CUC has yet to sign contract with Mobil

The government has not secured a long-term contract with Mobil Oil Marianas amid warnings of potential constitutional liabilities over a $10 million letter of credit with Bank of Guam.

Both parties—the government, headed by Lt. Gov. Diego T. Benavente, and Mobil officials—resumed negotiations yesterday but no solid agreement has been reached yet.

“We’re on a phone conference almost the entire morning yesterday. We’re still finalizing,” said Benavente.

He declined to disclose any specific issues that keep both parties from reaching an agreement.

“We’re still negotiating,” he reiterated.

He said a new contract must be put in place before some 1.4 million gallons of fuel from Singapore arrives. The shipment, costing some $2.4 million, is expected by the government to arrive on June 2.

Mobil earlier agreed to ship the fuel to CUC after the Bank of Guam “committed” a $10 million letter of credit to the government.

BoG issued the letter of credit on May 20, a day after Gov. Juan N. Babauta declared a state of disaster emergency in the CNMI due to continued power failures.

House members, however, had warned the Executive Branch, CUC, and even the Bank of Guam of possible constitutional violations if they pursue the $10 million line of credit.

The House leadership, led by Speaker Benigno R. Fitial, as well Rep. Heinz S. Hofschneider, said that, contrary to the opinion of the Attorney General’s Office, the $10 million transaction is a public debt.

They cited that the CNMI Constitution prohibits the government from incurring a public debt for operational purposes.

If finalized, the bank would grant CUC the $10 million credit to buy fuel from Mobil.

Last month, Mobil refused to provide CUC any more fuel due to the utility firm’s inability to pay off its debt. Mobil’s refusal resulted in a major power outage on May 17.

CUC reportedly owes Mobil some $8.5 million, including a $3.5 million “delinquent” account for May.

During a session on Friday, the House leadership said it would send BoG a letter warning it of possible liabilities on the $10 million credit.

Earlier, Attorney General Pamela Brown said that such a transaction is not a public debt citing that CUC is not committing the assets of the entire CNMI government. She said the collateral would only be limited to CUC assets.

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

Hofschneider and Fitial said, though, that CUC’s assets have already been encumbered by the Commonwealth Development Authority.

Further, Hofschneider warned that given the CUC’s financial woes, the bank could end up owning CUC’s power plants in a few months.

Administration allies in the House led by minority leader Rep. Arnold I. Palacios said that the line of credit with BoG is crucial to the CUC-Mobil agreement. He said the line of credit is being demanded by Mobil, CUC’s oil supplier.

He said that having a line of credit between banks and government agencies has been done before and that “it is not unconstitutional.”

Rep. Ramon Tebuteb also believes that any legal prohibitions can be suspended during a state of emergency.

“We are in the state of disaster emergency. It’s not an ordinary time. Application of certain laws can be suspended because there’s a state of emergency,” said Tebuteb.