House warns BoG on loan liability

Lawmakers intend to send Bank of Guam “a strong message,” warning it of liabilities that may arise from a $10-million letter of credit that it is giving the Commonwealth Utilities Corp.

House Speaker Benigno R. Fitial said during a session Friday that a letter would be sent to the bank.

Rep. Heinz S. Hofschneider said the bank should be made aware of the transaction’s “constitutional liability.”

Fitial and Hofschneider expressed belief that the $10-million letter of credit is a public debt and it would violate the Constitution, which prohibits the government from borrowing money for operations.

“We should send a strong message to Bank of Guam that the loan is clearly prohibited in the Constitution,” said Hofschneider.

The $10-million worth letter of credit would be used to buy fuel from Mobil Oil Marianas to run CUC’s power plants.

Gov. Juan N. Babauta, who currently controls the CUC following his declaration of a state of disaster emergency on utilities, said that the “standby letter of credit” is meant to assure Mobil Oil Marianas that it would be paid.

The Governor’s Office and CUC are currently negotiating for a long-term fuel contract with Mobil.

The oil company earlier reportedly refused to supply CUC any more fuel due to its failure to pay its debt. CUC has some $8.5 million in overdue bills with Mobil.

Attorney General Pamela Brown earlier opined that the $10-million transaction is not a public debt, noting that such a debt is incurred when the “full faith and credit of the central government is pledged as security in a financial obligation.”

In the CUC-BoG agreement, the central government was not a party to the transaction, and this was made clear to the bank, she said.

Should the CUC default on this obligation, the only recourse available to the bank was against the corporation and its assets.

Hofschneider said that, although CUC is an autonomous agency, it is covered by the constitutional prohibition. Further, he said that putting CUC assets as loan collateral gives the bank authority to confiscate the utility firm’s assets, including the power plants, in case of default.

Besides, he said the $10-million letter of credit would only last for some three months, given the $3 million average fuel monthly consumption of CUC.

Further, Hofschneider and Fitial cited that CUC’s assets are already encumbered by the Commonwealth Development Authority as a result of a loan settlement.