A need to review contract with CUC

As a member of this community for over 12 years, it has been our steadfast commitment to comply with the terms of our contract with CUC to operate and maintain the power plant on Tinian. The terms of that contract were negotiated and signed by individuals who are no longer involved in Telesource CNMI Inc. or the CUC, and were based on mutual economic projections that have been mistaken. The contract required Telesource to invest tens of millions of dollars into the future of the island, including the upgrade of Tinian’s entire power distribution network. Telesource has lived up to its commitment. In return, the parties expected Telesource to have a reasonable opportunity to receive a modest profit. However, this has never occurred and the result has become unconscionable. Telesource has consistently communicated to numerous parties and the public the large losses that we continue to incur under the existing terms of our contract. We have been forthright and open in our efforts to seek any opportunity that would assist the CNMI in resolving the energy challenges it faces as well as providing Telesource with reasonable prospects to offset its losses. Similar to the current political and economic situation inherited by the new U.S. president, CUC and Telesource, and their current management teams, must address and resolve the impact of their predecessor’s decisions.

For the last four years, the new management team at Telesource has directed over $7.5 million of additional investments on Tinian. This is in addition to the over $42 million that Telesource previously had invested in the CNMI. These are invested dollars that, under our current contract with CUC will never yield a return. Clearly, over the last 12 years we have proven our commitment through the dollars we have invested, the completion of the upgrade as well as the quality of the management of the power plant. No other power plant on any of the islands that make up the CNMI can compare to our successful record of reliability and commitment to operating excellence.

During this same period, Telesource has both privately and publicly driven for full disclosure on all bidding associated with CUC. Telesource will continue to drive for open and honest dealings with all those who do business with our company.

Our overall commitment to the CUC and the residents of the CNMI has resulted in a cycle of unsustainable losses. Our filed and audited 2008 financial statements reflect a loss of approximately $2.7 million on $1.1 million of revenues from our Tinian power operations. Furthermore, after reducing all costs and developing an austere budget for 2009, we forecast that our 2009 results will produce a $1.3 million loss on Tinian. (This forecast removes any purchases that are not directly related to the current operation of the plant. In other words, any major disaster or breakdown may require significant additional investment of inventory. Delays in restoring service will be a reality if a major disaster or breakdown occurs. Service degradation will also be a reality if these losses continue.) Clearly, the existing contract does not provide us with an incentive to invest any further funds.

As with any company, we have a fiduciary responsibility to manage our business successfully. We need to review our contract with the CUC and move to improve its terms and conditions so that it is fair and reasonable for both parties. Our invitation to the CNMI Legislature to visit our power plant operations remains open and sincere. Our goal is to provide efficient and reliable energy to the people of the CNMI and in exchange we seek to earn a fair return on our invested capital.

Finally, we all know these are difficult times for the CNMI and Telesource. We both realize how important the energy infrastructure is to the CNMI’s future economic growth. What we both realize more than anything is the importance of a reliable energy partner to the security and growth of the CNMI citizens, visitors and businesses. We must energetically commit to securing each of these groups’ future by ensuring that CUC and its partners remain financially viable and strong.