Nauru is by no means an unpleasant place to live.
– Tony Abbott, July 2013

With the 2013 election looming, Prime Minister Kevin Rudd and Coalition leader Tony Abbott tried to outbid each other on refugee policy. Rudd trumpeted his ‘PNG solution’, while Liberal immigration spokesperson Scott Morrison announced plans to create a tent city on the Micronesian island of Nauru that would house up to 5000 asylum seekers for processing after a Coalition victory. The pre-election proposal to increase the number of asylum seekers on Nauru came soon after a peaceful protest escalated to a riot on 19 July, causing an estimated $60 million of damage at the island’s current detention centre.

In the hours before the riot, Nauru’s justice minister, David Adeang, suspended the country’s police commissioner – Australian Federal Police (AFP) officer Richard Britten. People may be surprised to learn that an Australian was leading the police force in Nauru – but over the last decade, the process of warehousing asylum seekers in the small Pacific nation has increased the number of Australian and expatriate officials in key departments within the country’s administration, including finance, policing, utilities and planning.

An influx of Australian officials into government positions in Nauru has been accompanied by a neoliberal agenda of privatisation. This has shifted the burden for government failure onto the Nauruan community, even as hundreds of millions of dollars are splurged on Australian companies that manage the detention camps. Over more than a decade, these policies have transformed Nauru’s financial status, increasing its dependency on Australian aid.

The so-called ‘Pacific Solution’ was established in 2001 by John Howard’s Coalition government. The two Nauru camps closed in March 2008 following Kevin Rudd’s 2007 election victory, but the Gillard government reintroduced the offshore processing of asylum seekers in September 2012.

Today, there is a growing body of evidence that shows the policy to be a financial sinkhole and a human rights failure, with people seeking refugee status left abandoned under the Orwellian ‘no advantage’ test.¹ But the legitimate focus on the plight of refugees on Nauru has overshadowed the impact Australian policies have had on the host nation, a closely integrated society of just 10 000 people.

Most reporting on Nauru ignores Australia’s historic role as the administering power before independence in 1968. In 1993, Nauru and Australia reached an out-of-court settlement when the government of Nauru agreed to discontinue a compensation claim in the International Court of Justice over damage to phosphate lands mined while Australia was administering Nauru under a UN trusteeship.²

By the end of the twentieth century, the phosphate boom was over and successive Nauruan governments had blown the profits that briefly made the country, per capita, one of the wealthiest in the world. Mismanagement of Air Nauru, failed property investments and even the bankrolling of a short-run musical on London’s West End frittered away the trust funds established from decades of mining revenues.

A country that had never relied on donor aid hit the financial wall just as Howard was looking for a place to dump asylum seekers beyond the administrative and judicial protections of Australian law. In his autobiography, Lazarus Rising, Howard explained: ‘Once it became clear that Indonesia would not take any of them, a search commenced for other destinations. A nearby location was logical, and Alexander Downer suggested Nauru. The UN would not agree to East Timor. We agreed that Peter Reith should talk to Nauru’s President, René Harris, because of earlier contact in a previous portfolio. Reith went there immediately and within a few days had negotiated an agreement to establish an offshore processing facility on Nauru. Thus was born the Pacific Solution.’

In the early 2000s, funding for Australia’s offshore refugee policy had the effect of bailing out the Harris government and delaying political and constitutional reforms urgently needed to cope with the decline in phosphate revenues, the mismanagement of the Nauru Phosphate Royalties Trust and allegations of corruption. A younger generation of politicians entered parliament from the Naoero Amo (Nauru First) group, including Dr Kieren Keke, Marlene Moses and Roland Kun, but the old guard remained, propped up by Australia’s intervention.

Over the last decade, Nauruan politics has been tormented by shifting alliances in its eighteen-member unicameral parliament (now expanded to nineteen seats to avoid months-long deadlocked votes). Since the Howard government first signed a deal with Harris in September 2001, there have been eleven changes of leadership in Nauru – the most recent in June 2013 – and four states of emergency.

As asylum seekers arrived again under Julia Gillard, Nauru entered a time of political stalemate and rivalry, after resignations and a sacking left president Sprent Dabwido with just two cabinet ministers and a parliament split into three factions.

After months of parliamentary manoeuvres, the president declared a state of emergency on 27 May 2013 and brought forward the election date to 8 June, little more than a week later. This led to the resignation of finance minister Roland Kun and a ban on political interviews in the media during the lead-up to the elections. In the week between the declaration of emergency and the election, Dabwido handed out an estimated $5 million in cash payments to the Nauruan public (including overdue salaries, phosphate royalties and payment of land rentals).

