Changes in power privatization bidding process urged

With only two months to go before the completion of the government’s power plant privatization, the Saipan Chamber of Commerce has urged the Babauta administration to modify the bidding process and do away with committing the CNMI to 20-year contract with an independent power producer.

Chamber president Alex Sablan, in a letter to Gov. Juan N. Babauta, recommended that the government shift to an IPP request-for-proposal process to contract privatization for operations and management costs only.

The current process entails an IPP taking over and rehabilitating the Lower Base power plant, and installing two 15-megawatt generators, among other things.

According to Sablan, an operations and management contract would not commit the CNMI to a contract for 20 years, which he described as “too long.”

“As Mr. [Dennis] Swann of the Harris Group stated, it is expected that oil will no longer be an economical fuel by the year 2015—[10] years from now,” Sablan said. “If we tie ourselves to a 20-year contract, guaranteeing payment to the IPP throughout that period, we may find ourselves paying off the contract while at the same time purchasing an alternative source for power. We do not want to commit the next generation to this unwarranted obligation.”

He also recommended that the government model the local privatization deal to the Guam Power Authority’s power management contract for its Cabras 3 and 4 power plant.

GPA’s contract reportedly costs only $1.6 million to $2 million a year, instead of the estimated $18 million annual cost of the contract the Commonwealth Utilities Corp. is poised to sign.

Sablan said that besides getting an independent firm to operate and manage the power plant, the only other critical need is to rehabilitate the plant and bring it to compliance with federal environmental regulations.

Such undertaking, he said, is expected to cost only between $6 million and $8 million over a period of three years. This includes $4 million for the rehabilitation of all eight engines over a two-year period, as well as $2 million to $4 million to air model a three-mile radius from the plant and resolve CUC’s 12-year-old permitting problem with the U.S. Environmental Protection Agency.

Furthermore, Sablan questioned Harris Group’s statement that CUC could not get a loan at an interest rate of less than 20 percent, saying that such claim was “insulting.”

While agreeing that CUC has been in financial disarray, Sablan expressed confidence that CUC, through more frugal spending and properly instituted accounting practices, could raise the $4 million needed to finance the first stage of rehabilitating the power plant.