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The Fiji Water Saga– the Details and Legal Analysis by Scott Putnam -- Part 1

When he's not Fijiguide.com's official videographer photographing white tips under the Somosomo Straits, Scott Putnam navigates the treacherous shoals of the U.S. legal system.

Scott not only has an eye for underwater life, he's an attorney.


He's taken some time out from Fijiguide.com's state of the art editing studio to take a close look at the sturm und drang surrounding the most recent chapter in the Fiji Water story.

 

As many of you already know, Fiji Water, the American company that exports bottled water worldwide, had a contractual dispute with the Fijian government this past month.

 

Fiji Water shut down operations in Fiji as a result of the dispute, but quickly reopened the plant after meeting with government representatives. Negotiations continue. Just remember, things aren't always as they appear. Who's the good guy and the bad guy?

 

Well it's not always that obvious to discern.


For those that are just catching up on the news, here is a time line of the events:

1. Fiji Water was started in 1996 by Canadian David Gilmour*. Gilmour, a well respected investor and entrepreneur with a Midas touch, was a founding partner of Barrick Gold Corporation, President of Barrick Management Corporation and General Partner of Gold Company of America since August 1984. In Fiji, he owns the Wakaya Club and Spa, an ultra luxury resort with bures going from US$1,900 a night to $7,600 a night.  Needless to say it caters to movie stars, rock stars and the very wealthy. See his bio (courtesy of Bloomberg Businessweek) below.


2. The water that is bottled into Fiji Water bottles is sourced at the base of Nakauvadra Mountains in the Yaqara Valley on the island of Viti Levu (the biggest island in Fiji). The aquifer’s waters first fell as rain 450 years ago.



3. The tax levied against Fiji Water by the Fijian government for bottling and shipping the water was F$0.0003 per liter (or 1/3 of a Fijian cent). A Fijian dollar today is equal to US $0.53, or 0.40 Euros, or $0.54 Australian Dollars. To put it in simpler terms, for every 1,000 liter bottles Fiji Water bottled, the Fijian government collected US $0.02 (two cents).

4. In 2004, Lynda and Stewart Resnick bought the company (the Sydney Morning Herald reports on November 30, 2004) for US$50 million. Mr. and Mrs. Resnick, are according to numerous accounts in the media, billionaires based in southern California. Mr. and Mrs. Resnick made their billion with the companies Teleflora, the Franklin Mint, and Roll International Corporation (Roll is the largest grower and processor of citrus, almonds, and pistachios and Roll was the actual company that bought Fiji Water). Roll is held as a private company by the Resnicks.


5. Rolls’ pays a royalty and lease fee to the villages that own the land where the aquifer is based (according to the same Sydney Morning Herald report). The royalty goes into a trust set up by the Resnicks (which Rolls/the Resnicks apparently control) called the Vatukaloko Natural Waters Trust Fund. This Trust (according to the same Sydney Morning Herald report) provides health, hygiene, sanitation, and education facilities for these same villages.


6. Rolls’ starts marketing Fiji Water to Hollywood. Actors embrace the product and the product goes viral. It becomes a top-seller in the United States and around the world.

7. The Fiji Water bottles’ unique square shape and brand name are trademarked

by the Rolls.


8. The success of Fiji Water allows Rolls to employ 400 Fijians in the bottling operation.

9.
In 2007 through 2008, the Fijian government proposed an increase in the tax per liter. The rate increase proposed was for F$0.20 per liter from F$0.003 per liter. The Fijian government impounded some shipments of Fijian water to pressure Fiji Water to agree to the rate increase, but in the end, the Fijian government caved. The tax remained at F$0.003 per liter.


10. Based on the amount of water being exported in 2010, the F$0.003 levy equated to approximately F$500,000.00 (or US$266,000) for the Fijian Government. According to Brandweek, a trade journal, Fiji Water’s 2008 marketing budget in 2008 was US$10 million. As Fiji Water is a private company, it is unknown what Fiji Water itself makes (or made) per year, but the figure can be approximated. Fiji Water exports more than 3.5 million liters of water each month and the average sales price in the United States for 1 liter is US$3.50. This sales price, of course, excludes the cost of production, transport, distribution costs, and retail mark-up, but it should be noted that the plastic for the bottles comes from China and Fijian labor rates are very low. In other words, there
is a lot of profit.


