Reuters: Huawei’s bid for Pacific submarine cable project shelved amid U.S. warnings

The World Bank-led project to lay sensitive submarine communications cables in the Pacific Ocean has not selected a contract contractor, two sources told Reuters. Earlier, the governments of three Pacific island nations associated with the project heeded U.S. warnings that China’s Huawei’s involvement in the project posed a security threat.

(HMN Technologies) bid for the $72.6 million project, bidding more than 20 percent lower than rival bids from Finland’s Nokia’s Alcatel Submarine Network (ASN) and Japan Electric (NEC), the sources said. Huahai Telecom, formerly known as Huawei Ocean Networks, is majority owned by Shanghai-listed Hengtong Optic-Electric Co Ltd.

The East Micronesia Cable System aims to improve communications in island nations such as Nauru, Kiribati and the Federated States of Micronesia (FSM) by providing an underwater infrastructure with far greater data capacity than satellites.

Two sources with direct knowledge of the tender said the project has stalled because of security concerns raised in the islands by Huahai Communications’ bid. Those security concerns were exacerbated by the project’s plan to connect a sensitive cable to Guam. Guam is a U.S. territory with significant military assets.

Washington detailed the U.S. concerns in a diplomatic note sent to the Federated States of Micronesia during last year’s bidding process. The Federated States of Micronesia has a military defense arrangement with the United States under an agreement reached decades ago.

The diplomatic note said Chinese companies pose a security threat because they are required to cooperate with Beijing’s intelligence and security services. China denies the claim.

“Given that there was no practical way to exclude Huawei from bidding, all three bids were deemed non-compliant,” one of the sources said.

The source said that under the terms of the bids, which were overseen by the international development agency, HuaHaiCom was in a favorable position to bid, prompting those with doubts about China’s involvement to look for a stop-gap solution to terminate the bids.

The World Bank said in a statement that it is working with the relevant governments to develop a plan for the next step.

The Washington-based multilateral lender said, “The bidding process ended without a winning bid due to a lack of response to the requirements of the bidding documents.”

A spokeswoman for China’s foreign ministry said in a statement that all parties should provide a non-discriminatory business environment that allows companies from all countries, including China, to participate.

Reuters quoted the spokesman as saying, “As a matter of principle, I would like to emphasize that Chinese companies have maintained a good record in cybersecurity.”

The spokesman added: “The Chinese government has always encouraged Chinese companies to carry out foreign economic cooperation in accordance with market principles and international rules, and on the basis of compliance with local laws”

All three island nations involved in the project participate in a bid evaluation committee. The development agency typically reviews the committee’s recommendations to ensure that selected bidders comply with the agency’s policies and procedures.

Huahai Communications and its parent company did not respond to questions posed by Reuters via email.