August 16, 2006

The Kaselehlie Press

Top FSM government officials convened last month to discuss major issues confronting the nation, chief among them delays in infrastructure development, negotiations on the fuel supply agreement and mismanagement of the Compact Trust Fund.

The Second Meeting of the Chief Executives took place in Palikir July 17 - 20. Participants included President Urusemal, Vice President Redley Killion, Chuuk Gov. Wesley Simina, Kosrae Gov. Rensley Sigrah, Pohnpei Lt. Gov. Jack Yakana and Yap Lt. Gov. Joseph Habuchmai.

The conference - an offshoot of the Economic Policy Implementation Council (EPIC)- brings FSM leaders together in order to provide them unified briefings on topics of national interest and to allow for collaboration and collective action on crucial matters. Sigrah chaired this year's conference.

The issue of infrastructure appears to have predominated.

According to participants, concern was uniformly expressed about delays in the progress of Compact-funded infrastructure development. "People are kind of frustrated over the case of the implementation of infrastructure projects," commented Yakana.

So frustrated that, in fact, the state of Pohnpei has halted several pending projects, including the construction of at least two schools. Yakana said the state is dissatisfied with, in addition to delays, what it views as unnecessarily rigorous - and costly - standards imposed by the country's project management unit.

"We believe it is more cost than we can afford," said Yakana regarding the expense to support GMP Hawaii, Inc., the PMU. "The huge difference in cost is something we can not understand."

Sigrah cited setbacks of up to three years on some projects in his state of Kosrae, mentioning schools and roads in particular. "That is definitely impacting on the economy. We are not providing people with what they should be getting right now," he said.

Habuchmai went a step further, supporting termination of the contract with the agency. "Yap has been very vocal on the present arrangement in trying to establish a model that will be sustainable in lieu of this one," he remarked.

Habuchmai voiced a fear - based he said on practices in the country during the Trust Territory days - of short-term arrangements with overseas companies that fail to build knowledge in the community.

Habuchmai said members expressed concern about lack of involvement in projects by the individual FSM states. In the past, he said, it has been customary for states to handle infrastructure projects on their own. Their concurrence on the subject led to an official request for the government to hire additional engineers to be placed in each state in an effort to build capacity and to hasten progress on projects.

The men said there were also murmurs of discontent about possibly improper application and bidding procedure that led to selection of GMP to oversee implementation of infrastructure projects.

Urusemal, Killion and Simina were unavailable for comment.

GMP signed a five-year, $1 million contract with the national government to be the PMU in May 2005, with funding applicable only for the first two. According to the agency, it completes projects by a turnkey arrangement. This means it designs and fully prepares projects - including fully furnishing and outfitting them, if applicable - for immediate use by clients. The agency also has a contractual commitment to train local contractors. It abides by U.S. and international building codes.

Currently GMP has 20 projects in the FSM including the stalled Pohnpei projects. Separately, the agency also has a contract with the U.S. Federal Aviation Administration to rehabilitate and improve FSM airports to comply with its requirements.

Secretary of the FSM Department of Transportation, Communication and Infrastructure Andrew Yatilman acknowledges the conflicts over his department's selection of GMP to oversee implementation.

In fact, he says, the government currently awaits a report based on an U.S. Office of Insular Affairs review of the contract with GMP. The review, which took place earlier in the year, came in response to a letter OIA received concerning the matter. The OIA is a division of the U.S. Department of the Interior, responsible for administration and oversight of the Compact.

While Yatilman points out that each state endorsed the idea of a centralized PMU during the country's 3rd Economic Summit in 2004, he agrees the country would benefit from having more of its own people closely involved with the process.

Participants said conference members also voiced concern about rising fuel costs and fuel arrangements with Exxon Mobil Corp., the region's sole provider. As a result, they wrote a letter to the corporation voicing objection to the company's alleged third-party pricing negotiations and proposing possible buyouts of the country's fuel farms.

"There is definitely need for more suppliers," said Sigrah. "I think the current negotiations are trying to get to that point." Sigrah expressed optimism, however.

"The discussion on fuel, I saw movement forward to reaching something," he said.

Conference members also conveyed dissatisfaction with administration and oversight of the Compact Trust Fund. A recently issued report of the FSM National Public Auditor's office indicated significant shortcomings in management of the funds.

"We found that the TFC [Trust Fund Committee] has not provided needed leadership, communication and coordination to meet the requirements of the Agreement [the Compact]," the auditor's report details.

"These actions resulted in a lower than expected income for the first years of the Trust Fund," it continues. "Specifically, for Fiscal Years 2004 and 2005 the Trust Fund only earned a 2.23 percent rate of return, while even a conservative investment strategy in 2003 forecasted a 6 percent rate of return."

The Compact Trust Fund was established to provide an ongoing source of financial assistance to the FSM upon termination of Compact II in 2023. The TFC is composed of the same membership as the Joint Economic Management Committee, or JEMCO.

According to Habuchmai, a letter is in circulation among conference participants that they intend to send to JEMCO with their concerns.

Conference participants were also briefed on topics such as the Pacific Island Countries Trade Agreement, a recently signed extradition treaty, the grim financial status of MiCare and significant grant opportunities available through China and Japan.

Sigrah said he has already noticed change. "There is speed now," he said. "Involved departments are after people to get things moving."

"I can sense things moving to better places," said Sigrah. "I think we should never stop coming together and seeing eye to eye about issues"

"Whatever is sensitive, let's get it out in the open," said Habuchmai.