Privatisation and public sector reform

While phosphate revenues were booming, Nauru could provide free water and electricity to its citizens. Today, some mining continues but Nauru faces a desperate economic situation and there is an urgent need to improve the quality and efficiency of essential services in health, water and energy.

But the program of refurbishing Nauru’s government services has been accompanied by policies that shift the burden onto those who can least afford it. Since the 1990s, the Australian Agency for International Development (AusAID) has promoted the corporatisation and privatisation of state-owned enterprises around the island’s region. This reform agenda echoes the Asian Development Bank (ADB) agenda of privatisation of public utilities and job cuts in the public sector.

At the time of Pacific Solution Mark 1, Nauru had twelve state-owned enterprises that employed some 2000 people. The largest, with 1500 staff, was the Nauru Phosphate Corporation (NPC), which was involved in mining, power, water and port management.

As asylum seekers arrived during the Howard years, Australia funded ADB research into the privatisation of the NPC and other public utilities.³ After 2001, the series of Memorandums of Understanding (MOUs) between Australia and Nauru on management of the detention centres also set out clear requirements that had to be met if the island was to continue receiving aid. These included a study on the privatisation of the RONTEL telecommunications authority and an ‘agreement to implement the preferred option identified through the ADB Technical Assistance on reforming power and water services’, as well as the ‘phased introduction of a broader user-pays system for power services’.

The 2005 MOU set out requirements for changes to the public sector, explaining that ongoing aid is conditional on ‘implementation of the public sector reform strategy, resulting in implementation of an affordable scale of salary payments and design of a strategy for a substantial reduction in the size of the Nauru public service’.⁴

Since then, the progress of this privatisation has varied. By 2008, Nauru’s Public Works Department had been disbanded and replaced by a quasi-private-sector body operating under a business plan prepared with Australian technical assistance. In 2011, AusAID’s Annual Program Performance Report: Nauru Program noted that a ‘strong strategy to reform the Nauru Utilities Corporation has also been pursued, including introduction of a cost recovery regime using pre-paid metering’.

In small island states without a large market, such as Nauru, privatisation means a shift from public monopoly to private monopoly. With a population of less than 10 000 people there’s limited opportunity for a range of providers, even in competitive sectors like telecommunications (in 2009 Digicel was granted a licence to operate exclusively in the mobile phone sector in Nauru, and allocated telecommunications infrastructure by the government as part of the deal).

The two governments have moved to address public-debt burdens by, for example, winding up the Bank of Nauru. Nauru is still struggling to attract commercial banking operations: there are no banking services on the island today. This creates serious limits to private-sector activity, as well as making it difficult for ordinary people to save or manage their finances.

Even the ADB’s report on privatising the NPC acknowledged the difficulties of promoting private-sector investment: ‘Given the size of the economy of Nauru and the history of poor governance, potential private investors are likely to view the country as high risk. Options for privatising water and electricity services may be meagre, short term and require high returns to cover risk. The country also lacks the capacity to regulate and monitor a private sector monopoly.’

AusAID is well aware that the privatisation of public services has placed significant burdens on the Nauruan community, with loss of employment affecting wider family groups and increased ‘user-pays’ policies hurting the poorest sector of the population. AusAID’s Annual Program Performance Report 2007–08 noted: ‘Community resistance to user-pays systems will be difficult to overcome and political will is necessary to pursue this critical element of utilities reform.’

It’s uncertain that public-sector reform will achieve the stated aims of efficiency and ending corruption. Public-sector reforms often can increase, rather than reduce, the potential for corruption, due to the removal of government oversight and the lack of corporate accountability through the use of ‘commercial-in-confidence’ secrecy. In any case, Nauru lacks much of the regulatory capacity required to control the behaviour of private-sector operators (there is no ombudsman and most lawyers work for the government). Above all, there is little effort to create a culture of governance that encourages citizens to hold governments, corporations and donors to account.

There are fundamental equity questions that the Australian government has been slow to address. Those locals who cannot get employment in the camps bear the burden of these policies. A Prices Regulation Act was updated in 2008 to cap prices of some food items, but the arrival of hundreds of asylum seekers, police and camp staff in 2012–13 has once again disrupted cost structures on the island, with rental costs soaring, increased food prices affecting nutrition for the unemployed and renewed pressure on the already limited water supply.

Many of Nauru’s household rainwater tanks are in a state of disrepair, and in times of drought and water shortage, the country relies on desalination plants that are costly and difficult to maintain.

