"Supreme Court Says That the Contract was Illegally Negotiated, Grants a TRO"

February 06, 2008

The Kaselehlie Press

Palikir, Pohnpei - Pohnpei Utilities Corporation says that it has been having difficulties with Mobil Oil of Micronesia, Inc. since March of 2007 when the company announced that it was changing the terms of its contract. At that time MOMI told PUC, then under the leadership of General Manager Marcellino Actouka that the duration of their fuel supply contract would be through the end of June 30, 2007, that they would not extend two more weeks of credit to the Utility, and that all fuel must be purchased on a pre-pay basis.

Pohnpei was abuzz with rumors of Mobil's eminent closure and what would surely be an energy disaster of epic proportions that would begin the first day of July. The disaster never occurred and the fuel supplier renewed the contract for two more quarters with the last quarterly extension ending on December 31.

PUC's attorney Joe Phillip in recent court documents said that it was only after constantly calling MOMI for a further extension that the fuel supplier granted them another 30 days.

MOMI said in its arguments that it has been in negotiations for over a year to sell their assets to the FSM Petroleum Corporation now known as PetroCorp. They say it went to shortened contract lengths in order to quickly facilitate the transfer if it ever happens.

They are ostensibly waiting for Pohnpei State to agree to the arrangement. No one knows if Pohnpei State will ever agree.

Depending on whose version of the facts you follow, PUC's attorney or their bid committee, a Request for Proposal for diesel was sent to six fuel suppliers on December 11 or 13 including Mobil Oil Micronesia, Inc. What became known as the RFB (Request for Bid) document was 32 pages long and called for fuel suppliers to bid for supply of diesel to PUC for the period of one year. PUC estimated that it would use approximately 2.8 million gallons of fuel in that time.

PUC is required by law, for expenditures over $25,000 to issue a request for bids and to take the lowest responsible bid from among them. PUC followed the law when they issued the RFB for diesel.

According to a January 30 ruling by FSM Supreme Court Justice Andon L. Amaraich, PUC ran afoul of the law when they began outside negotiations with a third party for supply of fuel to the Utility. In his order he said, "It is not in dispute that the January 11, 2008, contract was entered into in violation of Pohnpei state law."

On January 15 Brian Bamba, Commercial Manager for MOMI wrote a letter to PUC General Manager Nixon Anson expressing his concern that the RFB process had been circumvented by a rumored agreement with a third party vendor prior to the announced date for bid openings.

Anson responded on the 16th and said that PUC had signed what he called an "MOU" (Memorandum of Understanding) with another supplier. He said that the bid process was still ongoing and that the signing of the MOU "was to secure 'open competition' that would otherwise be lost because of hostile maneuvering."

He said that he was not at liberty to discuss the details of the MOU because the bid process was still going on. Essentially he told Bamba that if MOMI submitted a "much preferential offer" they would get the contract. He said that the MOU that PUC signed was not exclusive unlike the contract they had with MOMI.

Bamba underlined in his letter, "I would like to stress that we are still interested in your reliable supply but in a manner that will provide open competition for all."

On the day that PUC had announced as the date that bids would be opened MOMI filed a lawsuit because the process, in their view had been anything but open in terms of competition and in fact PUC had acted to eliminate MOMI's possibility of competing fairly for the fuel supply.

This step was undertaken only after MOMI tried to point out to PUC and its legal counsel through correspondence the problem of their violation of 34 P.C. 1-112 of Pohnpei state law. The lawsuit asked for a Temporary Restraining Order against the RFB process which they called a sham because of the agreement with a bidding party twelve days before the bids were to be opened. They also asked for a preliminary injunction to legally disallow the agreement made with the third party. Simultaneously they filed a motion that would set aside the agreement between PUC and the third party if the court finds for the plaintiff.

Over the course of the next five days, PUC's lawyer, Joe Phillip filed to dismiss the civil actions filed by MOMI. MOMI's local counsel Fred Ramp countered the arguments of Phillip. The pleadings and exhibits amounted to over a hundred pages. MOMI and PUC met before the Supreme Court on the 28th of January. The final PUC filing before Chief Justice Amaraich ruled on MOMI's request for a TRO and Preliminary Injunction was submitted by Attorney Phillip at 4:15 on the afternoon of that day.

