The Commonwealth Development Authority has prodded the utilities company to include a refinancing clause in the future power plant construction contract with a Japanese conglomerate in order to ensure that power rates are maintained at the lowest possible level.
CDA Board Chairman Juan S. Tenorio explained inserting such provision would give room to Marubeni Corp. and its US partner, Sithe Energies, Inc., to seek refinancing in the event the Commonwealth Utilities Corporation fails to meet its obligation to the power provider.
Such flexibility, he said, would avoid possible sudden rise in power rates on Saipan.
“It is very important that any contract with Marubeni does not contain a restriction against a refinancing of the power project through the floating of a bond or other financial leveraging methods,” Tenorio said in a letter to the Legislature.
“Any benefit should go to the public. And one way of doing that is to ensure that there will be no increases in rates especially if the government will be required to issue full faith and credit backing,” he said.
The utilities company has tapped Marubeni-Sithe to build the $120 million power project on the island under a controversial deal that is subject of protests from losing competitors.
The expansion of existing power plants to 80 megawatts was designed to meet the anticipated increase in power demand by year 2000. But questions on the competence of the in-house selection committee and bidding process lodged by industrial giant Enron and consortium Ansons, Tomen, Singapore Power and Tan Holdings Corp. have pushed back the project, which should have started last year.
Under an agreement between CUC and Marubeni-Sithe, the utilities corporation will pay the power provider $1.45 million in monthly capacity charge, some $593,110 for operation and maintenance costs and .00125 cent per kilowatt hour during the initial run of the power plant.
However, the deal was scrapped after the Office of the Public Auditor recommended a fresh review of the proposals initially submitted by 13 companies competing for the multi-million power project.
According to Tenorio, another provision or a legislation should be put in place to make sure that CUC will be the sole energy source on Saipan to boost its financial viability and capacity to repay its obligation.
Marubeni-Sithe should also guarantee that it will tap local vendors and subcontractors for other services such as manpower, manufacture of building materials and other items that could be purchased locally to stir slumping business activities on the island, Tenorio said.
“Local companies should be allowed to participate. We should spread the wealth,” he said.