CUC gets two-year fuel contract

The Commonwealth Utilities Corp. is now assured of at least two years worth of fuel supply from Mobil after parties finally reached a long-term contract after two weeks of negotiations.

Gov. Juan N. Babauta signed the contract upon arriving yesterday afternoon from his two-day trip to Japan.

“The agreement is for two years. It guarantees that fuel will run the engines for the next two years. That guarantee was very much in doubt two or three weeks ago,” said governor’s press secretary Peter A. Callaghan yesterday.

Babauta declared a state of disaster emergency on May 19 due to unresolved power failures. The declaration resulted in the governor assuming control of CUC.

The Governor’s Office said the new agreement provides for a cash guarantee to Mobil of $7.5 million. This guarantee was made by securing CUC funds that are “already in the Bank of Guam” against fuel purchases.

Authorities said the CUC has some $9 million in “restricted funds” at BoG.

“There is no additional long-term credit or debt added by this agreement,” said the Governor’s Office in a statement.

Earlier, BoG offered the government a $10 million standby letter of credit, but this was heavily criticized by some House members, saying it was tantamount to incurring a public debt, which is prohibited for government operations under the Constitution.

The new fuel agreement gives CUC a 60-day grace period to pay off its order.

The Governor’s Office said yesterday that over 1.2 million gallons of fuel “is in the process of being delivered” to CUC. This supply is enough for the next 20 days. Mobil earlier agreed to provide CUC 1.4 million gallons of fuel by June 2.

CUC executive director Lorraine A. Babauta said the new agreement provides that the price of the fuel will be capped at the price of oil at the time of purchase.

“Hopefully, the price of fuel will decline and we will experience some savings,” she said, noting that fuel costs have risen from $30 million annually to $60 million in 16 months.

“It placed a great strain on the financial condition of the corporation. Decreases in fuel cost will help this corporation,” she said.

She said the new Mobil contract permits the restructuring of the outstanding CUC debt of $8.5 million over two years “giving the corporation some needed relief to spread out payments.”

The CUC official said that cash flow for the agency “remains a serious issue.” She said the engine maintenance “also remains a serious issue.’

“Routine maintenance needs to be done but the utility remains cash poor,” she said.

She said renovation and other improvements on existing engines would cost over $2 million.

The government’s panel to the Mobil fuel contract negotiation was headed by Lt. Gov. Diego T. Benavente and governor’s consultant Adam Turner.