$40M CUC bond needed for privatization

Although it plans to privatize the Commonwealth Utilities Corp.’s power generation, the Fitial administration still sees the need to spend $40 million to fix CUC engines.

“Before you sell a house, you want to fix it first. You want to make it attractive and saleable,” said Gov. Benigno R. Fitial Friday in justifying his administration’s plan to source $40 million revenue bonds from the NMI Retirement Fund for CUC.

Part of a bill that the administration submitted to the House of Representatives over a week ago asks that the Retirement Fund purchase revenue bonds worth $40 million to help the financially bankrupt CUC repair its rundown power generation engines.

The utility firm has been under an emergency declaration since May last year for its inability to finance its own fuel and maintenance needs.

Governor’s special assistant for budget and management Tony Muna described the $40-million revenue bond “a safe investment” for the Fund, which he said has nearly $450 million investments worldwide.

He said that currently, the Fund has very minimal local investment, and is limited only to individual home loans and the judiciary building.

“We are asking that they add some more investments locally,” he said.

The bill, the Defined Benefit Plan Rescue and Reform Act of 2006, provides that the bond would be paid by revenues generated by a revitalized CUC.

It says that CUC shall adjust rates within 12 months after the effective date of the Act.

The bonds shall bear a simple interest rate of 7.5 percent over 20 years with payments due annually beginning on the first anniversary of the bond, with prepayment, in whole or in part, permitted at any time without penalty.

Muna said 7.5 percent is just right, citing that it is a prevailing market rate in the last 10 years for the Fund.

“We are not asking for 2 percent. Fixed income Fund is less than .1 percent through first six months,” he said.

He also said that in the past, the Fund had put their investments at risk “outside the CNMI and have lost millions of dollars.”

He said that in prior years, the Fund lost some $100 million.

The Fund has began to recover the losses since late 2002.

The bill provides that the governor, on behalf of Commonwealth Development Authority and CUC, shall pledge to the Fund as security for the bond “all revenue that is derived from charges to CUC consumers.”

“CUC is being reorganized. It’s not the old CUC. The new CUC will ensure a 100 percent cost recovery… The Fund will be paid,” said Muna.

Finance Secretary Eloy Inos said the $40 million is needed to fix CUC regardless of the privatization plan.

“We can’t just sit. We have to do something about it,” he said.

Now, if a private company is interested, “hopefully, we can sell it.”