‘Keep politics out of CUC privatization’

Your newspaper has recently reported extensively about CUC’s privatization of Power Plant I. In my capacity as president/CEO of Telesource, and as a concerned and knowledgeable private citizen of the CNMI, I would like to shed some light on this issue and provide the insight of a power industry expert.

What is known as “Privatization of CUC Power Plant No. I” is merely a long-term operation and maintenance contract for the existing power plant, including modernization, upgrade, and environmental compliance, with an element of investment and expansion for an additional 30 MW , as well as an option for 15 MW of future capacity whenever needed.

The majority of all utility entities worldwide have either already privatized or are about to privatize the generation aspect of their utility. This is particularly true in the Western hemisphere and is fully supported with direct financial incentives and disincentives by organizations such as the World Bank, the International Monetary Fund, and all regional developments banks in the world.

It has been proven time and time again in practice and by numerous financial studies and unequivocal scientific research that government or pseudo-government entities are much less efficient and much more wasteful in running their own utilities than private professional corporations, or Independent Power Producers.

The experience of other countries and public utilities is well reconfirmed and borne out in our own utility on Saipan. No blame should be levied on the CUC or its employees. CUC has merely run the power plant as other governmental entities have and, by its very nature, has run the power plant to the ground. CUC’s personnel have in fact done a miraculous job in keeping the power plant operating against all technical odds, averting a total economic tragedy and possible loss of human life.

The CUC and the CNMI as a whole are at a cross roads. As I see it we have two options:

a) The CUC can proceed with their current plan. They have issued an RFP to privatize power plant number one. This RFP has been studied and its viability has been confirmed by a world-recognized consultant. The RFP answers the needs of the CUC and the CNMI people in total, not in a piecemeal bandage approach, fixing the power problem on Saipan once and for all. CUC can award the RFP to the most qualified and winning bidder the total and full responsibility of providing reliable and efficient power for 20 years, without an increase in power generation costs, and with enough financial penalties in the contract to motivate the winning company to do its job the right way. This approach will also prevent power blackouts and will ensure that there is a steady source of power to support the economical growth of the CNMI for the next 20 years with no surprise generation cost increases.

b) The CUC can choose to do nothing. They can continue to run the power plant as they have been, contrary to the stark realities and common sense. Yes, the power plant has been running, thanks to the CUC employees we have averted blackouts and total meltdown of the system; but each and every expert that has looked at the power plant has reached the conclusion that the continued running of the plant is nothing short of miraculous. The fact is that the power plant can shut down at any moment now, and such an eventuality will occur in just a matter of time. This approach leave the responsibility of running the plant in the hands of the organization that has brought the CNMI to the verge of tragedy. Adopting this approach will result in blackouts of unknown durations; maybe as much as months at a time while CUC scrambles to put in place emergency power sources at extremely high costs to the CNMI taxpayers and at their peril: in short, we would all be living on borrowed time.

The choice is clear. The only choice the CUC has is to follow through with the RFP process and transfer the responsibility to an independent company with the financial and human resources necessary to ensure that the people of the CNMI receive the benefits that so many other people worldwide have realized from power privatization.

It has also been insinuated in your paper and elsewhere that “privatization of the operation and maintenance” will increase the utility rates. In fact, privatizing the generation aspect of the utility will save CUC money and reduce the ultimate true costs on the CNMI taxpayer. The cost of power generation represents a small part of the true cost of the power we use.

Generation costs do not include the cost of fuel. In today’s world environment, the cost of fuel is substantially higher than the cost of generation. By privatizing the power plant, the cost of generation will be fixed for 20 years and the only part of the overall power costs that will change will be the fuel costs. The cost of fuel can go up and it can go down, depending on world economics, etc. The financial objective of the RFP and privatizing the power plant will be fixing the generation part of the overall costs. In my opinion, no utility should ever shoulder the cost of the fluctuating fuel and it is unreasonable and irresponsible to expect the utility to subsidize the fuel price differential. No one is subsidizing us at the gas station when we fill up our cars, so why should anybody expect to be subsidized for the fuel that is needed for his electricity.

I realize it is an election year and all politicians have the tendency to make general and confusing statements designed to protect their interests and seemingly those of their constituency. However, some of these statements amount to nothing short of cheap shots and scoring against their adversaries in the political race. The losers in this highly political environment are the people of these islands. Politicians are only interested in their own election, or re-election. They don’t seem to understand the grave danger and risk in politicizing the issue of power. Politically motivated decisions such as “repealing the fuel surcharge” are against all facts and realities, and endanger the solvency of one of our most strategically important utilities on the island.

Unless the Legislature is ready to earmark or otherwise secure the ten’s of millions of dollars necessary to rehabilitate, maintain and expand the power plant, the only option left is to award a contract to an IPP. Ultimately the consumer has to pay for the fuel charge. The politicians can play their games of pure semantics, to put up smoke and mirrors, but this doesn’t eliminate the fact that the consumer will have to pay eventually, one way or another. It is best to be up-front and honest with the consumer and let them know up-front that, whether they pay a fuel surcharge, or they pay through taxes or other means, the fact remains that the fuel has to be purchased and the people of the CNMI—as represented by their Legislature—will have to pay one way or another. At least by being up-front with the consumer, and by privatizing the power plant, the consumer will know exactly what they will be charged without question.

These are the times when leadership matters. The CUC and everyone in charge must act responsibly and in the best interest of the people. It is time to stand up and do the right thing by removing the issue of power out of the political arena. Hesitation and indecision at this point will be the most harmful act of procrastination the CUC and the CNMI government could ever be guilty of. The result can be tragic, to say the least.

I urge you to publish this letter as the debate on the power issue requires as much input as possible for the benefit of the entire CNMI.

K.J. Semikian
President
Telesource-CNMI