‘IPP contract in less than 2 months’

A contract for the power privatization on Saipan is expected to be signed in less than two months, according to the Commonwealth Utilities Corp. consultant, Harris Group.

The deal—a $60-million contract that will be awarded to either Telesource or Rolls Royce—would involve the takeover of the eight-engine Power Plant I in Lower Base, its rehabilitation and upgrade to meet environmental standards, and installation of two new 15-megawatt generators.

The contract would allow the private company to operate the machines for 20 years. After that, power generation would revert to the CNMI government.

Harris Group executive Dennis Swann said the contract would not allow any rate increases during the first three years of operations.

“We have an agreement that the cost they will charge for the first three years will be similar as today. They have not said anything about raising rates because they don’t raise the rates. CUC raises the rates,” he said.

“Let me just say that it’s the intent of the contract that there will be no impact on rates…for the first three years,” he told reporters during an interview at the Governor’s Office yesterday.

He said, though, that rates would be adjusted based on the fuel cost.

“Please separate the privatization from the cost of fuel. The cost of fuel is a whole different issue that has nothing to do with privatization,” he said.

He said the contractor would be making some profit out of the contract by producing power at a cheaper rate and selling it to CUC “for a higher number than it cost them to make.”

Unlike CUC, he said the contractor can borrow money fairly cheaply and can buy spare parts at a cheaper rate. “They have the ability to buy some things cheaper than CUC can buy them,” he said.

The contract requires CUC to provide the contractor fuel to operate the engines. The IPP then sells the electricity to CUC. CUC remains in charge of transmission or distribution of power, as well as customer billing.

Meantime, Swann confirmed that the contract removed the clause that requires the full-faith financial backing of the CNMI government. He said both companies are financially viable, based on the evaluation of their financial statements 18 months ago, noting that neither have defaulted on any contracts in the past several years.

“We believe they are both financially viable. If they are not financially viable, the banks would not loan them money,” he said.

Sen. Joseph Mendiola describes the proposed contract as “a sweetheart deal.”

“Wow, where in the world can you get such an arrangement? That’s the sweetest deal. You just take over the plants and earn profits from it,” said the lawmaker, who is chair of the Senate Committee on Fiscal Affairs.

He also wondered how the company would handle the financial aspect without the government’s full backing.

“Who will be responsible for this deal in the end? If CUC takes the risk, let them take the risk but we don’t want to see them come to us later and tell us, ‘We can’t pay it,’” said Mendiola.

He said that copying the CUC-Tinian arrangement with Telesource would be a mistake.

“Tinian is losing money. We’d be out of our mind if we do the same agreement as Tinian because CUC is paying a fixed amount for electricity. It’s not even a break-even operation,” said Mendiola, who is from Tinian.