The mess at CUC

The Aggreko contract probably violates the CNMI procurement regulations in two aspects. First, selection seems to be done for contract offers done in 2006 without according other contractors the same opportunity. More importantly, CUC signed a contract (page 14 and 15) which CUC certified that (1) the contract is a budgeted line item, and (2) sufficient funds were available for the execution of this contract, when we been hearing from the CUC and the Governor that CUC don’t have any funding even to buy fuel. This raises serious questions on how CUC and the Executive Branch are treating our procurement laws.

I have reviewed the profit and loss statement of the CUC, which shows that CUC claims it lost $16.1 million in 2005, $19.4 million in 2006, $1.09 million in 2007, and in the last six months CUC lost $6.9 million. So, in the last three and the half years, CUC would have lost around $43 million. The P&L statement illustrates a depreciation charge of around $29.4 million. So assuming CUC collected all revenues, CUC still has an accumulated cash deficit of about $14 million just in the last three and half years, which most likely supported by not paying vendors and other short-term liabilities. The big question, therefore, is, when CUC certified it has sufficient funds for the Aggreko contract, where will be the money be coming from?

Now, this contract was supposedly signed on June 19, and disclosed to the Legislature on June 23. Two days after the disclosure of the contract, or less than one working week from the execution of the contract, rumors are circulating that the CUC has sent to Aggreko a change order for the capacity to be increased from 10MW to 15MW, and for the rental period to be extended to December 2010. Now, if this is indeed true, someone has lots of explaining to do.

In the last few days, the media has reported that the government is proposing the use of MPLT funds to be used as a loan to assist CUC in funding the Aggreko contract. So obviously, CUC does not have the internal resources, as Speaker Arnold Palacios and other legislators were led to believe. If this is a straightforward request for funds, why was the contract executed first before funding was identified? Whoever certified the availability of funds and those who executed the contract is either unwittingly or deliberately executing another illegal contract. I hope Aggreko reads this letter. If they still decide to send the engines, well, there will be no financial recourse against the CNMI for trying to enforce an illegal contract.

The media has reported Telesource claiming that they can provide the necessary temporary power to CUC for half the cost. If CUC and the Executive Branch claim that CUC is severely cash-constrained, how is it that such cost-savings are not being considered? Now, note, for the 10MW contract, CUC will have to pay Aggreko, the sum of $4.02 million, or for the change order, it will be a total contract sum of $9.07 million. Let’s give Telesource the benefit of the doubt, and the savings to the CNMI will be $2.01 million for the original contract, or $4.5 million for the expanded Aggreko contract. How can CUC or the Administration afford to ignore such cost savings?

But I suppose, why should anyone be surprised? Let me tell the public something. In December 2007, I met the Secretary of Finance, the Lieutenant Governor and the former CUC Director to discuss the idea of rehabilitating Power Plant II. Power Plant II is located just 15 meters behind Power Plant I. It comprises six EMD machines running at medium speed, and if rehabilitated could provide 15MW backup power. I know the condition of the plant, as I had offered to rehabilitate it also during the Babauta Administration and but did not receive the support to complete it.

As requested by the Secretary of Finance, I submitted a proposal in mid-December 2007 to CUC in which I offered financing for the rehabilitation and completion of works within 45 days. There was no risk to the CNMI, as there were no parts to purchase by CUC, no employees to hire, no mobilization to pay, and the risks were on me. I had financing available from overseas investors who are prepared to risk their money to help CUC. Some of the retired and qualified local mechanics who has unquestionable background in power plant operations would be involved. At that time, no one disclosed to me that CUC had already entered into a contract with CISCO to repair Power Plant II. Maybe, the meeting was just a free consultation to learn about managing utilities, and the proposal they asked me to submit was just an excuse.

Well of course, until today, I have no answer regarding my proposal. CUC it seems prefer to pay mobilization fees, pay the 0.05 cents per kWh for an old fleet of high-speed engines that consume more fuel, and ignore a proposal where the government did not have to spend any money up-front.