After a two-hour discussion the Consolidated Commission on Utilities voted unanimously on May 25 to privatize the Guam Waterworks Authority through a concession agreement.

Nevertheless the U.S. EPA will continue to hold Guam to the conditions of the stipulated order.

Simon A. Sanchez II president of Guam Dry Cleaners and chairman of the commission said members voted for a management solution that would not involve the government in running the authority. “That was one of the leading reasons to have a system that will survive changes in political leadership — we wanted something that would outlast all of us.”

Under a concession agreement a contractor would run the agency and directly employ a work force. Employees would be expected to come from the agency’s pool of employees. Sanchez said “It would not be expected that all employees would be hired permanently. Various solutions are being mooted to ensure the contractor has all the talent he needs and to work on a severance package for those not retained.” Sanchez said any early-out program would be funded by the contractor.

The commission and representatives of Guam’s business community met with privatization consultants hired by the commission on May 21.

Kelly Malone partner at Hunton & Williams; and William Cole senior vice president for the enterprise consulting division of Black & Vetch Corp.; were on Guam on May 20 and 21. Hunton & Williams — a law firm — and Black & Vetch — an engineering company — have expertise in privatization consulting to a number of large international projects. Black & Vetch which built the Tanguisson power plant and worked on GPA transmission lines consulted with a local partner — Duenas & Associates engineering company.

The initial retainer for the first phase of consulting was $25 000. Sanchez said consulting costs would increase significantly. “We anticipate the total could reach $1.5 million when all is said and done.” He said Duenas & Associates would continue in a local support role to the consultants but would not be involved in the writing of the request for proposals.

Cole said during his visit he had absorbed community concerns as well as presented and explained privatization considerations. “Part of our consultantcy role is to support in every way appropriate GWA and their parent the CCU and advise on what the options are how they transpire and the best path forward. But we have listened carefully the last few days.”

Cole said he would discuss the choice the commission made with the U.S. Environmental Protection Agency as soon as Sanchez “sends me an e-mail that says ‘We voted and this is what the commission thinks we should do.’”

Privatization would take at least 18 months Cole told the Journal. “In a perfect world — 18 months in an imperfect world with lawyers involved and lots of lawsuits — take your pick.”

The governor the legislature the attorney general and the U.S. EPA would have to approve the contract. A concession agreement would require the private company to provide its own funding would likely be a long-term agreement and would mean less government control.

Gov. Felix P. Camacho supported the commission’s decision. A press release sent out after the commission meeting quoted the governor as saying the concession model was “clearly the best option for Guam.”

Sanchez said “Bidders would have to bid less than 100% of projected government rates. The worse the authority is run the more attractive we are to bidders. Improving the system makes the competition for the best rate even more keen.”

The consultants will advise on questions such as “best practices and unseen pitfalls.” The additional party to the privatization would be the financial adviser — Bank of America Securities.

Cole said timing could vary enormously particularly “given the time that you have to give the bidder to do the due diligence.” Any potential bidder would be expected to examine carefully the authority’s network — everything from condition of pumps and pump stations to pipes. He said having the Navy and the Air Force as additional potential business sources would make Guam “a more attractive possibility. The larger the footprint the more valuable the concession.”

Sanchez said the commission was trying to avoid a situation similar to Guam Telephone Authority’s privatization attempts where one bidder had stepped forward. “That’s why we look to Black & Vetch and Hunton & Williams — because of their expertise.”

Sanchez said the community might not view privatization as inevitable if certain scenarios occurred — if the authority was meeting its community obligations and citizens were happy with the service. He said “If we are meeting the stipulated order there are plenty of opportunities along the way to say stop time out or let’s make the call.”

Ben Machol Guam program manager for the U.S. Environmental Protection Agency Region 9 in San Francisco Calif. told the Journal officials in Guam are responsible for deciding the way forward.

He said “From our standpoint the choice whether or how to privatize is a Guam decision. Many forms of privatization and public/private partnerships have been implemented in communities across the country.”

Machol said “There are positive and negative case studies associated with each form. The decision is a complicated one and requires careful consideration and a full understanding of the benefits and potential consequences of the alternatives.”

Ongoing progress toward privatization would not detract from the U.S. Environmental Protection Agency’s stipulated order for the waterworks agency.

Sanchez said the commission would now meet with Bank of America Securities to look at borrowing $60 million for necessary upgrades. Funding would ideally be achieved by the end of the calendar year. He said the commission would now work on a two-to three-year time line for improvement rather than a three-to five-year time line. “By next year major projects would begin — some have a two-year time line some have less.”

A meeting was held between the commission and GWA employees on May 25 to discuss the reorganization of the authority as required under the stipulated order. Employees were given copies of the reorganization plan and the privatization presentation.

The reorganization calls for two divisions: collection and distribution responsible for pipes pumps pumping stations and repair for water and waste water; and production and treatment responsible for wells and water and wastewater treatment; as well as a financial-services unit and the office of the general manager.

The consultants had met with Gov. Felix P. Camacho Sen. Vicente C. “Ben” Pangelinan speaker of the 27th Guam Legislature Rear Adm. Arthur Johnson commander of Naval Forces Marianas. A presentation was given to members of the commission GWA officials member organizations of the Committee to Get Guam Working (the Guam Chamber of Commerce the Guam Hotel & Restaurant Association the Employers Council and the Guam Contractors’ Association) and the Japan Guam Travel Association the chamber’s Committee on Outsourcing and Privatization and the Mayors Council.

Machol said “Regardless of the method selected EPA will continue to require GWA to quickly move toward complete compliance with the Safe Drinking Water Act and the Clean Water Act.”

The U.S. EPA fined GWA $11 000 for not completing requirements under a stipulated order to improve three of the public utility’s water systems by March 9. GWA was required by a June 2003 federal order to develop an interim disinfection program for the water systems. The authority submitted a draft plan that needed further revisions to meet the requirements of the original order and was given until late February 2004 to submit a revised plan.

Meanwhile the Guam Environmental Protection Agency expects to issue a violation notice to the waterworks authority for violations concerning a water well in Tiyan. Christopher A. Lund chief engineer at the agency on May 25 told the Journal “The primary reason at this point is we expect to issue a notice of violation on their reporting requirements. They need to notify us if there’s any level over the standards.” The violation was under the Guam Safe Drinking Water Act. MBJ