Questions raised over power privatization

The administration’s move to hire consultants for the repair of the power plant seems to be counterproductive to its plan to expedite the privatization of power, said House Vice Speaker Timothy Villagomez.

“It seems to be counterproductive to fix a plant that’s going to be privatized,” said Villagomez, who is chair of the House Committee on Utilities, Transportation, and Communication.

The Commonwealth Utilities Corp. had earlier approved a $21,000 contract for the services of former senator Ramon S. Guerrero and a $20,000 contract for power plant electrical engineer Roger Kitchingham. This was on top of the $50,000 consultancy contract that Guerrero signed with the Governor’s Office for the electrical upgrade of the La Fiesta complex.

Under the new CUC contracts, Guerrero would be paid $7,000 a month for three months and Kitchingham would be paid $10,000 a month for two months. He will be overseeing the mechanical and electrical repair of Power Plant II in Lower Base and helping with CUC’s privatization program, among others; Kitchingham would assist in the major calibration of all electrical systems in Power Plant II.

Under the initial privatization plan, Power Plant II would be decommissioned and its site will be used for the expansion of Power Plant I.

Guerrero and Kitchingham’s contracts, however, are currently on hold, pending review by the Attorney General’s Office.

Villagomez queried as to what kind of guarantee the government would be giving a private company to run the power plants.

“There’s a question of loan guarantee for the IPP [independent power producer]. What’s the government’s commitment to assist them financially?” asked the lawmaker.

He also raised the question of a transitional phase, given that CUC has just sealed a two-year fuel contract with Mobil Oil Marianas.

“How would the future contract carry on under privatization? Will the government still be providing fuel at those terms?” he asked.

Villagomez, a former CUC director, also asked if the fuel tax exemption—which is currently being enjoyed by CUC as a public corporation—would be carried over to the private company and whether it is appropriate.

Land use, he said, is another issue. CUC currently uses public lands administered by the Marianas Public Lands Authority. Under a private company, lease arrangements should be secured, he said.

“We would expect that the government under the Babauta administration would treat the new private power provider in the same way that they would treat PTI [Pacific Telecom Inc., the company that is buying Verizon]. There should be no inconsistency in public land leases,” said House spokesman Charles Reyes Jr., referring to the stringent process that the administration made PTI go through in its purchase of the telecom firm.

Reyes said the administration and CUC owe it to the public to give a full disclosure of its privatization program.

Meantime, sources expressed doubts of a successful power privatization if certain laws are not amended.

An industry player who requested anonymity noted that the current law, Public Law 12-1, only allows the use of “low speed” engine in the power plant.

It means that the government could only deal with a specific manufacturer, depriving itself of possibly getting better deals with others who sell medium- and fast-speed engines.

“That law was passed to help Enron. Under the current law, you can’t buy any other types of engine but low-speed engines. And who manufactures it but Mann BMW,” said the source.

Further, the government, particularly CUC, should first clarify with the U.S. Environmental Protection Agency “if the Clean Air Act applies here” before going into privatization.

Lastly, the source said that CUC should “finish off” its conversion of equities with the Commonwealth Development Authority before privatization.

“If these three issues are not addressed before privatization, there’s no way it would succeed,” said the source.

Gov. Juan N. Babauta, who took over control of CUC as part of a disaster emergency declaration on May 19, favors the immediate implementation of power privatization in the CNMI. The business community also supports the plan.

The administration is currently evaluating the proposals of two IPPs: Telesource and Rolls Royce. Sources said the government may be more inclined to choose Telesource, which also handles power generation on Tinian.