OPA: MRC-DLNR marina deal flawed • Public auditor says higher docking, departure fees necessary to recoup MRC’s expenses

The Office of the Public Auditor is recommending amendments to the existing agreement between the Department of Lands and Natural Resources and the cash-strapped Marine Revitalization Corporation, in order to properly address issues hounding the operation of the troubled Outer Cove Marina.

Flaws in the Submerged Land Lease Agreement reached between DLNR and MRC are to be blamed on the failure to establish a fixed amount for the controversial Outer Cove Marina Project, according to Public Auditor Leo L. LaMotte.

Mr. LaMotte mentioned that these flaws involved the failure to set definite guidelines on what and how much fees can the MRC collect from boat owners and operators, as well as what should be the factors that should be considered in establishing the fees.

In the absence of amendments or supplements to the existing agreement binding DLNR and MRC on the Outer Cove Marina Project, the public auditor stressed there is no way fees that may be imposed on boat owners can be established.

However, OPA said MRC is not restricted from establishing any type and rate of fees that will enable recovery of its investments, although it would still need the approval of the DLNR secretary.

“If the continued operation of the Marina is desired, then MRC management and the DLNR Secretary must negotiate amendments. They may also need to obtain the support of other government leaders in order to solve the financial problems of the lessee,” the OPA report said.

Under the agreement, MRC shall lease 16,394 square meters of submerged land for the construction, operation and maintenance of a 76-boat marina complex, a harbor facility intended for commercial vessels.

But OPA audit disclosed that MRC was able to construct only 45 boat slips which is 31 less than what was stated in the lease agreement.
Also, MRC’s original proposal submitted to the CNMI Legislature estimated that only between $1.2 million and $1.5 million would be spent to construct a 76-boat slip marina complex.

OPA stressed, however, that about $3.6 million were spent for the construction of the Outer Cove Marina. Of this figure, $743,529 was paid by Mobil Oil Micronesia, which has been recorded as a loan payable in 11 years from February 1998 at 12 percent interest per annum.

OPA also noted that MRC will incur approximately $1.7 million in interest before the loans are fully paid, adding that the amount of the interest will increase if installments are not paid on time or if the due dates are further deferred.

“The increase in the project cost and the reduction in the number of boat slips can largely be attributed to insufficient planning or lack of a thorough engineering study for the Outer Cove Marina Project,” the OPA report added.

According to the OPA report, the governing submerged land lease agreement does not have a provision binding MRC to a fixed amount for the Outer Cove Marina Project.

Charges and fees

“[B]ecause MRC had to rely totally on about $4 million in loans to finance the project, a large amount of revenue must be earned during the term of the lease to pay the loans and cover operating costs. MRC therefore has no choice but to impose higher rates of docking and departure fees,” OPA said.

The public auditor is recommending that before establishing the rates of fees that will be collected from the boat owners, MRC and DLNR should agree on what will comprise the total cost that must be recovered from fees to be charged boat operators.

OPA also called for a negotiation between the Outer Cove Marina operator and the natural resources department on: (a) what type of fees to be collected or revenues to be generated will MRC be allowed; (b) whether the fees to be computed and the projection of other revenues take into account a percentage of profit that will result in yearly rental and a reserve for future development.

The public auditor is also urging the DLNR to study the following alternatives to ensure continued operation of the Outer Cove Marina:

• Allow MRC to operate the Outer Cove Marina pursuant to the submerged land lease agreement and the concession contract without imposing any limitation in the fees and type of revenue MRC can collect;

• Pay MRC the cost of the OCM project and take over the marina operations;

• Look for other developers that can pay MRC for the project cost and take over the Marina operations;

• Extend the lease period to allow MRC to collect lower fees and have a longer period in which to recover its investments; and

• Provide MRC with financial and other assistance such as the reduction or omission of annual rent, allowing MRC to defer tax payments until MRC loans are paid, enforcing the provision in the submerged land lease agreement to establish a regulation banning the docking of commercial vessels in the Smiling Cove Marina, and asking other marina operators to establish uniform fees so that Outer Cove Marina rates can be competitive.