Govt unveils terms of Mobil-CUC contract

Gov. Juan N. Babauta disclosed yesterday the salient terms of the Commonwealth Utilities Corp.’s new fuel supply contract with Mobil Oil Marianas, which has been cited as one of the major goals of his May 19 declaration of state of disaster emergency.

The contract, which began May 1, 2005, grants Mobil an exclusive right to provide fuel to CUC for two years. The administration reached a final agreement with Mobil on June 3.

Babauta said the contract was made with Mobil agreeing to the use of CUC assets as security to a standby letter of credit. “In layman’s terms, $7.5 million in CUC assets would be guaranteed as security to Mobil,” he said in a status update on the state of emergency declaration.

The price of fuel, he added, would be determined monthly based on the price of oil at the date of purchase plus delivery charges.

As to the restructuring of CUC’s $8.5-million debt to Mobil, Babauta said an agreement was reached to require CUC to make an initial payment of $4.5 million, with the remaining amount to be paid out in 12 months.

“Payments would begin at a lower level for the first six months and increase to a higher level later, providing for some cash flow relief,” he said.

CUC incurred the $8.5-million debt in the course of a previous contract with Mobil, which expired on April 30, 2005.

Further, Babauta reported that the central government has pumped over $5 million to CUC in the last 90 days, but CUC remains in a negative cash flow situation.

This amount includes payments for the fuel used at CUC’s power generation plants.

In view of CUC’s financial problems, the administration said efforts would continue to generate cash for the utility.

The government’s list of measures include:
* the completion of an independent rate study for power, water, and wastewater;

* use of a Federal Emergency Management Agency reimbursement;

* overhaul of power generation equipment to improve fuel efficiency;

* implementation of a water meter program to reduce water losses;

* auditing of residential power consumption;

* provision of additional operating or capital revenues by the CNMI government; and

* collection of legitimate past due amounts by CUC.

“In partnership with CUC management, we are working hard to restructure debt and make other cash commitments that would place the utility in a better financial position,” Babauta said.