Gov’t to assume CUC’s debt • Senate says move will relieve utility firm of obligation to pay $100-M loan to CDA

Due to delay in working out a plan to retire more than $100 million debt owed by the Commonwealth Utilities Corporation, the Senate stepped in yesterday and passed a measure that will transfer the liability to the executive branch.

The move, if approved by the House of Representatives and the governor, will cut short a proposed debt-to-equity conversion scheme being drawn up with the Commonwealth Development Authority, according to its proponent.

Under the legislation offered by Senate Floor Leader Pete P. Reyes, any and all indebtedness of the government-owned utility corporation to CDA shall be transferred to a special account to be created within the Department of Finance.

Any payment made by CUC to reduce its financial obligation will then be used strictly to match federal construction grants for the island’s various infrastructure projects under the Capital Improvement program/Covenant 702.

Senate Bill 12-59 also stated that once it becomes law, the transfer of CUC’s debt must be carried out within 30 days.

“While we want to relieve CUC of its huge financial obligation, this measure does not forgive its entire debt,” Mr. Reyes told in an interview.

The Senate plan will only ease the difficulties by the utility corporation in meeting the repayment of the debt, according to the bill.

In proposing the transfer, Mr. Reyes said the Senate has opposed the debt swap plan because the money owed by CUC were not forked out by the government lending agency.

The funds came from a bond float that used the CIP grants from the federal government as collateral, with CDA acting only as conduit so that the money would be released, added the senator.

The utility corporation took out a loan from CDA in June 1997 for its CIP needs amounting to about $61.3 million, but it has ballooned to over $107 million due to interest that has accumulated over the years amid CUC’s slow payment of its dues.

Some $10 million of the loan was used to pay Mitsubishi Corp. of Japan which financed the acquisition of engines for a power plant on Saipan in 1989. The rest were spent for other infrastructure projects.

Leeway

According to legislators, CUC should be provided with greater flexibility on its debt and that any repayment should be channeled to the CIP for the benefit of the Commonwealth.

“This is particularly important in these times of fiscal austerity,” stated the bill.

CUC or CDA officials could not be reached for comment on the legislation which was passed during yesterday’s Senate session held on Tinian. It now heads to the lower house for action.

According to Mr. Reyes, the proposal was hatched by two members of the utility board who had told him that it could be the only solution to CUC’s deepening financial problems.

“CUC should welcome this move as it will relieve it of its obligation to pay CDA immediately,” said the senator.

Both agencies are eyeing the conversion plan to resolve the long-standing problem, but they have yet to reach an agreement.

In January, the CUC Board instructed Executive Director Timothy P. Villagomez to study the plan in an effort to push the controversial Saipan power project that would require huge amount of money.

Under previous debt-to-equity swap plan, CDA would get guaranteed dividends of $2 million to $3 million annually and seats in the CUC board.

But with the failure of CUC to resolve the controversy surrounding the mothballed 80-megawatt plant, CDA has decided to temporarily shelve the plan.

Before any conversion can be made, an amendment to the CUC statute must still be made by the Legislature to clarify some issues such as the number of board seats CDA must hold in the board of the utility corporation.