These problems are foreseeable – in January 2012 a team from Australia’s Department of Immigration and Citizenship (DIAC) travelled to Nauru to review possible sites for the asylum seeker centres, and their ‘in-confidence’ report to the minister confirmed: ‘There is an issue with water supply at the island and the manager advises that at least one additional reverse osmosis water treatment plant would be required to meet additional demand.’

Australian staffing

The reform program has been maintained because Australian personnel work as in-line staff. Over the last decade, Australian and Australian-funded staff have played key roles in Nauru government departments. The appointment of key overseas personnel came at a time when many local staff were dismissed, with AusAID’s Annual Program Performance Report 2007-08 noting: ‘There has been significant streamlining of the public service in Nauru, including a restructured wage system and rationalisation of staff numbers.’

The deployment of Australian police and civilian personnel was governed by an agreement first signed on 10 May 2004 with the Harris government.⁵ The staffing program was expanded when Pacific Islands Forum leaders agreed to support Nauru under the Biketawa Declaration, which allows regional intervention in member countries. The Pacific Regional Assistance for Nauru (PRAN) was created in 2004 as a mechanism for Australia and other forum countries to operate in Nauru.

Unlike the better known Regional Assistance Mission to the Solomon Islands (RAMSI), PRAN did not include a military component. But this regional intervention operated for nearly six years, from 2005 to 2010, with the placement of overseas personnel in key positions in Nauru government departments (for example, in January 2006 Iosefa Maiava resigned his position as Deputy Secretary General of the Forum Secretariat to take up the post of Nauru Secretary of Foreign Affairs and Trade).

Under PRAN, Nauru developed a National Sustainable Development Strategy (NSDS) with assistance from the Forum Secretariat, ADB and AusAID. PRAN also helped establish an Aid Management Unit to coordinate all external funding assistance in Nauru.

By the mid-2000s, Australian public servants had to manage complex tender deals and staff hiring, as hundreds of contractors came and went at the Nauru refugee centres. Even as Nauruan public sector employment was slashed, Canberra’s bureaucracy expanded to cope with the day-by-day requirements of regulating the two detention centres on Nauru.

As the Rudd government took over and closed the camps in 2008, AusAID’s Program Performance Report noted: ‘The previous MOU arrangements under which the program operated required a strong Canberra-based presence, able to respond to predominantly demand-based programming (ad hoc payments for GoN recurrent costs) and contract-intensive programming (many AusAID-managed personnel contracts).’

Australian Treasury official Peter Depta took up the position of Nauru Secretary for Finance in July 2004 and all Nauru government expenditure was managed by an Australian-led finance team in the Nauru Ministry of Finance until 2010, with staff seconded from Canberra serving as Secretary, Economic Advisor and Budget Advisor. Under its Australia–Nauru Partnership for Development, the incoming ALP government maintained its support of Australian staffing in key Nauruan departments. A Nauruan only took the position of Secretary of Finance again in 2012, with three AusAID-funded advisers from Australia continuing on in support roles.

Australian personnel ran Nauru’s power and water desalination in the mid-2000s and Canberra still funds a Chief Executive Officer of Utilities and staff to work in the power station. Overseas staff continue to manage water and electricity on the island, as infrastructure priorities expand through the 2011 Nauru Economic Infrastructure Strategy and Investment Plan (prepared with Australian and ADB support).

The retention of Australian staff and funding allows Canberra to influence the management of funds and the current direction of activities. This comes at a long-term cost, a problem that AusAID readily acknowledges in its most-recent performance report: ‘Continued use of donor funded expatriate personnel in senior management roles strengthens the management of funds, but itself represents a sustainability risk in the longer-term.’

This process is being repeated in the area of refugee processing and policing. In June 2011, Nauru signed the instruments of accession to the 1951 Refugee Convention and its 1967 protocols. However the arrival of hundreds of asylum seekers in 2012 once again placed pressure on Nauru’s administration. Four days before Christmas 2012, Nauru’s Parliament passed the Asylum Seekers (Regional Processing Centre) Act 2012 to legalise a greater role in processing. The government then seconded Australian officers to its Department of Justice and Border Control to commence the assessment of asylum applications and to begin training five Nauruan officials in how to determine refugee status.⁶

Police Development Program

Under the Howard, Rudd and Gillard governments, a major focus of Australia’s engagement in the Pacific region has been the deployment of the Australian Federal Police (AFP). Many AFP officers have been focused on perceived trans-boundary threats to Australia, such as drug and gun running, money laundering, terrorism – and, of course, border protection.

