The Micronesian Alliance
Fuel Crisis Gives Way to Fuel Crunch in Kosrae
November 01, 2005

The Micronesian Alliance

OKAT, Kosrae - Like a stiff slap in the face, a full-blown fuel shortage endured by a majority of average citizens for a three month period has turned into a major fuel crunch, as prices have jumped to an average of nearly $4 per gallon of gasoline on the island. The island-wide fuel shortage came to an end last month due to an emergency shipment of fuel delivered by the Mobil fuel supplier out of Guam.

For an already struggling economy hampered earlier in the year by limited flights and outside transshipments, along with a cash-strapped local fuel supplier, the fuel shortage was particularly frustrating to many of the island's residents who have also had to absorb the sharply increased fuel price hike in recent months - up from $1.85 less than a year ago. At its height the fuel shortage created lines around the island that stretched for over 50 cars in length, with a wait that lasted up to six or seven hours in many situations.

As to how the island came to these ends, the short answer is that the state's local fuel supplier, Micronesia Petroleum Corporation (MPC), simply does not have enough hard cash to purchase fuel. Kosrae is the only state within the FSM that operates it's own semi-independent middle-agent fuel supplier. Chuuk, Pohnpei and Yap continue to allow Mobil to operate their respective fuel operations. Kosrae broke from Mobil in November 1996 to form MPC. MPC has struggled. So have local consumers in recent months, who have had to deal with tighter fuel supplies and higher prices .

In September, a Mobil fuel tanker dispatched from Guam arrived at the MPC fuel farm and unloaded just under 50,000 gallons of usable petrol. In an interview with V6AJ Public Radio's broadcast manager, Filmore Timothy, MPC manager Weston Luckymis stated that the special delivery of nearly 50,000 gallons of fuel by Mobil would be resold by the island's fuel wholesaler for $2.80 per gallon to the fuel retailers of the island. An instant increase of .40 cents per gallon of fuel. "We are going to be careful not to let the price run away from us," stated Luckymis and added, "There has been such a large increase in the price of fuel in such a short time already." Once sold to the 26 fuel stations on the island, drivers were paying upwards of $3.25 per gallon, an amount that hit people hard in an already reeling economy due to the limited flight schedule to the island from late May to From page 1 early September this year.

Asked by Timothy whether the higher prices would remain in effect once MPC was able to "resume regular delivery" of fuel to the island, Luckymis responded that he could not say at that time whether petrol would continue to increase in price or be lowered. In late October, a much anticipated second shipment of gasoline (210,000 gallons) and diesel fuel (53,040 gallons) arrived from South Korea, via South Korea (SK) Shipping Company. It was announced almost immediately by MPC that their selling price to the fuel retailers of the island would go up by nearly a $1.00, with the direct result being a huge price hike with most retailers now selling fuel between $3.75 and $4.00 per gallon. The Caroline Voyager, the large passenger and cargo ship that serves the FSM and its hundreds of islands, also arrived to Kosrae in late September, carrying some 50 barrels of fuel, or about 300 gallons. Together, the various shipments - many of which were negotiated by Governor Rensley Sigrah and his administration - have put a collective halt on the fuel shortage.

Important questions remain among the public at large: When will the next crisis hit? and How much higher will the price of fuel go? "To me the problem is over," stated Filmore Timothy, the local government radio station manager, whose broadcast team, led by former Alliance reporter Weyler Talley, had been running daily news updates on the fuel crisis. "I think our (government leaders) know the problem and they will be able to deal with it so that we don't face this again."

Efforts have been made and are ongoing by government officials, MPC and the local utility, Kosrae Utilities Authority (KUA), to try and solve the problem in a permanent manner. KUA, as MPC's single largest diesel fuel purchaser, has a vested interest in consistent and affordable fuel. Barely breaking even on its own costs of producing diesel-generated electricity, the last two months in particular have seen a nearly doubling in power payments for most consumers due to the higher fuel prices , as seen through KUA's Fuel Adjustment Credit (FAC). It is not a trend that it's General Manager, Fred Skilling, wants to see continue. Skilling and the KUA board agreed to front the cash-strapped MPC the $200,000 required to purchase the last shipment of fuel from SK Shipping Company, dipping into some of its own cash reserves. According to Skilling, there have been talks to assist MPC purchase another 3,000 metric tons of fuel.

Senator Carson Sigrah of the 8th Kosrae State Legislature (KSL) also introduced a bill during the 14th Special Session that would see the merger of MPC and KUA entirely, or rather, would force MPC to become a division under KUA. According to Sigrah, his decision to introduce the bill was based in part on a report conducted by the Legislature's in-house economist concluding that MPC is highly indebted, its capacity to loan is weak, it's sales base is too narrow, and that it needs new sources of capital to assist its cash flow.

"It's about time we do something," states Sigrah. "The thought was that if we merge MPC and KUA, with some of the overheads decreased, we could do something to change what is currently happening." The Senator from Tafunsak added that the State could not continue to "bail out" MPC as it did earlier this year with a $300,000 capital infusion, just prior to Continental declaring a limited flight schedule to the island due to what it deemed substandard aviation fuel for its airplanes at the MPC fuel farm in Kosrae.

The outcome of a hearing on the issue of the merger - attended by Governor Sigrah, members of the KSL and both the Boards and General Managers of MPC and KUA - has called for "a further feasibility analysis" to be conducted before any decisions are reached. According to Senator Thurston Siba, Chairman of the Resources and Development Committee assigned with LB 8-225, resolving the viability of MPC is "the major issue" currently before the KSL and the State at large.

Recent trends might indicate a stiff reality for consumers when it comes to purchasing fuel, which, like nearly every o ther developing island in the Pacific, has become the foundation and cornerstone of everyday life - a necessity even. Meanwhile, price increases over the last year continue to create a consumer crunch.