costings exercise of the delivery and purchase cost of the identified shipping vessel which have been included as Attachment Two. The operational shortfall for operating uncommercial routes will impact the sustainability of our operations unless due recognition is given to both the short and long term capital requirements and the need for assistance from the National Government.

　

　

One of the key items identified by an European Commission report on the Solomon Islands Shipping and Marine Sector study is the existance of a number of shipping routes mainly to Outer Islands, which are likely to be commercially non-viable for a long time and there is a case for providing subsidised services on these routes on social, political and possibly, strategic grounds. As Avaiki Shipping Company Limited will not be subject to the high financing cost assuming ship purchase funds have been secured, and the target vessel is comparatively modern compared to the National Shipping fleet ages, the total subsidy will be the most cost effective from the Governments point of view. Avaiki Shipping Company Limited may also consider operating in other proven uncommercial routes if such a scheme were implemented which will assist the National Government in National Planning issues.

　

The costings have identified the operational loss excluding charter trips which would not form part of either income or expenses for the Rennell/Bellona route. To ensure principles of transparency and accountability and to check overall integrity of our decision support systems, it is recommended that progress audits are undertaken by an approved auditor culminating in the statutory audit at year end. The audit findings would form part of the management reporting and will be critical in assessing the adequacy of existing levels of support and the effectiveness of operational strategy.

　

　

As disclosed in the following attachments, there is a need to secure additional funds to ensure that operations are sustainable and capable of generating sufficient cash flow to ensure company remains solvent and a going concern. A review of the breakdown of the application for further funds highlights costs necessary to effectively implement this plan and to be self sustaining within target of twelve to eighteen months (taking into account the discussions on the unprofitable sector.)

　

Applications for additional funds were also submitted by other Provinces to assist in their successful establishment and were approved. An example is the Western Province where similar circumstances were encountered and they were offered an additional grant to assist with the setup of their shipping operations. Avaiki Shipping Company Limited is confronted with more dire circumstances than other Provinces including a confirmed uncommercial primary route, worsening costs including the cost of the ship, due to expected foreign exchange movements⁴ leading to inflated prices, and no capital.

　

Perhaps the critical success factor is the securement of funding under these conditions which will single-handedly determine the viability of the Company.

　

1 Distance covered by the vogage from Japan to the Solomon Islands　1,480.00 miles

2 Ship cruising speed　12.00 knots

3 Estimated days of the vogage　13 days

4 Fuel consumption per day　2,400.00 ltrs

5 Fuel Oil consumed in 13 days　31,000.00 ltrs

6 Reserve fuel oil to be carried onboard　6,000.00 ltrs

7 Price of fuel oil per litre　1.77

8 Total cost of lubricants for 13 day trip

9 Life saving appliances

10 Navigational equipment/electronics

11 Pyrotechnics

12 Fire fighting equipment

13 Drinking Water 25,000ltrs bulk 33.00

14 Delivery crew expense

15 Total crew wages/allowances including Captain and Chief Engineer　45,000.00

16 Vessel inspection costs

17 Vessel on Slipway fpr inspection, painting and replacement of zinc anodes　25,000.00

18 Stores/Engine spare parts/tools

19 Operational setup costs to meet outer island class vessel requirements

20 Subsidy as recommended by EU report is based on breakeven

　

The following costings are prepared based on actuals and are subject to change should factors beyond our control take place. An example would be an exchange devaluation.

　

Costs of sourcing Vessel and bring vessels back to Solomons in state of readiness (as required by Hon. Prime Minister - refer file ref# AV/2)

　

　

　

　

Sources: Report by Naniseni Basiara