CUC, according to Mobil, must pay in cash for future fuel purchases.
Mobil offered alternatives but they are not feasible, CUC Executive Director Tony Muna told Variety.
CUC must come up with cash if it wants to get an uninterrupted fuel supply from the oil firm.
One of the options that Mobil offered was to offset CUC’s fuel purchases against the taxes it owes to the CNMI government.
Muna said there are legal impediments involved with this option.
“We’re at a stalemate,” he said.
In a letter to Muna, Brian Bamba, Mobil’s commercial manager, said: “While we will consider 60-day credit terms, it will be on a fully secured basis, in addition to the current (letter of credit) with the Bank of Guam. We will not charge CUC for the additional financing costs of over $60,000 for providing this extended credit facility.”
“Alternatively,” he added, “Mobil is willing to consider an additional $2.5 million in credit to CUC, on the premise that the CNMI government provides Mobil with an irrevocable right to off-set Mobil’s gross receipts tax, should CUC default on its fuel obligations to Mobil.”
CUC asked last month Mobil for a 60-day credit term, noting that it had paid the oil firm close to $80 million in cash for its fuel supply since Oct. 2007.
Muna said this showed the CNMI government’s good faith effort to meet its financial obligation to Mobil.
He said CUC’s different billing cycles and the fact that consumers have reduced their electric consumption make it difficult for the agency to come up with cash.
CUC’s difficulty to buy fuel caused islandwide blackouts in the past.
The agency buys over 1.95 million gallons of fuel for its power plants on Saipan, Tinian and Rota.
“We acknowledge the difficulties CUC has faced in meeting its fuel bills because of the rate caps imposed by the CNMI Legislature coupled with equipment reliability issues and the general downturn in Saipan’s economy,” said Bamba.
But he said Mobil has been very considerate to CUC.
CUC, he added, has been buying small amounts of oil and this impacts Mobil’s available inventory for its other customers on Saipan.
“The resulting logistics deoptimization and loss in profitability from other sectors, is directly attributable to CUC’s current situation,” Bamba said. “To date, Mobil has incurred over $300,000 of additional costs as a direct result of CUC’s situation.”
He added, “Based on CUC’s currently monthly off-takes, these additional costs to Mobil are expected to rise by another $350,000 by year end.”