It included a copy of the "MOU" between PUC and B&ST Co. Ltd with an address in Seoul, Korea.

The "MOU" turned out to actually be a three year Bunker (a container or compartment for storing fuel such as on a ship) Supply Contract for fuel supply signed on the last full business day of former Governor Johnny David's administration, Friday, January 11. It was signed by then Governor David, the Chairman of the PUC Board Nelperson Etse, PUC General Manager Nixon Anson, PUC Comptroller Kelly Keller, PUC Legal Counsel Joe Phillip, Esquire, and the Vice President of B&ST Co. Ltd. At the time Salomon Saimon was Pohnpei State's Acting Attorney General. He signed the contract "as to form, and legal sufficiency."

The contract says that B&ST will sell diesel fuel to PUC at a cost of $25 per barrel (a barrel is 42 gallons) above a four day average of the cost of the fuel when loaded onto the tanker. The price will be set according to the Platts Asia Pacific/Arab Gulf Marketscan under the Singapore heading for Gasoil Reg 0.5. B&ST Co. Ltd. under the contract is to supply a barge with capacity of at least 270,000 gallons of fuel which will be moored in Pohnpei harbor at PUC's expense at a port area yet to be designated by the Pohnpei Port Authority. Expenses mentioned in the contract were mooring, unmooring, port dues, port charges, pilotage, tuggage and applicable transportation taxes incurred by the Seller in the delivery of the fuel.

Survey and insurance for the storage barge is to be done at B&ST's expense. However, the fuel in it, once it is delivered will be PUC's responsibility if there is any loss. B&ST under the contract has also agreed to provide a delivery truck to get the fuel from the barge and deliver it to PUC's fuel depot.

Mr. Phillip, when submitting the contract document to the court argued one more time that the fuel supply with Mobil ends on Thursday, January 31, 2008. He said that PUC had, that morning purchased from Mobil 100,000 gallons of fuel at a cost of $406,000. The purchase order they had placed with B&ST for its first delivery which had been scheduled to arrive on February 5 was for 200,000 gallons of fuel at a price of $614,000. He said that PUC is now importing its own fuel at $200,000 less than what Mobil currently charges PUC.

Pohnpei State did not sign a contract with anyone for the delivery of fuel for vehicles or for jet fuel. If the contract between PUC and B&ST stands then there will be two tankers to deliver fuel for Pohnpei. Officials have been unable to determine whether the price of gasoline for cars or kerosene for jet fuel will rise as a result. Amaraich, in his four and half page judgment granting the temporary restraining order among other things said essentially that the question is not whether or not PUC will save money. The question was whether or not PUC could have saved more money if they had followed procedure to allow for competition.

"But that did not happen. As a result the contract in question is open to speculation, including speculation whether B&ST Co., Ltd., offered its lowest price, since it was not offering that price in competition with any other bidders." He said that he could think of no reason why B&ST could not have submitted the proposal that was reflected in the January 11 contract competitively as a bid pursuant to the requirement of Pohnpei State law.

Amaraich ruled against all of the arguments offered by PUC in its motion to dismiss and granted the Temporary Restraining Order. He said that there was nothing to prevent PUC from initiating an entirely new bid process as opposed to merely continuing the process tainted by the January 11, 2008 contract. PUC has already begun that process. Amaraich said that B&ST can bid along with any other bidders during the new process.

As a result of the ruling PUC is enjoined (barred) from proceeding on the RFB for Diesel Fuel Supply that PUC let for bidding in mid-December. PUC is enjoined from "proceeding in any way directly or indirectly to perform, or receive performance under, that contract entered into between PUC and B&ST Co., Ltd. on January 11, 2008. Lastly, PUC is "enjoined from soliciting, entertaining, or negotiating directly or indirectly for any contracts for the supply of fuel to PUC except those contracts that are solicited in compliance with the procurement provisions of 34 P.C. 1-112."

The temporary restraining order is in effect until February 12 at 10:00 at which time the matter is set for further hearing.