Debt-to-equity conversion for CUC’s $107-M loan eyed

The Commonwealth Utilities Corporation is hoping to retire its debt amounting close to $107 million through a plan which will be announced by next month as part of the efforts to forge ahead with the new power project proposal for Saipan.

CUC Executive Director Timothy P. Villagomez has been tasked by the board to develop the scheme to wipe out its mounting financial obligations to the Commonwealth Development Authority.

According to CDA Board Chairman John S. Tenorio, the government’s chief lending agency will propose a debt-to- equity conversion which will be more acceptable to them than other options, including debt forgiveness.

“That is the best solution… that would really work,” he said, adding that this will allow CDA to take part in the selection of a contractor to build the new power plant for Saipan with a lower capacity than the initially proposed 80-megawatt power generation.

In a board meeting last week, CUC decided to tackle its debt problems after independent consultants expressed concern over the capability of the government corporation to handle such project that will cost the island millions of dollars over the next few years.

At present, its debt to CDA is estimated at $107 million, which included interest from the $65 million principal loan it secured in June 1997 to pay for purchase of power generators and other outstanding financial obligations.

Mr. Tenorio said CDA has been pushing the utility corporation to retire the debt for the last two years since the agency still has to meet other obligations, such as financing other projects.

But he stressed it would be inappropriate for CUC to push for debt forgiveness which would harm the partnership agreement forged by CDA with other federal agencies.

“Even if CDA would like to forgive CUC, but because of the partnership agreement, [we can’t do it],” explained Mr. Tenorio, noting that the agency is using federal funds to carry out its various loan programs.

“This is a domestic problem [between] inter-government agencies and not a problem of the partnership agreement. Remember that we are using the federal funds that were supposed to be spent for other projects,” he added.

The debt-to-equity swap plan has been in the planning board for the last two years since CUC approved an initial recommendation in 1998 in which CDA which, under the scheme, will get guaranteed dividends of $2 million to $3 million annually.

But before any conversion can be made, an amendment to the CUC statute must still be made by the Legislature to clarify some issues such as the number of board seats CDA must hold in the board of the utility corporation.

CDA said it is not really interested in running CUC because it has full confidence on the present management. But in the meantime, it is keeping a close watch at the financial situation of the utility corporation, its expenses and future borrowings.