As Pacific Solution Mark 1 expanded, Australia created a Police Development Program (PDP) in Nauru, outside the contingent of officers involved in security at the detention centres. The program’s focus is the staffing and training of the Nauru Police Force (NPF), along with the supply of new infrastructure and equipment.

In its initial phase, the police program drew more funding than other core services that would benefit the Nauruan community (in the 2005–07 MOU, the Australian aid program allocated $6.6 million for the PDP, but only $2.1 million for health, even though Nauru faces major challenges with non-communicable diseases).

From 2005, the AFP deployed a senior officer in the position of Nauru Police Commissioner. He was supported by an operations adviser and a logistics officer. Australia also funded salaries and costs for three new positions in the police force: a deputy commissioner, a manager of corporate support and a finance officer.

The 2004 MOU for the deployment of Australian police officers made clear that they are governed by Australian rather than Nauruan law. It states that the head of the Assisting Australian Police is responsible to the AFP Commissioner and that Australian police deployed in Nauru shall not be subject to ‘the jurisdiction of any Nauruan disciplinary authority, court or tribunal’. Under Article 4, ‘any tasks or orders carried out by Assisting Australian Police Personnel shall be consistent with the laws, procedures and standards of conduct applicable to them in Australia. Assisting Australian Police Personnel will be subject to Australian disciplinary laws and procedures.’

Policing has been politicised in the island’s small community. Nauru’s police station was burned down on 7 March 2008 by protesters mobilised from former president Harris’ Aiwo constituency.

A new Nauru Police Centre was officially opened in August 2011, and the NPF were provided with more training courses, uniforms and other equipment. By 2011, over $2 million was being allocated each year to the police program, and in May 2013, thirty Nauruans graduated from training to join the 120-strong force.

A crucial function for the police capacity-building is the maintenance of order around Australia’s refugee processing centres. In line with the culture of privatisation, the AFP has also worked with the NPF to hive off protection duties around the camps. In 2012, AusAID reported that the AFP is ‘providing strategic advice to the ministerial taskforce for successful privatisation of the NPF Protection and Guarding Unit, which will result in the separation of 150 personnel’.

The AFP has organised riot and disorder training for the NPF, which now has the responsibility of keeping the peace at the camps. In August 2012, as the Houston Report was released and new asylum seekers were sent to Nauru by the Gillard government, the police were provided with a two-day refresher course in ‘public order management’ prior to the transfer of the asylum seekers. Following the July 2013 riots in Nauru, politicians in both countries called for increases in the allocation of resources to police, even as the ousted police commissioner left for Australia.

Beyond police training, however, there is a broader agenda: ensuring that Nauru meets international obligations under the ‘War on Terror’, especially the control of banking services that might be used for money laundering by criminals or terrorists. Under the 2004 MOU, the Nauru government was obliged to cease issuing ‘investor passports’, close down ‘post box’ banks, enter negotiations with Australia on a Taxation Information Exchange Program and meet ‘all requirements of the process for removal of [OECD Financial Action Task Force] FATF blacklist and taking all necessary steps to ensure Nauru’s ongoing compliance’.

To implement this agenda in Nauru, a series of bills were passed in November 2004 (with further amendments in 2008 and 2011), including the Proceeds of Crime Act, the Anti-Money Laundering Act, the Illicit Drugs Control Act, the Counter Terrorism and Transnational Organised Crimes Act, and the Mutual Assistance in Criminal Matters Act.

Aid and debt

After riding high on phosphate revenues, Nauru now relies on aid and borrowing. By the end of 2006, Nauru had external public debts of $371 million and internal debts of $265 million. Over the following two years, the external debt was reduced to $70 million, while the internal debt increased from $265 million to $480 million, as the government took on debt owed to customers of the now defunct Bank of Nauru.

With limited capacity for debt servicing, Nauru has become increasingly reliant on foreign donors. Australia is the largest donor, followed by New Zealand and Taiwan (which finances the widely misused ‘grassroots’ fund, providing politicians with an election slush fund). By the time the first Rudd government closed the processing centres on 31 March 2008, AusAID was providing a total of $27.4 million in aid. This made up the bulk of the national budget of nearly $35 million (Nauru’s revenues at the time included nearly $6 million from fisheries revenues and about $1 million from renewed phosphate exploitation).

Since then, a range of other donors have started to contribute assistance, including Russia, Japan, the ADB, the European Union and the United Nations. Other sources of revenue were improved: the issuing of new fishing licences, for example, resulted in an increase in fisheries revenue from around $4 million in 2010 to more than $12 million the following year.

