$45.5M debt written off

Gov. Benigno R. Fitial has approved legislation authorizing the Commonwealth Development Authority to waive the $45.5-million debt owed by the Commonwealth Utilities Corp.

House Bill 15-64, which became Public Law 15-12 on Tuesday, will write off the principal sum and interest due from loans extended by CDA to CUC.

The measure would also require any independent power producer taking over CUC’s power plants to pay half of the $45.5-million loan principal. The payment from the IPP would be reserved and used for CDA’s loan programs.

CDA board member Manuel Sablan said that, while the board of directors had strongly opposed the writeoff when it was first proposed last year, the agency had not taken an official position on the bill passed by the current Legislature.

Speaking in his personal capacity, Sablan said he understands why the writeoff was necessary at this time.

“I can see the validity of the arguments of those who oppose and those who support this bill. I believe that the debt waiver is not something that we should encourage. But it is also something that we should entertain given the situation of the CNMI. CUC needs to improve its financial position. Whether this writeoff would facilitate the process for CUC to secure financing remains to be seen. But it would at least give CUC a clean slate. So if the governor wants to do it, I say let him do it,” Sablan said.

The Office of the Public Auditor had also supported the debt waiver.

“In general, OPA does not support loan forgiveness legislation. OPA believes that condoning loan forgiveness encourages risky and ill-advised loans and discourages responsible behavior,” public auditor Michael Sablan had said of the measure.

“While OPA is loathe to support any loan forgiveness, we do recognize that this situation is unique and furthermore, that passage of HB 15-64 will have significant beneficial ramifications for all people residing in the CNMI,” Sablan had said.

Press secretary Charles P. Reyes Jr. described the legislation as a critical component of the governor’s plan to make CUC solvent again.

The Fitial administration is currently pushing for the passage of a bill that would compel the NMI Retirement Fund to issue a new $40-million bill to the utility firm. Retirees oppose the proposed CUC loan, as well as a separate plan for the Fund to forgive the government’s $123-million debt to the pension agency.

CUC and CDA had been involved for years in a legal dispute regarding the utility’s $45.5 million loan to CDA.

In an attempt to resolve their differences, the two agencies entered into a 2004 memorandum of agreement that provided for a waiver of a portion of CUC’s debt; authorized CUC to issue shares of preferred stock valued at $45 million to CDA; and provided for the repayment of debt through users fees for power consumption by the CNMI government.

But constantly struggling to pay for its fuel purchases, the cash-strapped utility has not been able to meet its part of the agreement.

In addition, Public Law 15-12 argues that CUC should not have to pay back the loan, since the funds came from a $140-million federal grant that did not require repayment. It also notes that other government agencies received amounts from this grant for infrastructure development, but CDA is only pursuing repayment from CUC.

“Arguably, CUC, too should not have to pay back the funds given to it by CDA and the funds were used for infrastructure development, i.e. power, water, and sewer projects. Accordingly, the Legislature further finds that it is in the best interest of the CNMI to write off in full CUC’s loans from CDA in order to promote the stability of CUC and to secure the continuity of public utility services to the people of the CNMI,” states a portion of the new law.