October 31, 2007

The Kaselehlie Press

Mobil Oil of Micronesia, Incorporated (MOMI) President Karnal Singh in a letter to Pohnpei Governor Johnny P. David said that while the lease of facilities in Chuuk and Yap will soon expire, MOMI holds a valid lease on Pohnpei facilities that is not due to expire for another 16 years.

The letter, dated October 11 was written to "reiterate MOMI's position and outline the benefits of the proposed consolidated approach." According to the letter the FSM Fuel Task Force (FTF) and Pohnpei State representatives met with Mr. Singh on October 6 to discuss potential concerns raised by Pohnpei State regarding the proposed MOMI assets sale to the newly formed FSM Petroleum Corporation (FSMPC).

The FSM Fuel Corporation was established by the FSM Congress on September 7 of this year. According to FTF members a loan package from the Bank of Guam would enable the new corporation to purchase MOMI's assets in the States. The loan agreement would require the participation of all four States.

Pohnpei State, though Lt. Governor Jack Yakana, along with representatives of all the States signed a Chief Executive Council resolution endorsing the FSM Fuel Corporation. That resolution was transmitted to Congress who passed the Bill establishing the corporation though Pohnpei State Senators expressed real surprise that Yakana had signed the resolution. Shortly afterward, Pohnpei State expressed to the National Government, its intention to move forward on a separate plan.

Mr. Singh said in his letter that MOMI's "strong preference still remains the sale of assets to FSM Petroleum Corporation as the negotiated terms and conditions reflect a thoroughly considered and consolidated approach to the future supply of fuel to FSM." He said that the negotiations had been in process for a year and that Pohnpei State had representatives in the process of negotiation. He said that all parties had incurred substantial costs in the process of finalizing the agreements. In a bulleted list Singh enumerated some of the benefits of the negotiated "all inclusive" approach. He says that though, MOMI has a valid lease that doesn't expire for another 16 years, the proposed asset sale to FSMPC is consistent with Pohnpei State's vision to own terminals some 11 years earlier than the expiry of the lease.

He says that should MOMI continue to operate its business directly in Pohnpei as their lease would allow them to do, some of the "off-shore overhead and support costs presently borne by the three States party to the 1996 Fuel Contract will have to be borne by Pohnpei on a stand alone basis, with the transition to the new operating model of Yap and Chuuk." This would increase Pohnpei's cost which would ultimately have to be passed along to the consumer. The cost for a gallon of unleaded fuel at the pump for Pohnpei is currently $4.48 having jumped 18 cents in the last three weeks. PUC is charging 37 cents per kilowatt hour for electricity. 27 cents of that price is for fuel cost. A spokesman for PUC said that the price is due to increase very soon.

Singh continued his bulleted list by saying that though MOMI had negotiated a bundled sale of their assets at a 40% discount off the asset valuation which was performed by the global and reputable real estate corporation CB Richard Ellis, they are not required to give the same deal to any third party including Pohnpei.

He said that if Mobil assets are sold on "an unbundled basis" and separate deals are to be negotiated, the higher asset price would equate to higher financing costs which would then be necessarily passed to the consumers. He pointed out that if the price of fuel was higher in Pohnpei than in other ports it could potentially divert marine traffic to other ports where fuel is cheaper which would in turn decrease the amount of revenue collected in tax by the State.

Singh said that the bundled approach was designed to spread the overhead and support costs to all of the States in order to keep fuel costs down as much as possible. He specifically mentioned the provision of Technical Support by Mobil for aviation operations by the four States. Pohnpei would have to pay that cost separately if they arranged a separate deal with MOMI.

He said that MOMI agreed not to pass on the costs they have incurred during the negotiations and during the preparations for the transition prior to change. "This concession," he said, implying that Pohnpei's change of heart is the cause, "cannot carry on in the face of continuing delays."

Singh strongly urged the "Leadership team" to resolve their internal differences as soon as possible in order to avoid "the potential loss of a win-win opportunity for all parties concerned...Most importantly, FSM consumers, including the Pohnpei community, are the ultimate beneficiaries of the new arrangements. They also stand to be the losers if this unique opportunity passes by due to misalignment of the States' interests."

Governor Anefal of Yap has been authorized to sign off on the plan despite the State's earlier misgivings. Lt Governor Jack Yakana said in a very brief moment after the COM Candidates' Forums that Pohnpei is still "very serious" about their stance on the FSM Petroleum Corporation and its implications for Pohnpei.