Oxfam’s A Price Too High report, released in 2007, documented how the Howard-era version of the Pacific Solution cost at least $1 billion, and left a legacy of suffering for both refugees and the people of Nauru. The report detailed how activities in Nauru became less and less transparent: by the end of the Howard years, Australian budget papers in 2006–07 and 2007–08 did not even reveal the amount of additional aid allocated for Nauru, stating that the figure is ‘not for publication’.

Even so, Nauruan leaders continue to support the offshore processing. In the years after the camps were closed in 2008, local workers could only rely on jobs with two major construction projects funded by AusAID and the AFP (the $10 million redevelopment of the Nauru secondary school and the construction of a new police headquarters).

Many Nauruans have welcomed the new jobs created as the camps reopened in 2012, but the process has largely benefitted outside contractors. The rushed construction of new facilities has been a boon for Australia companies, with contracts worth over $175 million to Transfield for running the detention centre, $75 million to the Salvation Army for community services, $70 million to Canstruct for construction work, and other contracts for security (Wilson Security) and physical and mental health (International Health and Medical Services).

We await the final bill for the current program, but already the multi-billion-dollar cost of Australia’s asylum seeker policy has brought reductions or deferral of aid programs to some of the poorest countries across the globe, including other small island states in the Pacific.

In late 2012 the Gillard government decided to redirect $375 million from the aid budget towards the cost of processing asylum seeker applications. In a February 2013 report, the Australian Council for International Development detailed the significant cuts to the Official Development Assistance program, with humanitarian and emergency funds losing more than $70 million in 2012–13. The cuts hit core areas of economic and social development for the poorest communities across the islands region. Kiribati saw deferral of programs in water and sanitation and in school infrastructure; Samoa had deferrals in the health, education and governance programs; Solomon Islands had cuts to education and gender-equality projects and delays in rural education programs; Tonga had cuts to a climate change program.

As this article is written Australia is back to the future under Prime Minister Rudd, with an election looming. However, the tragedy for the people of Nauru and the asylum seekers hosted on the islands is being repeated – the second time as farce. The United Nations High Commission for Refugees (UNHCR) and a range of human rights groups have detailed the scandalous conditions once again facing asylum seekers on Nauru.

Mohammed Sagar, the last refugee who remained on Nauru under Pacific Solution Mark 1, succinctly describes the bipartisan nature of the chaos affected Nauru: ‘I remember when we were on Nauru, when there was an election we were hoping for a Labor Party win because they would take over and change things. Labor said there were human rights issues and Australia needed to have sympathy for people in need – but this now just looks like political bullshit.’⁷
1  On the Howard years, see Kazimierz Bem et al., A Price Too High: The Cost of Australia’s Approach to Asylum Seekers, Oxfam/A Just Australia, 2007. For details about the re-establishment of the camps in 2012, see United Nations High Commission for Refugees (UNHCR), Report from UNHCR Mission to the Republic of Nauru, 3–5 December 2012; Amnesty International, Nauru Offshore Processing Facility Review, 23 November 2012.

2  For the history of colonial exploitation of Nauru’s resources, see Christopher Weeramantry, Nauru – Environmental Damage Under International Trusteeship, Oxford University Press, 1992. As part of that settlement, Australia agreed to pay Nauru $107 million: $57 million upfront and $50 million at an annual rate of $2.5 million over the ensuing twenty years.

3  Asian Development Bank, Technical Assistance to Nauru for the Reform of the Nauru Phosphate Corporation (financed by the Government of Australia), May 2005.

4  Schedule C, Memorandum of Understanding between Australia and Nauru for Australian Development Assistance to Nauru and Cooperation in the Management of Asylum Seekers 2005–2007, 20 September 2005.

5  Agreement between Australia and Nauru Concerning Additional Police and Other Assistance to Nauru, 10 May 2004, Melbourne, ATNIA 14.

6  Nauru officials expected refugees to be resettled and were not aware they were taking responsibility for refugees for years. On 29 April 2013, former Foreign Minister Kieren Keke told ABC Four Corners: ‘The No Advantage policy is an Australian Government policy. It’s not been a policy that’s been discussed as a joint policy between the two governments. In fact I don’t recall any discussions specifically about that approach with us as a government.’

7  Patrick Lion, ‘Nauru Detainee Scarred by his Five Years in Hell’, Daily Telegraph, 20 August 2012. For the sorry fate of Iraqi refugee Mohammed Sagar, left stranded on Nauru from 2001–07 after an adverse security finding by ASIO, see A Price Too High, section 3.7.