CUC asks Mobil for leeway on fuel payments

Due to rising oil prices, the Commonwealth Utilities Corp. is urging Mobil to consider a plan to let it pay for fuel on a 60-day basis to avoid cost overruns, a prospect the company has said it would consider with conditions that CUC cannot meet.

At issue is a series of letters CUC and Mobil have exchanged recently over fuel prices and problems CUC has faced paying fuel bills. In a July 9 letter to the company, CUC executive director Antonio Muna says rapid increases in the fuel prices have created a month-to-month funding gap when it comes to paying CUC’s bills with Mobil.

CUC’s available revenue in any given month is based on the funds it collected from customers two months prior, Muna notes, a factor that has lead to fuel funding shortfalls as prices rise.

“Considering CUC’s monthly revenue stream, which represents collection on billings issued 2 months prior for which fuel charges billed in March are collected in May, CUC is addressing a $7.7 million fuel bill in May with a fuel charge recovery stream that is at almost $6.1 million,” Muna writes. “CUC is forced to use $1.6 million of non-fuel charge collections to address the increase in fuel costs.”

A 60-day extension of credit terms for CUC’s fuel payments to Mobil would prove “ideal,” the letter suggests. In an interview Friday, Muna said this proposed plan would let CUC pay for fuel on a rolling basis to account for monthly price increases, “matching the revenue we collect with our outlay for fuel.”

Mobil responded to CUC’s request with a July 23 letter, saying it would consider such a plan if CUC could provide added financial assurances. CUC’s payment problems have cost Mobil an estimated $300,000 already and projections suggest this could climb by another $350,000 before the end of the year, the letter notes.

“The increases in CUC fuel expenses are directly related to global increases in commodity prices,” Brian Bamba, commercial manager for Mobil Oil Mariana Islands writes. “We acknowledge the difficulties CUC has faced in meeting its fuel bills because of the rate caps imposed by the CNMI legislature, coupled with equipment reliability issues and the general downturn in Saipan’s economy.”

However, Muna’s July 30 response letter contends that the financial assurances Mobil has requested are “not possible for CUC to satisfy,” adding that rising fuel costs—which rose by 29.42 percent for CUC from February to May—are forcing CUC to dip into its non-fuel related funding to close the gap.

“If the price of fuel was stable, requesting for credit terms would not be an issue,” Muna writes. “The increase in fuel costs in May of $1.6 million in comparison to March costs would not leave CUC any available funding for payment of non-fuel expenses.”

Muna later adds that although CUC is thankful Mobil has chosen to forego penalizing it for recently purchasing less than the amount it had contracted with the company to buy each month, “we can hardly sympathize with Mobil’s projected losses of $650,000 when increasing fuel costs can wipe out all available working capital for payment of non-fuel expenses.”

In the interview, Muna said talks with Mobil over CUC’s fuel payment problems are ongoing.