11. This year, the Fijian government entered into negotiations with Fiji Water to increase the tax rate. Fiji Water did not agree to a tax rate change; negotiations went nowhere.


12.
In early November, Fiji Water’s executive, David Roth is deported from Fiji back to the United States. Fijian Prime Minister Bainimarama, speaking from China stated Mr. Roth was acting “in a manner prejudicial to good governance and public order.” The order to deport, according to the Asbury Park Press on November 29, 2010, “caused Acting Prime Minister Ratu Epeli Ganilau, to resign, . . .as he refused to issue the removal order against Roth.”

13. On November 29, 2010 (Monday), Fiji Water’s president, John Cochran, announced that the Fijian government had imposed a new tax rate of F$0.15 (fifteen Fijian cents or approximately eight (8) US cents) per liter on any company extracting more than 3.5 million liters of water per month. Fiji Water is the only company in Fiji that extracts more than 3.5 million liters of water per month. Mr. Cochran went on to state that the new tax was untenable and left Fiji Water with no choice but to close its Fiji facility. In addition, Mr. Cochran stated that
the Fijian government’s action had sent a clear and unmistakable message to business operating in Fiji or looking to invest in there that the country was increasingly unstable and becoming a very risky place in which to invest. Mr. Cochran left open the possibility of further negotiations with the government.


14. The worldwide press reacts.


15. The Fijian government states that it will transfer the rights to bottle the water to another export company. Prime Minister Bainimarama tells the Fiji Times: “They (Fiji Water) have made statements about supposed instability in Fiji and know it is not true, yet do so because they simply do not want to pay the new taxes.”


16. The press in the United States speculates that Fiji Water will transfer operations to New Zealand as the Resnicks also own the New Zealand “Spring Fresh” bottled water.


17. On Tuesday, November 30, 2010, Fiji Water’s attorneys met with Fiji’s Attorney General, Aiyaz Sayed Khaiyum, and Fiji’s Prime Minister, Frank Bainimarama. Upon conclusion of the meeting, a short statement was issued: “Fiji Water will reopen its bottling plant, effective Wednesday morning, December 1, at its regular start-up time of 8 a.m. Through our discussions, we [Fiji Water] have also agreed to comply with Fiji’s new water tax law.”

18. On Wednesday, December 1, 2010, Prime Minister Bainimarama tells Legend FM radio network that he is delighted with Fiji Water’s decision. “The only comment I can make is that an excellent news from Fiji Water and we want to thank Fiji Water for everything, especially starting back the factory and bringing back the workers.”


19. Fiji Water makes it clear that they will pay the tax for now (so they can keep operating), but that negotiations are not concluded.

 

*David Harrison Gilmour, O.F. served as the President of Barrick Management Corporation, General Partner of Gold Company of America since August 1984. Mr. Gilmour co-founded FIJI Water Company LLC (formerly, FIJI Water LLC Inc.) in 1996. Mr. Gilmour co-founded the Southern Pacific Hotel Corporation (SPHC) in 1969, which quickly became the largest hotel chain in the South Pacific and a decade later the chain was sold and the partners formed the Barrick Gold Corporation. In 2006, Mr. Gilmour founded a media company, VIV Publishing LLC. In 1996, Mr. Gilmour started Natural Waters of Viti Ltd and bottling water which is now the fastest-growing premium water sold in North America. He serves as the Chairman of FIJI Water Company LLC and Zinio, LLC. Mr. Gilmour has been a Director of American Barrick Resources Corporation since 1984. He served as a Director of Barrick Management Corporation since August 1984. Mr. Gilmour was presented with the U.S. State Department's 2004 Award for Corporate Excellence (ACE) by Secretary of State Colin Powell in recognition of the international growth and success of FIJI Water together with its philanthropic endeavors in Fiji. Mr. Gilmour was also awarded "The Order of Fiji" by the president of Fiji, Ratu Sir Kamisese Mara, in 1998, for his commercial and philanthropic achievements in the Fiji Islands.


(Top photo courtesy of Mother Jones)





 

 

 

 

 

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