Telesource dismisses insolvency claims

Power privatization proposer Telesource International Inc. has dismissed as mere “disinformation” the accusation that it is financially unstable.

“That’s not true. We have survived all these years. All this is disinformation,” said Telesource CNMI president K.J. Semikian in an interview Friday.

This as sources cited Securities and Exchange Commission documents showing that as of September 2004, Telesource total assets were worth $25 million while total liabilities including the long term debt, accrued expenses and losses in progress reached $44.7 million.

It said that as of Sept. 2004, the company’s current liabilities ($22 million) exceeded its current assets ($14 million) by $8 million.

Further, the company had a total outstanding debt of $29.5 million of which $7.5 million was due in the next 12 months.

As of September 2004, the company had an accumulated deficit of $47.5 million and total stockholders’ deficit of $19.7 million.

The figures are based on the unaudited report submitted by the company to SEC as of May 2005.

“You just look at SEC records. It’s public information and you’d see that they [Telesource] are financially in trouble. It’s a mess,” said a source who requested anonymity.

The source at the same time questioned the recent statement of the Commonwealth Utilities Corp. consultant, Harris Group vice president Dennis Swann that both proposers are financially viable and that neither has defaulted on any contracts in the past several years.

“We believe that they are both financially viable. If they are not financially viable, the banks would not loan them money,” Swann said, noting that both passed a pre-qualification evaluation conducted 18 months ago.

“Is he [Swann] joking? All you need to do is check SEC and D&B reports,” said the source.

A D&B express report dated May 3, 2004 said that according to an independent auditor’s findings ending Dec. 31, 2002, Telesource’s current liabilities exceeded its current assets by $18 million.

It said that the company “relies heavily on bank financing to support its operations and its ability to refinance its existing bank debt is critical to provide funding to satisfy the company’s obligations as they mature.”

It further said that the company’s situation “raised substantial doubt about its ability to continue as a growing concern.”

Meantime, Semikian said that Telesource has loans but it is able to manage its finances as it continues to receive revenues from its clients, including the CNMI government.

“What it is showing you is we have loans. That’s our business, when we build power plant say on Tinian, we always borrow. Now as we build, we incur debt and we wait for years to recover our capital. It takes years to get paid,” said Semikian.

In its unaudited report to SEC, Telesource said that to address the going concern, it has implemented financial and operational restructuring plans designed to improve operating efficiencies, reduce and eliminate cash losses and “position Telesource for profitable operations by also increasing revenues.”

It said that “management plans to increase its working capital in 2005 through additional debt and equity financings.”

“However, there can be no assurance that increased credit lines or equity financings will be successful in 2005.”

“Management expects the increase in revenues to be achieved by increasing revenues from existing long-term power plant operations and maintenance agreements as a result of expansion in Fiji and on the island of Tinian and management is pursuing a power operation and maintenance contract in 2005 which if successful will have a positive impact.”

Semikian said that Telesource turned in its proposal to CUC for the privatization of Power Plant I in Lower Base before the Request for Proposal ended in January this year.

“We provided CUC and its consultant all the [latest] financial documents. I didn’t submit them 18 months ago,” he said.

CUC is expected to award a power privatization contract on Saipan in less than two months.

The contract, amounting to some $60 million, would involve the takeover of the eight-engine Power Plant I in Lower Base, its rehabilitation and upgrade to meet federal environmental standards, and installation of two new 15MW generators.

The contract would allow the private company to operate the machines in 20 years.

Semikian said privatization would mean efficient operations of the machines and savings for CUC.

“If privatization is more expensive for CUC, CUC would not have done it. What the privatization does is to bring new machines, overhaul the existing machines and make it efficient so that there’s no waste of energy,” he said.

He said CUC’s financial problem is separate from the issue on privatization.

“Privatization will not change that fact [CUC funding woes]. Their problem is not power generation but fuel. Privatization is a method of improvement of operation at no extra cost to CUC. It’s another way, the most effective way of operating power plant. That’s why we operate Tinian. That’s why Rolls Royce operates Power Plant 4,” he said.

Semikian said, though, that for lack of funding, CUC has failed to maintain and upgrade the power plants to make it more efficient and reliable.

He said that being aware of the overall situation, Harris Group sees the benefits of privatized power.

“Otherwise, people who are experts in this field, like Harris Group, would have not advised CUC to do it [privatization]. They don’t work for anybody but CUC,” said Semikian.